Comm Rev 1-SRC

COMMERCIAL LAW REVIEW I
1. G.R. No. 138949
[SECURITIES REGULATION CODE (RA NO. 8799]
June 6, 2001
UNION
BANK
OF
THE
PHILIPPINES, petitioner,
vs.
SECURITY AND EXCHANGE COMMISSION, respondent.
PANGANIBAN, J.:
The mere fact that petitioner, in regard to its banking functions, is
already subject to the supervision of the Bangko Sentral ng Pilipinas
does not exempt the former from reasonable disclosure regulations
issued by the Securities and Exchange Commission (SEC). These
regulations -- imposed on petitioner as a banking institution listed in
the stock market -- are meant to assure full, fair and accurate
information for the protection of investors. Imposing such regulations
is a function within the jurisdiction of the SEC.1wphi1.nt
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court, challenging the November 16, 1998 Decision2 of the
Court of Appeals (CA) in CA-GR SP No. 48002. The dispositive portion
of the assailed Decision reads as follows:
"GIVEN THE FOREGOING, the assailed Orders dated November
5, 1997 and April14,1998 are hereby AFFIRMED, with the
MODIFICATION that petitioner is assessed a single fine of
FIFTY THOUSAND (P50,OOO.00) PESOS plus FIVE HUNDRED
(P500.00) PESOS beginning July 21, 1997, for each day of
continuing violation."3
Likewise assailed is the May 31, 1999: A Resolution, 4 which denied
petitioner's A Motion for Reconsideration.
The Facts
The court a quo summarized the antecedents of the case as follows:
"Records show that on April 4, 1997, petitioner, through its

General Counsel and Corporate Secretary, sought the opinion
of Chairman Perfecto Yasay, Jr. of respondent Commission as to
the applicability and coverage of the Full Material Disclosure
Rule on banks, contending that said rules, in effect, amend
Section 5 (a) (3) of the Revised Securities Act which exempts
securities issued or guaranteed by banking institutions from
the registration requirement provided by Section 4 of the same
Act. (Annex "C", p. 20, Rollo).
"In reply thereto, Chairman Yasay, in a letter dated April 8,
1997, informed petitioner that while the requirements of
registration do not apply to securities of banks which are
exempt under Section 5 (a) (3) of the Revised Securities Act,
however, banks with a class of securities listed for trading on
the Philippine Stock Exchange, Inc. are covered by certain
Revised Securities Act Rules governing the filing of various
reports with respondent Commission, i.e., (1) Rule 11 (a)-1
requiring the filing of Annual, Quarterly, Current, Predecessor
and Successor Reports; (2) Rule 34-(a)-1 requiring submission
of Proxy Statements; and (3) Rule 34-(c)-1 requiring
submission of Information Statements, among others. (Annex
D, P, U, Rollo).
"Not satisfied, petitioner, per letter dated April 30, 1997,
informed Chairman Yasay that they will refer the matter to the
Philippine Stock Exchange for clarification. (Annex E, p. 22,
Rollo)
"On May 9, 1997, respondent Commission, through its Money
Market Operations Department Director, wrote petitioner,
reiterating its previous position that petitioner is not exempt
from the filing of certain reports. The letter further stated that
the Revised Securities Act Rule 11 (a) requires the submission
of reports necessary for full, fair and accurate disclosure to the
investing public, and not the registration of its shares. (Annex
F, p. 23, Rollo).
"On July 17, 1997, respondent Commission wrote petitioner,

enjoining the latter to show cause why it should not be
penalized for its failure to submit a Proxy/Information
Statement in connection with its annual meeting held on May
23, 1997, in violation of respondent Commission's Full Material
Disclosure Rule.' (Annex 6, p. 24, Rollo ).
"Failing to respond to the aforesaid communication, petitioner
was given a '2nd Show Cause with Assessment' by respondent
Commission on July 21, 1997. Petitioner was then assessed a
fine of P50,000.00 plus P500.00 for every day that report [was]
not filed, or a total of P91,000.00as of July 21, 1997. Petitioner
was likewise advised by respondent Commission to submit the
required reports and settle the assessment, or submit the case
to a formal hearing. (Annex H, p. 25, Rollo).
"On August 18,1997, petitioner wrote respondent Commission
disputing the assessment. (Annex I, pp. 26-27, Rollo).
"Thus, on November 5,1997, respondent issued the assailed
Order, the dispositive portion of which provides:
"In view of the foregoing, the appeal filed by the Union
Bank of the Philippines is hereby denied. The penalty
imposed in the amount of P91,000.00 as of July 21,
1997, for failure to file SEC Form 11-A excludes the fine
accruing after the cut-off date until the final submission
of the report. Further, the amount of P50,000.00 shall
be collected for the violation of RSA Rule 34(a)- or
Rule34(c)(1)." (p.17, Rollo).
"Petitioner sought a reconsideration thereof which was denied
by respondent Commission per assailed Order dated Apri14,
1998, the dispositive portion of which reads:
"There being no new matters raised in the motion for
reconsideration to overcome the denial of the Appeal by
the Commission En Banc in its Order of November 5,
1997, and considering that the reasons advanced are [a]

mere rehash of its defenses duly addressed in the
Appeal, the Motion for Reconsideration is hereby,
DENIED. (p. 19, Rollo)."5
Petitioner then elevated its case to the Court of Appeals which, as
already stated, affirmed the questioned Orders.
The CA Ruling
In its well-written 10-page Decision, the Court of Appeals cited
expertise of Respondent SEC on matters within the ambit the latter's
mandate, as follows:
"To begin with, it is already well-settled that the construction
given to a statute by an administrative agency charged with the
interpretation and application of the statute is entitled to great
respect and should be accorded great weight by the courts,
unless such construction is clearly shown to be in sharp
conflict with the governing statute or the Constitution and
other laws. (Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA
504 [1991], at page 510). The rationale for this rule relates not
only to the emergence of the multi-farious needs of a modern
or modernizing society and the establishment of diverse
administrative agencies for the addressing and satisfying those
needs; it also relates to accumulation of experience and growth
of specialized capabilities by the administrative agency
charged with implementing a particular statute. (Nestle
Philippines, Inc. v Court of Appeals, ibid., at pp. 510-511)
"In this regard, the Supreme Court, in Philippine Stock
Exchange v. Securities and Exchange Commission, et. al., G.R.
No.125469, October 27, 1998, already upheld the power of
respondent Securities and Exchange Commission to
promulgate rules and regulations, as it may consider
appropriate, for the enforcement of the Revised Securities Act
and the other pertinent laws. Thus, pursuant to their
regulatory authority, respondent Securities and Exchange
Commission adopted the policy of 'full material disclosure'

where all companies, listed or applying for listing, are required
to divulge truthfully and accurately, all material information
about themselves and the securities they sell, for the
protection of the investing public, and under pain of
administrative, criminal and civil sanctions. While the
employment of the 'full material disclosure' policy is
sanctioned and recognized by the laws, nonetheless, the
Revised Securities Act sets substantial and procedural
standards which a proposed issuer of securities must satisfy.
"Moreover and perhaps most importantly, the construction
given by the respondent Commission on the scope of
application of the 'Full Material Disclosure' policy permits
greater opportunity for respondent Commission to implement
[its] statutory mandate of protecting the investing public by
requiring public issuers of securities to inform the public of the
true financial conditions and prospects of the corporation." 6
The court a quo stressed that Rules 11 (a)-1, 34 (a)-1, and 34 (c)-1
were issued by respondent to implement the Revised Securities Act
(RSA). They do not require the registration of petitioner's securities;
thus, it cannot be said that the SEC amended Section 5 (a) (3) of the
said Act.
Hence, this Petition.7
"C. Whether or not Respondent Court of Appeals gravely erred

in holding that petitioner violated three (3) Rules namely: Rule
11 (A)-1, Rule 34 (A)-1 and Rule 34 (C)-1 of the full disclosure
rule.
"D. Whether or not Respondent Court of Appeals erred in
affirming with modification the imposition of excessive fines in
violation of the Philippine Constitution. 8
In the main, the Court will determine (1) the applicability of RSA
Implementing Rules 11 (a)-1, 34 (a)-1 and 34 (c)-1 to petitioner; and
(2) the propriety of the fine imposed upon the latter.
The Court's Ruling
The Petition is not meritorious.
First
Applicabilitv of the Assailed RSA Implementing Rules
Issue:
Because its securities are exempt from the registration requirements

under Section 5(a) (3) of the Revised Securities Act, petitioner argues
that it is not covered by RSA Implementing Rule 11 (a)-1, which
requires the filing of annual, quarterly, current predecessor and
successor reports; Rule 34(a)-1, which mandates the filing of proxy
statements and forms of proxy; and Rule 34(c)-1, which obligates the
submission of information statements.
Issues
We do not agree. Section 5(a) (3) of the said Act reads:
Petitioner submits for our resolution the following issues:
"A. Whether or not petitioner is required to comply with the
respondent SEC's full disclosure rules.
"B. Whether or not the SEC's full disclosure rules [are] contrary
to and effectively [amend] section 5 (a) (3) of the Revised
Securities Act.
"Sec. 5. Exempt Securities. (a) Except expressly provided, the

requirement of registration under subsection (a) of Section
four of this Act shall not apply to any of the following classes of
securities:
xxx xxx xxx
(3) Any security issued or guaranteed by any banking

institution authorized to do business in the Philippines, the
business of which is substantially confined to banking, or a
financial institution licensed to engage in quasi-banking, and is
supervised by the Central Bank."
RSA Rules 11 (a)-1, 34 (a)-1 and 34 (c)-1 require the submission of

certain reports to ensure full, fair accurate disclosure of information
for the protection of the investing public. These Rules were issued by
the respondent pursuant to the authority conferred upon it by Section
3 of the RSA.13
This provision exempts from registration the securities issued by

banking or financial institutions mentioned in the law. Nowhere does
it state or even imply that petitioner, as a listed corporation, is exempt
from complying with the reports required by the assailed RSA
Implementing Rules. Worth repeating is the CA's disquisition on the
matter, which we quote:
The said Rules do not amend Section 5(a)(3) of the Revised Securities
Act, because they do not revoke or amend the exemption from
registration of the securities enumerated thereunder. They are
reasonable regulations imposed upon petitioner as a banking
corporation trading its securities in the stock market.
"However, the exemption from the registration requirement

enjoyed petition does nor necessarily connote that [it is]
exempted from the other reportorial requirements. Having
confined the exemption enjoyed by the petitioner merely to the
initial requirement of registration of securities for public
offering, and not, [to] the subsequent filing of various periodic
reports, respondent Commission, as the regulatory agency, is
able to exercise its power of supervision and control over
corporations and over the securities market as a whole.
Otherwise, the objectives of the 'Full Material Disclosure'
policy would be defeated since petitioner corporation and its
dealings would be totally beyond the reach of respondent
Commission and the investing public."9
It must be emphasized that petitioner is a commercial banking
corporation10 listed in a stock exchange. Thus, it must adhere not only
to banking and other allied special laws, but also to the rules
promulgated by Respondent SEC, the government entity tasked not
only with the enforcement of the Revised Securities Act,11 but also the
supervision of all corporations, partnerships or associations which
are grantees of government-issued primary franchises and/or
licenses or permits to operate in the Philippines. 12
That petitioner is under the supervision of the Bangko Sentral ng

Pilipinas (BSP) and the Philippine Stock Exchange (PSE) does not
exempt it from complying with the continuing disclosure
requirements embodied in the assailed Rules. Petitioner, as a bank, is
primarily subject to the control of the BSP; and as a corporation
trading its securities in the stock market, it is under the supervision of
the SEC. It must be pointed out that even the PSE is under the control
and supervision of respondent.14 There is no over-supervision here.
Each regulating authority operates within the sphere of its powers.
That stringent requirements are imposed is understandable,
considering the paramount importance given to the interests of the
investing public.
Otherwise stated, the mere fact that in regard to its banking functions,
petitioner is already subject to the supervision of the BSP does not
exempt the former reasonable disclosure regulations issued by the
SEC. These regulations are meant to assure full, fair and accurate
disclosure of information for the protection of investors in the stock
market. Imposing such regulations is a function within the jurisdiction
of the SEC. Since petitioner opted to trade its shares in the exchange,
then it must abide by the reasonable rules imposed by the SEC.
Second
Propriety of Fine Imposed
Issue:
Contending that both respondent and the CA erred in imposing an

excessive fine upon it, petitioner complaints that it was not given an
opportunity to be heard regarding the matter.
It bears stressing that the fine imposed upon petitioner is sanctioned
by Section 46 (b) of the RSA, which reads as follows:
"Sec. 46. Administrative sanctions. If, after proper notice and
hearing, the Commission finds that there is a violation of this
Act, its rules, or its orders or that any registrant has, in a
registration statement and its supporting papers and other
reports required by the law or rules to be filed with the
Commission, made any untrue statement of a material fact, or
omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or
refused to permit any lawful examination into its affairs, it
shall, in its discretion, impose any or all of the following
sanctions: xxx xxx xxx
(b ) A fine of no less than two hundred (P200.00) pesos
nor more than fifty thousand (P50,000.00) pesos plus
not more than five hundred (P500.00) pesos for each
day of continuing violation."
Petitioner complied with RSA Rule 11 (a)-1 on April 30,1998. To date,
it still has not complied with either RSA Rule 34 (a)-1 or Rule 34 (c)-1.
That there was a failure to submit the required reports on time is
evident in the present case. Thus, respondent was justified in
imposing a fine upon it.
We reject the contention of petitioner that it was not heard on the
matter of the fine imposed. The latter was assessed after the former
had failed to respond to the SEC's first show-cause letter dated June
17, 1997.15 In its August 18,1997 letter,16 petitioner sought before the
SEC en banc the nullification of the fine. The matter was raised to the
appellate court, which then considered it. Clearly then, petitioner
satisfied the essence of due process-notice and opportunity to be
heard.17 That it received adverse rulings from both respondent and
the CA does nor mean that its right to be heard was

discarded.1wphi1.nt
WHEREFORE, the Petition is hereby DENIED, and the assailed
Decision of the Court of Appeals AFFIRMED.Costs against petitioner.
SO ORDERED.
G.R. No. 86738 November 13, 1991

NESTLE
PHILIPPINES,
vs.
COURT OF APPEALS and SECURITIES
COMMISSION, respondents.
shares, while Nestle S.A. subscribed to and paid up the balance of

175,700 shares of stock.
INC., petitioner,
AND
EXCHANGE
Nepomuceno, Hofilena & Guingona for petitioner.
FELICIANO, J.:p
Sometime in February 1983, the authorized capital stock of petitioner
Nestle Philippines Inc. ("Nestle") was increased from P300 million
divided into 3 million shares with a par value of P100.00 per share, to
P600 million divided into 6 million shares with a par value of P100.00
per share. Nestle underwent the necessary procedures involving
Board and stockholders approvals and effected the necessary filings
to secure the approval of the increase of authorized capital stock by
respondent Securities and Exchange Commission ("SEC"), which
approval was in fact granted. Nestle also paid to the SEC the amount of
P50,000.00 as filing fee in accordance with the Schedule of Fees and
Charges being implemented by the SEC under the Corporation Code. 1
Nestle has only two (2) principal stockholders: San Miguel
Corporation and Nestle S.A. The other stockholders, who are
individual natural persons, own only one (1) share each, for qualifying
purposes, i.e., to qualify them as members of the Board of Directors
being elected thereto on the strength of the votes of one or the other
principal shareholder.
On 28 March 1985, petitioner Nestle filed a letter signed by its

Corporate Secretary, M.L. Antonio, with the SEC seeking exemption of
its proposed issuance of additional shares to its existing principal
shareholders, from the registration requirement of Section 4 of the
Revised Securities Act and from payment of the fee referred to in
Section 6(c) of the same Act. In that letter, Nestle requested
confirmation of the correctness of two (2) propositions submitted by
it:
1. That there is no need to file a petition for exemption
under Section 6(b) of the Revised Securities Act with
respect to the issuance of the said 344,600 additional
shares to our existing stockholders out of our unissued
capital stock; and
2. That the fee provided in Section 6(c) of [the Revised
Securities] Act is not applicable to the said issuance of
additional shares. 2
The principal, indeed the only, argument presented by Nestlewas that
Section 6(a) (4) of the Revised Securities Act which provides as
follows:
Sec. 6. Exempt transactions. a) The requirement of
registration under subsection (a) of Section four of this
Act shall not apply to the sale of any security in any of the
following transactions:
xxx xxx xxx
On 16 December 1983, the Board of Directors and stockholders of

Nestle approved resolutions authorizing the issuance of 344,500
shares out of the previously authorized but unissued capital stock of
Nestle, exclusively to San Miguel Corporation and to Nestle S.A. San
Miguel Corporation subscribed to and completely paid up 168,800
(4) The distribution by a corporation, actively engaged

in the business authorized by its articles of
incorporation, of securities to its stockholders or other
security holders as a stock dividend or other
distribution out of surplus; or the issuance of securities
to the security holder or other creditors of a

corporation in the process of a bona fide reorganization
of such corporation made in good faith and not for the
purpose of avoiding the provisions of this Act, either in
exchange for the securities of such security holders or
claims of such creditors or partly for cash and partly in
exchange for the securities or claims of such security
holders or creditors; or the issuance of additional capital
stock of a corporation sold or distributed by it among its
own stockholders exclusively, where no commission or
other remuneration is paid or given directly or indirectly
in connection with the sale or distribution of such
increased capital stock. (Emphasis supplied)
embraces "not only an increase in the authorized capital stock but
also the issuance of additional shares to existing stockholders of the
unissued portion of the unissued capital stock". 3 Nestle urged that
interpretation upon the following argument.
The use of the term "increased capital stock" should be
interpreted to refer to additional capital stockor equity
participation of the existing stockholders as a
consequence of either an increase of the authorized
capital stock or the issuance of unissued capital stock. If
the intention of the pertinent legal provision [were] to
limit the exemption to subscription to proposed
increases in the authorized capital stock of a
corporation, we see no reason why the law should not
have been more specific or accurate about it.
It certainly should have mentioned "increase in the
authorized capital stock of the corporation" rather than
merely the expression "the issuance of additional capital
stock 4 (Emphasis supplied)
Nestle expressly represented in the same letter that all the additional
shares proposed to be issued would be issued only to San Miguel
Corporation and Nestle S.A. and that no commission or other form of
remuneration had been given, directly or indirectly, in connection

with the issuance or distribution of such additional shares of stock.
In respect of its claimed exemption from the fee provided for in
Section 6(c) of the Revised Securities Act, Nestle contended that since
Section 6 (a) (4) of the statute declares (in Nestle's view) the
proposed issuance of 344,500 previously authorized but unissued
shares of Nestle's capital stock to its existing shareholders as an
exempt transaction, the SEC could not collect fees for "the same
transaction" twice. Nestle adverted to its payment back in 21
February 1983 of the amount of P50,000.00 as filing fees to the SEC
when it applied for and eventually received approval of the increase
of its authorized capital stock effected by Board and shareholder
action last 16 December 1983.
In a letter dated 26 June 1986, the SEC through its then Chairman Julio
A. Sulit, Jr. responded adversely to petitioner's requests and ruled that
the proposed issuance of shares did not fall under Section 6 (a) (4) of
the Revised Securities Act, since Section 6 (a) (4) is applicable only
where there is an increase in the authorized capital stock of a
corporation. Chairman Sulit held, however, that the proposed
transaction could be considered by the Commission under the
provisions of Section 6 (b) of the Revised Securities Act which reads
as follows:
(b) The Commission may, from time to time and subject
to such terms and conditions as it may prescribe,
exempt transactions other than those provided in the
preceding paragraph, if it finds that the enforcement of
the requirements of registration under this Act with
respect to such transactions is not necessary in the
public interest and for the protection of the investors by
reason of the small amount involved or the limited
character of the public offering.
The Commission then advised petitioner to file the appropriate
request for exemption and to pay the fee required under Section 6 (c)
of the statute, which provides:
(c) A fee equivalent to one-tenth of one per centum of

the maximum aggregate price or issued value of the
securities shall be collected by the Commission for
granting a general or particular exemption from the
registration requirements of this Act.
Petitioner moved for reconsideration of the SEC ruling, without
success.
On 3 July 1987, petitioner sought review of the SEC ruling before this
Court which, however, referred the petition to the Court of Appeals.
In a decision dated 13 January 1989, the Court of Appeals sustained
the ruling of the SEC.
Dissatisfied with the Decision of the Court of Appeals, Nestle is now
before this Court on a Petition for Review, raising the very same
issues that it had raised before the SEC and the Court of Appeals.
Examining the words actually used in Section 6 (a) (4) of the Revised
Securities Act, and bearing in mind common corporate usage in this
jurisdiction, it will be seen that the statutory phrase "issuance of
additional capital stock" is indeed infected with a certain degree of
ambiguity. This phrase may refer either to: a) the issuance of capital
stock as part of and in the course of increasing the authorized capital
stock of a corporation; or (b) issuance of already authorized but still
unissued capital stock. By the same token, the phrase "increased
capital stock" found at the end of Section 6 (a) (4), may refer either: 1)
to newly or contemporaneously authorized capital stock issued in the
course of increasing the authorized capital stock of a corporation; or
2) to previously authorized but unissued capital stock.
Under Section 38 of the Corporation Code, a corporation engaged in
increasing its authorized capital stock, with the required vote of its
Board of Directors and of its stockholders, must file a sworn
statement of the treasurer of the corporation showing that at least
twenty-five percent (25%) of "such increased capital stock" has been
subscribed and that at least twenty-five percent (25%) of the amount
subscribed has been paid either in actual cash or in property

transferred to the corporation. In other words, the corporation must
issue at least twenty-five percent (25%) of the newly or
contemporaneously authorized capital stock in the course of
complying with the requirements of the Corporation Code for
increasing its authorized capital stock.
In contrast, after approval by the SEC of the increase of its authorized
capital stock, and from time to time thereafter, the corporation, by a
vote of its Board of Directors, and without need of either stockholder
or SEC approval, may issue and sell shares of its already authorized
but still unissued capital stock to existing shareholders or to members
of the general public. 5
Both the SEC and the Court of Appeals resolved the ambiguity by
construing Section 6 (a) (4) as referring only to the issuance of shares
of stock as part of and in the course of increasing the authorized
capital stock of Nestle. In the case at bar, since the 344,500 shares of
Nestle capital stock are proposed to be issued from already
authorized but still unissued capital stock and since the present
authorized capital stock of 6,000,000 shares with a par value of
P100.00 per share is not proposed to be further increased, the SEC
and the Court of Appeals rejected Nestle's petition.
We believe and so hold that the construction thus given by the SEC
and the Court of Appeals to Section 6 (a) (4) of the Revised Securities
Act must be upheld.
In the first place, it is a principle too well established to require
extensive documentation that the construction given to a statute by an
administrative agency charged with the interpretation and application
of that statute is entitled to great respect and should be accorded
great weight by the courts, unless such construction is clearly shown
to be in sharp conflict with the governing statute or the Constitution
and other laws. As long ago as 1903, this Court said in In re
Allen 6 that
[t]he principle that the contemporaneous construction

of a statute by the executive officers of the government,
whose duty is to execute it, is entitled to great respect,
and should ordinarily control the construction of the
statute by the courts, is so firmly embedded in our
jurisdiction that no authorities need be cited to support
it. 7
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to accumulation of experience
and growth of specialized capabilities by the administrative agency
charged with implementing a particular statute. 8 In Asturias Sugar
Central, Inc. v. Commissioner of Customs 9 the Court stressed that
executive officials are presumed to have familiarized themselves with
all the considerations pertinent to the meaning and purpose of the
law, and to have formed an independent, conscientious and
competent expert opinion thereon. The courts give much weight to
contemporaneous construction because of the respect due the
government agency or officials charged with the implementation of
the law, their competence, expertness, experience and informed
judgment, and the fact that they frequently are the drafters of the law
they interpret. 10
In the second place, and more importantly, consideration of the
underlying statutory purpose of Section 6(a) (4) compels us to sustain
the view taken by the SEC and the Court of Appeals. The reading by
the SEC of the scope of application of Section 6(a) (4) permits greater
opportunity for the SEC to implement the statutory objective of
protecting the investing public by requiring proposed issuers of
capital stock to inform such public of the true financial conditions and
prospects of the corporation. By limiting the class of exempt
transactions contemplated by the last clause of Section 6(a) (4) to
issuances of stock done in the course of and as part of the process of
increasing the authorized capital stock of a corporation, the SEC is
enabled to examine issuances by a corporation of previously
authorized but theretofore unissued capital stock, on a case-to-case
basis, under Section 6(b); and thereunder, to grant or withhold

exemption from the normal registration requirements depending
upon the perceived level of need for protection by the investing public
in particular cases.
When capital stock is issued in the course of and in compliance with
the requirements of increasing its authorized capital stock under
Section 38 of the Corporation Code, the SEC as a matter of course
examines the financial condition of the corporation, and hence there is
no real need for exercise of SEC authority under the Revised Securities
Act. Thus, one of the multiple documentation requirements under the
current regulations of the SEC in respect of filing a certificate of
increase of authorized capital stock, is submission of "a financial
statement duly certified by an independent Certified Public
Accountant (CPA) as of the latest date possible or as of the date of the
meeting when stockholders approved the increase/decrease in capital
stock or thereabouts. 11 When all or part of the newly authorized
capital stock is proposed to be issued as stock dividends, the SEC
requirements are even more exacting; they require, in addition to the
regular audited financial statements, the submission by the
corporation of a "detailed or Long Form Report of the certifying
Auditor." Moreover, since approval of an increase in authorized
capital stock by the stockholders holding two-thirds (2/3) of the
outstanding capital stock is required by Section 38 of the Corporation
Code, at a stockholders meeting held for that purpose, the directors
and officers of the corporation may be expected to take pains to
inform the shareholders of the financial condition and prospects of
the corporation and of the proposed utilization of the fresh capital
sought to be raised.
Upon the other hand, as already noted, issuance of previously
authorized but theretofore unissued capital stock by the corporation
requires only Board of Directors approval. Neither notice to nor
approval by the shareholders or the SEC is required for such issuance.
There would, accordingly, under the view taken by petitioner Nestle,
no opportunity for the SEC to see to it that shareholders (especially
the small stockholders) have a reasonable opportunity to inform
themselves about the very fact of such issuance and about the
condition of the corporation and the potential value of the shares of

stock being offered.
Under the reading urged by petitioner Nestle of the reach and scope of
the third clause of Section 6(a) (4), the issuance of previously
authorized but unissued capital stock would automatically constitute
an exempt transaction,without regard to the length of time which may
have intervened between the last increase in authorized capital stock
and the proposed issuance during which time the condition of the
corporation may have substantially changed, and without regard to
whether the existing stockholders to whom the shares are proposed
to be issued are only two giant corporations as in the instant case, or
are individuals numbering in the hundreds or thousands.
In contrast, under the ruling issued by the SEC, an issuance of
previously authorized but still unissued capital stock may, in a
particular instance, be held to be an exempt transaction by the SEC
under Section 6(b) so long as the SEC finds that the requirements of
registration under the Revised Securities Act are "not necessary in the
public interest and for the protection of the investors" by reason, inter
alia, of the small amount of stock that is proposed to be issued or
because the potential buyers are very limited in number and are in a
position to protect themselves. In fine, petitioner Nestle's proposed
construction of Section 6(a) (4) would establish an inflexible rule of
automatic exemption of issuances of additional, previously authorized
but unissued, capital stock. We must reject an interpretation which
may disable the SEC from rendering protection to investors, in the
public interest, precisely when such protection may be most needed.
Petitioner Nestle's second claim for exemption is from payment of the
fee provided for in Section 6 (c) of the Revised Securities Act, a claim
based upon petitioner's contention that Section 6 (a) (4)
covers both issuance of stock in the course of complying with the
statutory requirements of increase of authorized capital stock and
issuance of previously authorized and unissued capital stock.
Petitioner claims that to require it now to pay one-tenth of one
percent (1%) of the issued value of the 344,500 shares of stock
proposed to be issued, is to require it to pay a second time for the
same service on the part of the SEC. Since we have above rejected
petitioner's reading of Section 6 (a) (4), last clause, petitioner's claim
about the additional fee of one-tenth of one percent (1%) of the issue
value of the proposed issuance of stock (amounting to P34,450 plus
P344.50 for other fees or a total of P37,794.50) need not detain us for
long. We think it clear that the fee collected in 21 February 1983 by
the SEC was assessed in connection with the examination and
approval of the certificate of increase of authorized capital stock then
submitted by petitioner. The fee, upon the other hand, provided for in
Section 6 (c) which petitioner will be required to pay if it does file an
application for exemption under Section 6 (b), is quite different; this is
a fee specifically authorized by the Revised Securities Act, (not the
Corporation Code) in connection with the grant of an exemption from
normal registration requirements imposed by that Act. We do not find
such fee either unreasonable or exorbitant.
WHEREFORE, for all the foregoing, the Petition for Review on
Certiorari is hereby DENIED for lack of merit and the Decision of the
Court of Appeals dated 13 January 1989 in C.A.-G.R. No. SP-13522, is
hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 135808
October 6, 2008
SECURITIES
AND
EXCHANGE
COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO,
RENE S. VILLARICA, PELAGIO RICALDE, ANTONIO REINA,
FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN,
JR., respondents.
IRC amounting to 40.88 billion shares which had a total par value
of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital stock of
Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real
estate property in Makati. Under the Agreement, GHB, a member of
the Westmont Group of Companies in Malaysia, shall extend or
arrange a loan required to pay for the proposed acquisition by IRC of
PRCI.4
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court, assailing the Decision,1 dated 20 August 1998, rendered by
the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner
Securities and Exchange Commission (SEC) from taking cognizance of
or initiating any action against the respondent corporation Interport
Resources Corporation (IRC) and members of its board of directors,
respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde,
Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan,
Jr., with respect to Sections 8, 30 and 36 of the Revised Securities Act.
In the same Decision of the appellate court, all the proceedings taken
against the respondents, including the assailed SEC Omnibus Orders
of 25 January 1995 and 30 March 1995, were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a
Memorandum of Agreement with Ganda Holdings Berhad (GHB).
Under the Memorandum of Agreement, IRC acquired 100% or the
entire capital stock of Ganda Energy Holdings, Inc. (GEHI), 2 which
would own and operate a 102 megawatt (MW) gas turbine powergenerating barge. The agreement also stipulates that GEHI would
assume a five-year power purchase contract with National Power
Corporation. At that time, GEHI's power-generating barge was 97%
complete and would go on-line by mid-September of 1994. In
exchange, IRC will issue to GHB 55% of the expanded capital stock of
IRC alleged that on 8 August 1994, a press release announcing the

approval of the agreement was sent through facsimile transmission to
the Philippine Stock Exchange and the SEC, but that the facsimile
machine of the SEC could not receive it. Upon the advice of the SEC,
the IRC sent the press release on the morning of 9 August 1994.5
The SEC averred that it received reports that IRC failed to make timely
public disclosures of its negotiations with GHB and that some of its
directors, respondents herein, heavily traded IRC shares utilizing this
material insider information. On 16 August 1994, the SEC Chairman
issued a directive requiring IRC to submit to the SEC a copy of its
aforesaid Memorandum of Agreement with GHB. The SEC Chairman
further directed all principal officers of IRC to appear at a hearing
before the Brokers and Exchanges Department (BED) of the SEC to
explain IRC's failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts.6
In compliance with the SEC Chairman's directive, the IRC sent a letter
dated 16 August 1994 to the SEC, attaching thereto copies of the
Memorandum of Agreement. Its directors, Manuel Recto, Rene
Villarica and Pelagio Ricalde, also appeared before the SEC on 22
August 1994 to explain IRC's alleged failure to immediately disclose
material information as required under the Rules on Disclosure of
Material Facts.7
On 19 September 1994, the SEC Chairman issued an Order finding
that IRC violated the Rules on Disclosure of Material Facts, in
connection with the Old Securities Act of 1936, when it failed to make
timely disclosure of its negotiations with GHB. In addition, the SEC

pronounced that some of the officers and directors of IRC entered into
transactions involving IRC shares in violation of Section 30, in relation
to Section 36, of the Revised Securities Act. 8
Respondents filed an Omnibus Motion, dated 21 September 1994,
which was superseded by an Amended Omnibus Motion, filed on 18
October 1994, alleging that the SEC had no authority to investigate the
subject matter, since under Section 8 of Presidential Decree No. 902A,9 as amended by Presidential Decree No. 1758, jurisdiction was
conferred upon the Prosecution and Enforcement Department (PED)
of the SEC. Respondents also claimed that the SEC violated their right
to due process when it ordered that the respondents appear before
the SEC and "show cause why no administrative, civil or criminal
sanctions should be imposed on them," and, thus, shifted the burden
of proof to the respondents. Lastly, they sought to have their cases
tried jointly given the identical factual situations surrounding the
alleged violation committed by the respondents. 10
Respondents also filed a Motion for Continuance of Proceedings on 24
October 1994, wherein they moved for discontinuance of the
investigations and the proceedings before the SEC until the undue
publicity had abated and the investigating officials had become
reasonably free from prejudice and public pressure. 11
No formal hearings were conducted in connection with the
aforementioned motions, but on 25 January 1995, the SEC issued an
Omnibus Order which thus disposed of the same in this wise: 12
WHEREFORE, premised on the foregoing considerations, the
Commission resolves and hereby rules:
1. To create a special investigating panel to hear and decide the
instant case in accordance with the Rules of Practice and
Procedure Before the Prosecution and Enforcement
Department (PED), Securities and Exchange Commission, to be
composed of Attys. James K. Abugan, Medardo Devera
(Prosecution and Enforcement Department), and Jose Aquino
(Brokers and Exchanges Department), which is hereby

directed to expeditiously resolve the case by conducting
continuous hearings, if possible.
2. To recall the show cause orders dated September 19, 1994
requiring the respondents to appear and show cause why no
administrative, civil or criminal sanctions should be imposed
on them.
3. To deny the Motion for Continuance for lack of merit.
Respondents
filed
an
Omnibus
Motion
for
Partial
13
Reconsideration, questioning the creation of the special
investigating panel to hear the case and the denial of the Motion for
Continuance. The SEC denied reconsideration in its Omnibus Order
dated 30 March 1995.14
The respondents filed a petition before the Court of Appeals docketed
as C.A.-G.R. SP No. 37036, questioning the Omnibus Orders dated 25
January 1995 and 30 March 1995.15 During the proceedings before
the Court of Appeals, respondents filed a Supplemental
Motion16 dated 16 May 1995, wherein they prayed for the issuance of
a writ of preliminary injunction enjoining the SEC and its agents from
investigating and proceeding with the hearing of the case against
respondents herein. On 5 May 1995, the Court of Appeals granted
their motion and issued a writ of preliminary injunction, which
effectively enjoined the SEC from filing any criminal, civil or
administrative case against the respondents herein. 17
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC
Omnibus Orders so that the case may be investigated by the PED in
accordance with the SEC Rules and Presidential Decree No. 902-A, and
not by the special body whose creation the SEC had earlier ordered. 18
The Court of Appeals promulgated a Decision 19 on 20 August 1998. It
determined that there were no implementing rules and regulations
regarding disclosure, insider trading, or any of the provisions of the
Revised Securities Acts which the respondents allegedly violated. The
Court of Appeals likewise noted that it found no statutory authority

for the SEC to initiate and file any suit for civil liability under Sections
8, 30 and 36 of the Revised Securities Act. Thus, it ruled that no civil,
criminal or administrative proceedings may possibly be held against
the respondents without violating their rights to due process and
equal protection. It further resolved that absent any implementing
rules, the SEC cannot be allowed to quash the assailed Omnibus
Orders for the sole purpose of re-filing the same case against the
respondents.20
The Court of Appeals further decided that the Rules of Practice and
Procedure Before the PED, which took effect on 14 April 1990, did not
comply with the statutory requirements contained in the
Administrative Code of 1997. Section 8, Rule V of the Rules of Practice
and Procedure Before the PED affords a party the right to be present
but without the right to cross-examine witnesses presented against
him, in violation of Section 12(3), Chapter 3, Book VII of the
Administrative Code. 21
In the dispositive portion of its Decision, dated 20 August 1998, the
Court of Appeals ruled that22:
WHEREFORE, [herein petitioner SEC's] Motion for Leave to
Quash SEC Omnibus Orders is herebyDENIED. The petition for
certiorari, prohibition and mandamus is GRANTED.
Consequently, all proceedings taken against [herein
respondents] in this case, including the Omnibus Orders of
January 25, 1995 and March 30, 1995 are declared null and
void. The writ of preliminary injunction is hereby made
permanent and, accordingly, [SEC] is hereby prohibited
from taking cognizance or initiating any action, be they
civil, criminal, or administrative against [respondents] with
respect to Sections 8 (Procedure for Registration), 30
(Insider's duty to disclose when trading) and 36 (Directors,
Officers and Principal Stockholders) in relation to Sections 46
(Administrative sanctions) 56 (Penalties) 44 (Liabilities of
Controlling persons) and 45 (Investigations, injunctions and
prosecution of offenses) of the Revised Securities Act and
Section 144 (Violations of the Code) of the Corporation Code.

(Emphasis provided.)
The SEC filed a Motion for Reconsideration, which the Court of
Appeals denied in a Resolution 23 issued on 30 September 1998.
Hence, the present petition, which relies on the following grounds24:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED
PETITIONER'S MOTION FOR LEAVE TO QUASH THE ASSAILED
SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30,
1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THERE IS NO STATUTORY AUTHORITY WHATSOEVER FOR
PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY
CIVIL,
CRIMINAL
OR
ADMINISTRATIVE
AGAINST
RESPONDENT CORPORATION AND ITS DIRECTORS WITH
RESPECT TO SECTION 30 (INSIDER'S DUTY TO DISCOLSED
[sic] WHEN TRADING) AND 36 (DIRECTORS OFFICERS AND
PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES
ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
RULES OF PRACTICE AND PROSECUTION BEFORE THE PED
AND THE SICD RULES OF PROCEDURE ON ADMINISTRATIVE
ACTIONS/PROCEEDINGS25 ARE INVALID AS THEY FAIL TO
COMPLY
WITH
THE
STATUTORY
REQUIREMENTS
CONTAINED IN THE ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be no ted that while
this case was pending in this Court, Republic Act No. 8799, otherwise
known as the Securities Regulation Code, took effect on 8 August
2000. Section 8 of Presidential Decree No. 902-A, as amended, which
created the PED, was already repealed as provided for in Section 76 of
the Securities Regulation Code:
provisions of law, where a reasonable construction that will support

the law may be given. In People v. Rosenthal,28 this Court ruled that:
SEC. 76. Repealing Clause. - The Revised Securities Act (Batas

Pambansa Blg. 178), as amended, in its entirety, and Sections 2,
4 and 8 of Presidential Decree 902-A, as amended, are hereby
repealed. All other laws, orders, rules and regulations, or parts
thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.
In this connection we cannot pretermit reference to the rule

that "legislation should not be held invalid on the ground of
uncertainty if susceptible of any reasonable construction that
will support and give it effect. An Act will not be declared
inoperative and ineffectual on the ground that it furnishes no
adequate means to secure the purpose for which it is passed, if
men of common sense and reason can devise and provide the
means, and all the instrumentalities necessary for its execution
are within the reach of those intrusted therewith." (25 R.C.L.,
pp. 810, 811)
Thus, under the new law, the PED has been abolished, and the
Securities Regulation Code has taken the place of the Revised
Securities Act.
In Garcia v. Executive Secretary,29 the Court underlined the importance

of the presumption of validity of laws and the careful consideration
with which the judiciary strikes down as invalid acts of the legislature:
The Court now proceeds with a discussion of the present case.

I. Sctions 8, 30 and 36 of the Revised Securities Act do not require
the enactment of implementing rules to make them binding and
effective.
The Court of Appeals ruled that absent any implementing rules for
Sections 8, 30 and 36 of the Revised Securities Act, no civil, criminal or
administrative actions can possibly be had against the respondents
without violating their right to due process and equal protection,
citing as its basis the case Yick Wo v. Hopkins.26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may
concern Sections 30 and 36 of the Revised Securities Act, this Court
upholds these provisions as legal and binding. It is well settled that
every law has in its favor the presumption of validity. Unless and until
a specific provision of the law is declared invalid and unconstitutional,
the same is valid and binding for all intents and purposes. 27 The mere
absence of implementing rules cannot effectively invalidate
The policy of the courts is to avoid ruling on constitutional

questions and to presume that the acts of the political
departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain.
This presumption is based on the doctrine of separation of
powers which enjoins upon each department a becoming
respect for the acts of the other departments. The theory is
that as the joint act of Congress and the President of the
Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental law before it was finally
enacted.
The necessity for vesting administrative authorities with power to
make rules and regulations is based on the impracticability of
lawmakers' providing general regulations for various and varying
details of management.30 To rule that the absence of implementing
rules can render ineffective an act of Congress, such as the Revised
Securities Act, would empower the administrative bodies to defeat the
legislative will by delaying the implementing rules. To assert that a
law is less than a law, because it is made to depend on a future event
or act, is to rob the Legislature of the power to act wisely for the
public welfare whenever a law is passed relating to a state of affairs
not yet developed, or to things future and impossible to fully
know.31 It is well established that administrative authorities have the
power to promulgate rules and regulations to implement a given
statute and to effectuate its policies, provided such rules and
regulations conform to the terms and standards prescribed by the
statute as well as purport to carry into effect its general policies.
Nevertheless, it is undisputable that the rules and regulations cannot
assert for themselves a more extensive prerogative or deviate from
the mandate of the statute.32Moreover, where the statute contains
sufficient standards and an unmistakable intent, as in the case of
Sections 30 and 36 of the Revised Securities Act, there should be no
impediment to its implementation.
The reliance placed by the Court of Appeals in Yick Wo v.
Hopkins33 shows a glaring error. In the cited case, this Court found
unconstitutional an ordinance which gave the board of supervisors
authority to refuse permission to carry on laundries located in
buildings that were not made of brick and stone, because it violated
the equal protection clause and was highly discriminatory and hostile
to Chinese residents and not because the standards provided therein
were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections
30 and 36 of the Revised Securities Act, such that the acts
proscribed and/or required would not be understood by a person of
ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall
be unlawful for an insider to sell or buy a security of the issuer,
if he knows a fact of special significance with respect to the
issuer or the security that is not generally available, unless (1)
the insider proves that the fact is generally available or (2) if
the other party to the transaction (or his agent) is identified,

(a) the insider proves that the other party knows it, or (b) that
other party in fact knows it from the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of,
or a person controlling, controlled by, or under common
control with, the issuer, (3) a person whose relationship or
former relationship to the issuer gives or gave him access to a
fact of special significance about the issuer or the security that
is not generally available, or (4) a person who learns such a
fact from any of the foregoing insiders as defined in this
subsection, with knowledge that the person from whom he
learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being
material it would be likely, on being made generally available,
to affect the market price of a security to a significant extent, or
(b) a reasonable person would consider it especially important
under the circumstances in determining his course of action in
the light of such factors as the degree of its specificity, the
extent of its difference from information generally available
previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in
subsection (b) (3) hereof only to the extent that he knows of a
fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of
nonpublic and undisclosed information is the gravamen of illegal
conduct. The intent of the law is the protection of investors against
fraud, committed when an insider, using secret information, takes
advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from
trading the shares of his corporation. This duty to disclose or abstain
is based on two factors: first, the existence of a relationship giving
access, directly or indirectly, to information intended to be available
only for a corporate purpose and not for the personal benefit of
anyone; and second, the inherent unfairness involved when a party
takes advantage of such information knowing it is unavailable to those

with whom he is dealing.34
In the United States (U.S.), the obligation to disclose or abstain has
been traditionally imposed on corporate "insiders," particularly
officers, directors, or controlling stockholders, but that definition has
since been expanded.35 The term "insiders" now includes persons
whose relationship or former relationship to the issuer gives or gave
them access to a fact of special significance about the issuer or the
security that is not generally available, and one who learns such a fact
from an insider knowing that the person from whom he learns the fact
is such an insider. Insiders have the duty to disclose material facts
which are known to them by virtue of their position but which are not
known to persons with whom they deal and which, if known, would
affect their investment judgment. In some cases, however, there may
be valid corporate reasons for the nondisclosure of material
information. Where such reasons exist, an issuer's decision not to
make any public disclosures is not ordinarily considered as a violation
of insider trading. At the same time, the undisclosed information
should not be improperly used for non-corporate purposes,
particularly to disadvantage other persons with whom an insider
might transact, and therefore the insider must abstain from entering
into transactions involving such securities. 36
Respondents further aver that under Section 30 of the Revised
Securities Act, the SEC still needed to define the following
terms: "material fact," "reasonable person," "nature and
reliability" and "generally available." 37 In determining whether or
not these terms are vague, these terms must be evaluated in the
context of Section 30 of the Revised Securties Act. To fully understand
how the terms were used in the aforementioned provision, a
discussion of what the law recognizes as a fact of special significance
is required, since the duty to disclose such fact or to abstain from any
transaction is imposed on the insider only in connection with a fact of
special significance.
Under the law, what is required to be disclosed is a fact of "special
significance" which may be (a) a material fact which would be likely,
on being made generally available, to affect the market price of a

security to a significant extent, or (b) one which a reasonable person
would consider especially important in determining his course of
action with regard to the shares of stock.
(a) Material Fact - The concept of a "material fact" is not a new one.
As early as 1973, the Rules Requiring Disclosure of Material Facts by
Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29
January 1973, explained that "[a] fact is material if it induces or tends
to induce or otherwise affect the sale or purchase of its securities."
Thus, Section 30 of the Revised Securities Act provides that if a fact
affects the sale or purchase of securities, as well as its price, then the
insider would be required to disclose such information to the other
party to the transaction involving the securities. This is the first
definition given to a "fact of special significance."
(b.1) Reasonable Person - The second definition given to a fact of
special significance involves the judgment of a "reasonable person."
Contrary to the allegations of the respondents, a "reasonable person"
is not a problematic legal concept that needs to be clarified for the
purpose of giving effect to a statute; rather, it is the standard on which
most of our legal doctrines stand. The doctrine on negligence uses the
discretion of the "reasonable man" as the standard. 38 A purchaser in
good faith must also take into account facts which put a "reasonable
man" on his guard.39 In addition, it is the belief of the reasonable and
prudent man that an offense was committed that sets the criteria for
probable cause for a warrant of arrest. 40 This Court, in such cases,
differentiated the reasonable and prudent man from "a person with
training in the law such as a prosecutor or a judge," and identified him
as "the average man on the street," who weighs facts and
circumstances without resorting to the calibrations of our technical
rules of evidence of which his knowledge is nil. Rather, he relies on
the calculus of common sense of which all reasonable men have in
abundance.41 In the same vein, the U.S. Supreme Court similarly
determined its standards by the actual significance in the
deliberations of a "reasonable investor," when it ruled in TSC
Industries, Inc. v. Northway, Inc.,42 that the determination of
materiality "requires delicate assessments of the inferences a

reasonable shareholder' would draw from a given set of facts and the
significance of those inferences to him."
(b.2) Nature and Reliability - The factors affecting the second
definition of a "fact of special significance," which is of such
importance that it is expected to affect the judgment of a reasonable
man, were substantially lifted from a test of materiality pronounced in
the case In the Matter of Investors Management Co., Inc. 43:
Among the factors to be considered in determining whether
information is material under this test are the degree of its
specificity, the extent to which it differs from information
previously publicly disseminated, and its reliability in light of
its nature and source and the circumstances under which it
was received.
It can be deduced from the foregoing that the "nature and reliability"
of a significant fact in determining the course of action a reasonable
person takes regarding securities must be clearly viewed in
connection with the particular circumstances of a case. To enumerate
all circumstances that would render the "nature and reliability" of a
fact to be of special significance is close to impossible. Nevertheless,
the proper adjudicative body would undoubtedly be able to determine
if facts of a certain "nature and reliability" can influence a reasonable
person's decision to retain, sell or buy securities, and thereafter
explain and justify its factual findings in its decision.
(c) Materiality Concept - A discussion of the "materiality concept"
would be relevant to both a material fact which would affect the
market price of a security to a significant extent and/or a fact which a
reasonable person would consider in determining his or her cause of
action with regard to the shares of stock. Significantly, what is
referred to in our laws as a fact of special significance is referred to in
the U.S. as the "materiality concept" and the latter is similarly not
provided with a precise definition. In Basic v. Levinson,44 the U.S.
Supreme Court cautioned against confining materiality to a rigid
formula, stating thus:
A bright-line rule indeed is easier to follow than a standard

that requires the exercise of judgment in the light of all the
circumstances. But ease of application alone is not an excuse
for ignoring the purposes of the Securities Act and Congress'
policy decisions. Any approach that designates a single fact or
occurrence as always determinative of an inherently factspecific finding such as materiality, must necessarily be
overinclusive or underinclusive.
Moreover, materiality "will depend at any given time upon a balancing
of both the indicated probability that the event will occur and the
anticipated magnitude of the event in light of the totality of the
company activity."45 In drafting the Securities Act of 1934, the U.S.
Congress put emphasis on the limitations to the definition of
materiality:
Although the Committee believes that ideally it would be
desirable to have absolute certainty in the application of the
materiality concept, it is its view that such a goal is illusory and
unrealistic. The materiality concept is judgmental in nature
and it is not possible to translate this into a numerical
formula. The Committee's advice to the [SEC] is to avoid
this quest for certainty and to continue consideration of
materiality on a case-by-case basis as disclosure problems
are identified."House Committee on Interstate and Foreign
Commerce, Report of the Advisory Committee on Corporate
Disclosure to the Securities and Exchange Commission, 95th
Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis
provided.)46
(d) Generally Available - Section 30 of the Revised Securities Act
allows the insider the defense that in a transaction of securities,
where the insider is in possession of facts of special significance, such
information is "generally available" to the public. Whether
information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term "generally available" is a
matter which may be adjudged given the particular circumstances of
the case. The standards cannot remain at a standstill. A medium,
which is widely used today was, at some previous point in time,

inaccessible to most. Furthermore, it would be difficult to
approximate how the rules may be applied to the instant case, where
investigation has not even been started. Respondents failed to allege
that the negotiations of their agreement with GHB were made known
to the public through any form of media for there to be a proper
appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act, respondents
claim that the term "beneficial ownership" is vague and that it
requires implementing rules to give effect to the law. Section 36(a) of
the Revised Securities Act is a straightforward provision that imposes
upon (1) a beneficial owner of more than ten percent of any class of
any equity security or (2) a director or any officer of the issuer of such
security, the obligation to submit a statement indicating his or her
ownership of the issuer's securities and such changes in his or her
ownership thereof. The said provision reads:
Sec. 36. Directors, officers and principal stockholders. - (a)
Every person who is directly or indirectly the beneficial owner
of more than ten per centum of any [class] of any equity
security which is registered pursuant to this Act, or who is [a]
director or an officer of the issuer of such security, shall file, at
the time of the registration of such security on a securities
exchange or by the effective date of a registration statement or
within ten days after he becomes such a beneficial owner,
director or officer, a statement with the Commission and, if
such security is registered on a securities exchange, also with
the exchange, of the amount of all equity securities of such
issuer of which he is the beneficial owner, and within ten days
after the close of each calendar month thereafter, if there has
been a change in such ownership during such month, shall file
with the Commission, and if such security is registered on a
securities exchange, shall also file with the exchange, a
statement indicating his ownership at the close of the calendar
month and such changes in his ownership as have occurred

during such calendar month. (Emphasis provided.)
Section 36(a) refers to the "beneficial owner." Beneficial owner has
been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property
(also called "equitable ownership"); and second, to refer to the
power of a corporate shareholder to buy or sell the shares,
though the shareholder is not registered in the corporation's
books as the owner. Usually, beneficial ownership is
distinguished from naked ownership, which is the enjoyment
of all the benefits and privileges of ownership, as against
possession of the bare title to property. 47
Even assuming that the term "beneficial ownership" was vague, it
would not affect respondents' case, where the respondents are
directors and/or officers of the corporation, who are specifically
required to comply with the reportorial requirements under Section
36(a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its
enforcement.48
Sections 30 and 36 of the Revised Securities Act were enacted to
promote full disclosure in the securities market and prevent
unscrupulous individuals, who by their positions obtain non-public
information, from taking advantage of an uninformed public. No
individual would invest in a market which can be manipulated by a
limited number of corporate insiders. Such reaction would stifle, if not
stunt, the growth of the securities market. To avert the occurrence of
such an event, Section 30 of the Revised Securities Act prevented the
unfair use of non-public information in securities transactions, while
Section 36 allowed the SEC to monitor the transactions entered into
by corporate officers and directors as regards the securities of their
companies.
In the case In the Matter of Investor's Management Co.,49 it was
cautioned that "the broad language of the anti-fraud provisions,"
which include the provisions on insider trading, should not be

"circumscribed by fine distinctions and rigid classifications." The
ambit of anti-fraud provisions is necessarily broad so as to embrace
the infinite variety of deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this Court brushed
aside a contention, similar to that made by the respondents in this
case, that certain words or phrases used in a statute do not set
determinate standards, declaring that:
Petitioners contend that the words "as far as practicable,"
"declining" and "stable" should have been defined in R.A. No.
8180 as they do not set determinate and determinable
standards. This stubborn submission deserves scant
consideration. The dictionary meanings of these words are
well settled and cannot confuse men of reasonable intelligence.
x x x. The fear of petitioners that these words will result in the
exercise of executive discretion that will run riot is thus
groundless. To be sure, the Court has sustained the validity of
similar, if not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards
were "simplicity and dignity,"52 "public interest,"53 and "interests of
law and order."54
The Revised Securities Act was approved on 23 February 1982. The
fact that the Full Disclosure Rules were promulgated by the SEC only
on 24 July 1996 does not render ineffective in the meantime Section
36 of the Revised Securities Act. It is already unequivocal that the
Revised Securities Act requires full disclosure and the Full Disclosure
Rules were issued to make the enforcement of the law more
consistent, efficient and effective. It is equally reasonable to state that
the disclosure forms later provided by the SEC, do not, in any way
imply that no compliance was required before the forms were
provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms,
especially where compliance therewith may be made even without
such forms. The forms merely made more efficient the processing of
requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake
when it ruled that no civil, criminal or administrative actions can
possibly be had against the respondents in connection with Sections 8,
30 and 36 of the Revised Securities Act due to the absence of
implementing rules. These provisions are sufficiently clear and
complete by themselves. Their requirements are specifically set out,
and the acts which are enjoined are determinable. In particular,
Section 855 of the Revised Securities Act is a straightforward
enumeration of the procedure for the registration of securities and the
particular matters which need to be reported in the registration
statement thereof. The Decision, dated 20 August 1998, provides no
valid reason to exempt the respondent IRC from such requirements.
The lack of implementing rules cannot suspend the effectivity of these
provisions. Thus, this Court cannot find any cogent reason to prevent
the SEC from exercising its authority to investigate respondents for
violation of Section 8 of the Revised Securities Act.
II. The right to cross-examination is not absolute and cannot be
demanded during investigative proceedings before the PED.
In its assailed Decision dated 20 August 1998, the Court of Appeals
pronounced that the PED Rules of Practice and Procedure was invalid
since Section 8, Rule V 56 thereof failed to provide for the parties' right
to cross-examination, in violation of the Administrative Code of 1987
particularly Section 12(3), Chapter 3, Book VII thereof. This ruling is
incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure,
categorically stated that the proceedings before the PED are summary
in nature:
Section 4. Nature of Proceedings - Subject to the requirements
of due process, proceedings before the "PED" shall be summary
in nature not necessarily adhering to or following the technical
rules of evidence obtaining in the courts of law. The Rules of
Court may apply in said proceedings in suppletory character

whenever practicable.
Rule V of the PED Rules of Practice and Procedure further specified
that:
Section 5. Submission of Documents - During the preliminary
conference/hearing, or immediately thereafter, the Hearing
Officer may require the parties to simultaneously submit their
respective verified position papers accompanied by all
supporting documents and the affidavits of their witnesses, if
any which shall take the place of their direct testimony. The
parties shall furnish each other with copies of the position
papers together with the supporting affidavits and documents
submitted by them.
Section 6. Determination of necessity of hearing. - Immediately
after the submission by the parties of their position papers and
supporting documents, the Hearing Officer shall determine
whether there is a need for a formal hearing. At this stage, he
may, in his discretion, and for the purpose of making such
determination, elicit pertinent facts or information, including
documentary evidence, if any, from any party or witness to
complete, as far as possible, the facts of the case. Facts or
information so elicited may serve as basis for his clarification
or simplifications of the issues in the case. Admissions and
stipulation of facts to abbreviate the proceedings shall be
encouraged.
Section 7. Disposition of Case. If the Hearing Officer finds no
necessity of further hearing after the parties have submitted
their position papers and supporting documents, he shall so
inform the parties stating the reasons therefor and shall ask
them to acknowledge the fact that they were so informed by
signing the minutes of the hearing and the case shall be
deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require
the parties to submit their respective verified position papers,
together with all supporting documents and affidavits of witnesses. A
formal hearing was not mandatory; it was within the discretion of the
Hearing Officer to determine whether there was a need for a formal
hearing. Since, according to the foregoing rules, the holding of a
hearing before the PED is discretionary, then the right to crossexamination could not have been demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the
Administrative Code, entitled "Adjudication," does not affect the
investigatory functions of the agencies. The law creating the PED,
Section 8 of Presidential Decree No. 902-A, as amended, defines the
authority granted to the PED, thus:
SEC. 8. The Prosecution and Enforcement Department shall
have, subject to the Commission's control and supervision, the
exclusive authority to investigate, on complaint or motu
proprio, any act or omission of the Board of Directors/Trustees
of corporations, or of partnerships, or of other associations, or
of their stockholders, officers or partners, including any
fraudulent devices, schemes or representations, in violation of
any law or rules and regulations administered and enforced by
the Commission; to file and prosecutein accordance with law
and rules and regulations issued by the Commission and in
appropriate cases, the corresponding criminal or civil case
before the Commission or the proper court or body upon
prima facie finding of violation of any laws or rules and
regulations administered and enforced by the Commission;
and to perform such other powers and functions as may be
provided by law or duly delegated to it by the Commission.
(Emphasis provided.)
The law creating PED empowers it to investigate violations of the
rules and regulations promulgated by the SEC and to file and
prosecute such cases. It fails to mention any adjudicatory functions
insofar as the PED is concerned. Thus, the PED Rules of Practice and
Procedure need not comply with the provisions of the Administrative

Code on adjudication, particularly Section 12(3), Chapter 3, Book VII.
In Cario v. Commission on Human Rights,57 this Court sets out the
distinction between investigative and adjudicative functions, thus:
"Investigate," commonly understood, means to examine,
explore, inquire or delve or probe into, research on, study. The
dictionary definition of "investigate" is "to observe or study
closely; inquire into systematically: "to search or inquire into"
xx to subject to an official probe xx: to conduct an official
inquiry." The purpose of an investigation, of course is to
discover, to find out, to learn, obtain information. Nowhere
included or intimated is the notion of settling, deciding or
resolving a controversy involved in the facts inquired into by
application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o
follow up step by step by patient inquiry or observation. To
trace or track; to search into; to examine and inquire into with
care and accuracy; to find out by careful inquisition;
examination; the taking of evidence; a legal inquiry;" "to
inquire; to make an investigation," "investigation" being in turn
described as "(a)n administrative function, the exercise of
which ordinarily does not require a hearing. 2 Am J2d Adm L
Sec. 257; xx an inquiry, judicial or otherwise, for the discovery
and collection of facts concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as "to settle finally (the
rights and duties of parties to a court case) on the merits of
issues raised: xx to pass judgment on: settle judicially: xx act as
judge." And "adjudge" means "to decide or rule upon as a judge
or with judicial or quasi-judicial powers: xx to award or grant
judicially in a case of controversy x x x."
In a legal sense, "adjudicate" means: "To settle in the exercise of

judicial authority. To determine finally. Synonymous with adjudge in
its strictest sense;" and "adjudge" means: "To pass on judicially, to
decide, settle, or decree, or to sentence or condemn. x x x Implies a
judicial determination of a fact, and the entry of a judgment."
There is no merit to the respondent's averment that the sections
under Chapter 3, Book VII of the Administrative Code, do not
distinguish between investigative and adjudicatory functions. Chapter
3, Book VII of the Administrative Code, is unequivocally entitled
"Adjudication."
Respondents insist that the PED performs adjudicative functions, as
enumerated under Section 1(h) and (j), Rule II; and Section 2(4), Rule
VII of the PED Rules of Practice and Procedure:
Section 1. Authority of the Prosecution and Enforcement
Department - Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution and
Enforcement Department is primarily charged with the
following:
xxxx
(h) Suspends or revokes, after proper notice and hearing in
accordance with these Rules, the franchise or certificate of
registration of corporations, partnerships or associations, upon
any of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do
or is doing to the great prejudice of or damage to the general
public;
3. Refusal to comply or defiance of any lawful order of the
Commission restraining commission of acts which would
amount to a grave violation of its franchise;
xxxx
(j) Imposes charges, fines and fees, which by law, it is
authorized to collect;
xxxx
Enforcement Department is primarily charged with the

following:
xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer

shall have the following powers:
b. Initiates proper investigation of corporations and

partnerships or persons, their books, records and other
properties and assets, involving their business transactions, in
coordination with the operating department involved;
xxxx
xxxx
4. To cite and/or declare any person in direct or indirect

contempt in accordance with pertinent provisions of the Rules
of Court.
e. Files and prosecutes civil or criminal cases before the

Commission and other courts of justice involving violations of
laws and decrees enforced by the Commission and the rules
and regulations promulgated thereunder;
Even assuming that these are adjudicative functions, the PED, in the
instant case, exercised its investigative powers; thus, respondents do
not have the requisite standing to assail the validity of the rules on
adjudication. A valid source of a statute or a rule can only be contested
by one who will sustain a direct injury as a result of its
enforcement.58 In the instant case, respondents are only being
investigated by the PED for their alleged failure to disclose their
negotiations with GHB and the transactions entered into by its
directors involving IRC shares. The respondents have not shown
themselves to be under any imminent danger of sustaining any
personal injury attributable to the exercise of adjudicative functions
by the SEC. They are not being or about to be subjected by the PED to
charges, fees or fines; to citations for contempt; or to the cancellation
of their certificate of registration under Section 1(h), Rule II of the
PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over
the respondents were investigative in nature, to wit:
Section 1. Authority of the Prosecution and Enforcement
Department - Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution and
f. Prosecutes erring directors, officers and stockholders of

corporations and partnerships, commercial paper issuers or
persons in accordance with the pertinent rules on procedures;
The authority granted to the PED under Section 1(b), (e), and (f), Rule
II of the PED Rules of Practice and Procedure, need not comply with
Section 12, Chapter 3, Rule VII of the Administrative Code, which
affects only the adjudicatory functions of administrative bodies. Thus,
the PED would still be able to investigate the respondents under its
rules for their alleged failure to disclose their negotiations with GHB
and the transactions entered into by its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative
functions are required to strictly comply with the requirements of
Chapter 3, Rule VII of the Administrative Code, particularly, the right
to cross-examination. It should be noted that under Section 2.2 of
Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative cases:
2. Abbreviation of Proceedings. All administrative agencies are

hereby directed to adopt and include in their respective Rules
of Procedure the following provisions:
III. The Securities Regulations Code did not repeal Sections 8, 30

and 36 of the Revised Securities Act since said provisions were
reenacted in the new law.
xxxx
The Securities Regulations Code absolutely repealed the Revised

Securities Act. While the absolute repeal of a law generally deprives a
court of its authority to penalize the person charged with the violation
of the old law prior to its appeal, an exception to this rule comes about
when the repealing law punishes the act previously penalized under
the old law. The Court, in Benedicto v. Court of Appeals, sets down the
rules in such instances:64
2.2 Rules adopting, unless otherwise provided by special laws

and without prejudice to Section 12, Chapter 3, Book VII of the
Administrative Code of 1987, the mandatory use of affidavits in
lieu of direct testimonies and the preferred use of depositions
whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasijudicial bodies, such as the National Labor Relations Commission and
the Philippine Overseas Employment Agency, created under laws
which authorize summary proceedings, decisions may be reached on
the basis of position papers or other documentary evidence only. They
are not bound by technical rules of procedure and evidence. 59 In fact,
the hearings before such agencies do not connote full adversarial
proceedings.60 Thus, it is not necessary for the rules to require affiants
to appear and testify and to be cross-examined by the counsel of the
adverse party. To require otherwise would negate the summary
nature of the administrative or quasi-judicial proceedings.61 In Atlas
Consolidated Mining and Development Corporation v. Factoran,
Jr.,62 this Court stated that:
[I]t is sufficient that administrative findings of fact are
supported by evidence, or negatively stated, it is sufficient that
findings of fact are not shown to be unsupported by evidence.
Substantial evidence is all that is needed to support an
administrative finding of fact, and substantial evidence is "such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion."
In order to comply with the requirements of due process, what is
required, among other things, is that every litigant be given
reasonable opportunity to appear and defend his right and to
introduce relevant evidence in his favor. 63
As a rule, an absolute repeal of a penal law has the effect of

depriving the court of its authority to punish a person charged
with violation of the old law prior to its repeal. This is because
an unqualified repeal of a penal law constitutes a legislative act
of rendering legal what had been previously declared as illegal,
such that the offense no longer exists and it is as if the person
who committed it never did so. There are, however, exceptions
to the rule. One is the inclusion of a saving clause in the
repealing statute that provides that the repeal shall have no
effect on pending actions. Another exception is where the
repealing act reenacts the former statute and punishes the act
previously penalized under the old law. In such instance, the
act committed before the reenactment continues to be an
offense in the statute books and pending cases are not affected,
regardless of whether the new penalty to be imposed is more
favorable to the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the
respondents despite the repeal, since Sections 8, 65 12,66 26,67 2768 and
2369 of the Securities Regulations Code impose duties that are
substantially similar to Sections 8, 30 and 36 of the repealed Revised
Securities Act.
Section 8 of the Revised Securities Act, which previously provided for
the registration of securities and the information that needs to be
included in the registration statements, was expanded under Section
12, in connection with Section 8 of the Securities Regulations Code.

Further details of the information required to be disclosed by the
registrant are explained in the Amended Implementing Rules and
Regulations of the Securities Regulations Code, issued on 30
December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section
27 of the Securities Regulations Code, still penalizing an insider's
misuse of material and non-public information about the issuer, for
the purpose of protecting public investors. Section 26 of the Securities
Regulations Code even widens the coverage of punishable acts, which
intend to defraud public investors through various devices,
misinformation and omissions.
Section 23 of the Securities Regulations Code was practically lifted
from Section 36(a) of the Revised Securities Act. Both provisions
impose upon (1) a beneficial owner of more than ten percent of any
class of any equity security or (2) a director or any officer of the issuer
of such security, the obligation to submit a statement indicating his or
her ownership of the issuer's securities and such changes in his or her
ownership thereof.
Clearly, the legislature had not intended to deprive the courts of their
authority to punish a person charged with violation of the old law that
was repealed; in this case, the Revised Securities Act.
IV. The SEC retained the jurisdiction to investigate violations of the
Revised Securities Act, reenacted in the Securities Regulations
Code, despite the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that
criminal complaints for violations of rules and regulations enforced or
administered by the SEC shall be referred to the Department of Justice
(DOJ) for preliminary investigation, while the SEC nevertheless
retains limited investigatory powers.70 Additionally, the SEC may still
impose the appropriate administrative sanctions under Section 54 of
the aforementioned law.71
In Morato v. Court of Appeals,72 the cases therein were still pending

before the PED for investigation and the SEC for resolution when the
Securities Regulations Code was enacted. The case before the SEC
involved an intra-corporate dispute, while the subject matter of the
other case investigated by the PED involved the schemes, devices, and
violations of pertinent rules and laws of the company's board of
directors. The enactment of the Securities Regulations Code did not
result in the dismissal of the cases; rather, this Court ordered the
transfer of one case to the proper regional trial court and the SEC to
continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In this case, the
SEC already commenced the investigative proceedings against
respondents as early as 1994. Respondents were called to appear
before the SEC and explain their failure to disclose pertinent
information on 14 August 1994. Thereafter, the SEC Chairman, having
already made initial findings that respondents failed to make timely
disclosures of their negotiations with GHB, ordered a special
investigating panel to hear the case. The investigative proceedings
were interrupted only by the writ of preliminary injunction issued by
the Court of Appeals, which became permanent by virtue of the
Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the
pendency of this case, the Securities Regulations Code repealed the
Revised Securities Act. As in Morato v. Court of Appeals, the repeal
cannot deprive SEC of its jurisdiction to continue investigating the
case; or the regional trial court, to hear any case which may later be
filed against the respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and
academic, since any criminal complaint that may be filed against them
resulting from the SEC's investigation of this case has already
prescribed.73 They point out that the prescription period applicable to
offenses punished under special laws, such as violations of the
Revised Securities Act, is twelve years under Section 1 of Act No.
3326, as amended by Act No. 3585 and Act No. 3763, entitled "An Act
to Establish Periods of Prescription for Violations Penalized by Special
Acts and Municipal Ordinances and to Provide When Prescription

Shall Begin to Act."74 Since the offense was committed in 1994, they
reasoned that prescription set in as early as 2006 and rendered this
case moot. Such position, however, is incongruent with the factual
circumstances of this case, as well as the applicable laws and
jurisprudence.
It is an established doctrine that a preliminary investigation
interrupts the prescription period.75 A preliminary investigation is
essentially a determination whether an offense has been committed,
and whether there is probable cause for the accused to have
committed an offense:
A preliminary investigation is merely inquisitorial, and it is
often the only means of discovering the persons who may be
reasonably charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a trial of the
case on the merits and has no purpose except that of
determining whether a crime has been committed or whether
there is probable cause to believe that the accused is guilty
thereof.76
Under Section 45 of the Revised Securities Act, which is entitled
Investigations, Injunctions and Prosecution of Offenses, the Securities
Exchange Commission (SEC) has the authority to "make such
investigations as it deems necessary to determine whether any person
has violated or is about to violate any provision of this Act XXX." After
a finding that a person has violated the Revised Securities Act, the SEC
may refer the case to the DOJ for preliminary investigation and
prosecution.
While the SEC investigation serves the same purpose and entails
substantially similar duties as the preliminary investigation
conducted by the DOJ, this process cannot simply be disregarded. In
Baviera v. Paglinawan,77 this Court enunciated that a criminal
complaint is first filed with the SEC, which determines the existence of
probable cause, before a preliminary investigation can be commenced
by the DOJ. In the aforecited case, the complaint filed directly with the
DOJ was dismissed on the ground that it should have been filed first
with the SEC. Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal prosecution
was reproduced from Section 45 of the Revised Securities Act. 78 This
Court affirmed the dismissal, which it explained thus:
The Court of Appeals held that under the above provision, a
criminal complaint for violation of any law or rule
administered by the SEC must first be filed with the latter. If
the Commission finds that there is probable cause, then it
should refer the case to the DOJ. Since petitioner failed to
comply with the foregoing procedural requirement, the DOJ
did not gravely abuse its discretion in dismissing his complaint
in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation
Code is a specialized dispute. Hence, it must first be referred to
an administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not
determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate
matters of fact. The Securities Regulation Code is a special law.
Its enforcement is particularly vested in the SEC. Hence, all
complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall indorse the
complaint to the DOJ for preliminary investigation and
prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner
committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing petitioner's
complaint.
The said case puts in perspective the nature of the investigation

undertaken by the SEC, which is a requisite before a criminal case may
be referred to the DOJ. The Court declared that it is imperative that
the criminal prosecution be initiated before the SEC, the
administrative agency with the special competence.
It should be noted that the SEC started investigative proceedings
against the respondents as early as 1994. This investigation
effectively interrupted the prescription period. However, said
proceedings were disrupted by a preliminary injunction issued by the
Court of Appeals on 5 May 1995, which effectively enjoined the SEC
from filing any criminal, civil, or administrative case against the
respondents herein.79 Thereafter, on 20 August 1998, the appellate
court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering
that the writ of injunction be made permanent and prohibiting the
SEC from taking cognizance of and initiating any action against herein
respondents. The SEC was bound to comply with the aforementioned
writ of preliminary injunction and writ of injunction issued by the
Court of Appeals enjoining it from continuing with the investigation of
respondents for 12 years. Any deviation by the SEC from the
injunctive writs would be sufficient ground for contempt. Moreover,
any step the SEC takes in defiance of such orders will be considered
void for having been taken against an order issued by a court of
competent jurisdiction.
An investigation of the case by any other administrative or judicial
body would likewise be impossible pending the injunctive writs
issued by the Court of Appeals. Given the ruling of this Court
in Baviera v. Paglinawan,80 the DOJ itself could not have taken
cognizance of the case and conducted its preliminary investigation
without a prior determination of probable cause by the SEC. Thus,
even presuming that the DOJ was not enjoined by the Court of Appeals
from conducting a preliminary investigation, any preliminary
investigation conducted by the DOJ would have been a futile effort
since the SEC had only started with its investigation when
respondents themselves applied for and were granted an injunction
by the Court of Appeals.
Moreover, the DOJ could not have conducted a preliminary

investigation or filed a criminal case against the respondents during
the time that issues on the effectivity of Sections 8, 30 and 36 of the
Revised Securities Act and the PED Rules of Practice and Procedure
were still pending before the Court of Appeals. After the Court of
Appeals declared the aforementioned statutory and regulatory
provisions invalid and, thus, no civil, criminal or administrative case
may be filed against the respondents for violations thereof, the DOJ
would have been at a loss, as there was no statutory provision which
respondents could be accused of violating.
Accordingly, it is only after this Court corrects the erroneous ruling of
the Court of Appeals in its Decision dated 20 August 1998 that either
the SEC or DOJ may properly conduct any kind of investigation against
the respondents for violations of Sections 8, 30 and 36 of the Revised
Securities Act. Until then, the prescription period is deemed
interrupted.
To reiterate, the SEC must first conduct its investigations and make a
finding of probable cause in accordance with the doctrine pronounced
in Baviera v. Paglinawan.81 In this case, the DOJ was precluded from
initiating a preliminary investigation since the SEC was halted by the
Court of Appeals from continuing with its investigation. Such a
situation leaves the prosecution of the case at a standstill, and neither
the SEC nor the DOJ can conduct any investigation against the
respondents, who, in the first place, sought the injunction to prevent
their prosecution. All that the SEC could do in order to break the
impasse was to have the Decision of the Court of Appeals overturned,
as it had done at the earliest opportunity in this case. Therefore, the
period during which the SEC was prevented from continuing with its
investigation should not be counted against it. The law on the
prescription period was never intended to put the prosecuting bodies
in an impossible bind in which the prosecution of a case would be
placed way beyond their control; for even if they avail themselves of
the proper remedy, they would still be barred from investigating and
prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the

proceedings for the prosecution of the accused. In criminal cases, this
is accomplished by initiating the preliminary investigation. The
prosecution of offenses punishable under the Revised Securities Act
and the Securities Regulations Code is initiated by the filing of a
complaint with the SEC or by an investigation conducted by the
SEC motu proprio. Only after a finding of probable cause is made by
the SEC can the DOJ instigate a preliminary investigation. Thus, the
investigation that was commenced by the SEC in 1995, soon after it
discovered the questionable acts of the respondents, effectively
interrupted the prescription period. Given the nature and purpose of
the investigation conducted by the SEC, which is equivalent to the
preliminary investigation conducted by the DOJ in criminal cases, such
investigation would surely interrupt the prescription period.
VI. The Court of Appeals was justified in denying SEC's Motion for
Leave to Quash SEC Omnibus Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its
Motion for Leave to Quash SEC Omnibus Orders, dated 23 October
1995, in the light of its admission that the PED had the sole authority
to investigate the present case. On this matter, this Court cannot agree
with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion
for Leave to Quash SEC Omnibus Orders, since it found other issues
that were more important than whether or not the PED was the
proper body to investigate the matter. Its refusal was premised on its
earlier finding that no criminal, civil, or administrative case may be
filed against the respondents under Sections 8, 30 and 36 of the
Revised Securities Act, due to the absence of any implementing rules
and regulations. Moreover, the validity of the PED Rules on Practice
and Procedure was also raised as an issue. The Court of Appeals, thus,
reasoned that if the quashal of the orders was granted, then it would
be deprived of the opportunity to determine the validity of the
aforementioned rules and statutory provisions. In addition, the SEC
would merely pursue the same case without the Court of Appeals
having determined whether or not it may do so in accordance with
due process requirements. Absent a determination of whether the SEC

may file a case against the respondents based on the assailed
provisions of the Revised Securities Act, it would have been improper
for the Court of Appeals to grant the SEC's Motion for Leave to Quash
SEC Omnibus Orders.
In all, this Court rules that no implementing rules were needed to
render effective Sections 8, 30 and 36 of the Revised Securities Act;
nor was the PED Rules of Practice and Procedure invalid, prior to the
enactment of the Securities Regulations Code, for failure to provide
parties with the right to cross-examine the witnesses presented
against them. Thus, the respondents may be investigated by the
appropriate authority under the proper rules of procedure of the
Securities Regulations Code for violations of Sections 8, 30, and 36 of
the Revised Securities Act.82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This
Court hereby REVERSES the assailed Decision of the Court of Appeals
promulgated on 20 August 1998 in CA-G.R. SP No. 37036
and LIFTS the permanent injunction issued pursuant thereto. This
Court further DECLARES that the investigation of the respondents for
violations of Sections 8, 30 and 36 of the Revised Securities Act may
be undertaken by the proper authorities in accordance with the
Securities Regulations Code. No costs.
SO ORDERED.
4. G.R. No. 161057

BETTY GABIONZA and ISABELITA TAN, Petitioners,
- versus COURT OF APPEALS,
Promulgated:
September 12, 2008
x ---------------------------------------------------------------------------------x
DECISION
Tinga, J.:
On 21 August 2000, petitioners Betty Go Gabionza (Gabionza) and
Isabelita
Tan
(Tan) filed
their respective Complaints1
affidavit charging private respondents Luke Roxas (Roxas) and
Evelyn Nolasco (Nolasco) with several criminal acts. Roxas was the
president of ASB Holdings, Inc. (ASBHI) while Nolasco was the senior
vice president and treasurer of the same corporation.
According to petitioners, ASBHI was incorporated in 1996 with its
declared primary purpose to invest in any and all real and personal
properties of every kind or otherwise acquire the stocks, bonds, and
other securities or evidence of indebtedness of any other corporation,
and to hold or own, use, sell, deal in, dispose of, and turn to account
any such stocks.2 ASBHI was organized with an authorized capital
stock of P500,000.00, a fact reflected in the corporations articles of
incorporation, copies of which were appended as annexes to the
complaint.3
Both petitioners had previously placed monetary investment with the
Bank of Southeast Asia (BSA). They alleged that between 1996 and
1997, they were convinced by the officers of ASBHI to lend o r deposit
money with the corporation. They and other investors were urged to
lend, invest or deposit money with ASBHI, and in return they would
receive checks from ASBHI for the amount so lent, invested or
deposited. At first, they were issued receipts reflecting the name "ASB
Realty Development" which they were told was the same entity as
BSA or was connected therewith, but beginning in March 1998, the
receipts were issued in the name of ASBHI. They claimed that they
were told that ASBHI was exactly the same institution that they had
previously dealt with.4
ASBHI would issue two (2) postdated checks to its lenders, one
representing the principal amount and the other covering the interest
thereon. The checks were drawn against DBS Bank and would mature
in 30 to 45 days. On the maturity of the checks, the individual lenders
would renew the loans, either collecting only the interest earnings or
rolling over the same with the principal amounts.5
In the first quarter of 2000, DBS Bank started to refuse to pay for the
checks purportedly by virtue of "stop payment" orders from ASBHI. In
May of 2000, ASBHI filed a petition for rehabilitation and receivership
with the Securities and Exchange Commission (SEC), and it was able
to obtain an order enjoining it from paying its outstanding
liabilities.6 This series of events led to the filing of the complaints by
petitioners, together with Christine Chua, Elizabeth Chan, Ando Sy and
Antonio Villareal, against ASBHI.7 The complaints were for estafa
under Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa
under Presidential Decree No. 1689, violation of the Revised
Securities Act and violation of the General Banking Act.
A special task force, the Task Force on Financial Fraud (Task Force),
was created by the Department of Justice (DOJ) to investigate the
several complaints that were lodged in relation to ASBHI. 8 The Task
Force, dismissed the complaint on 19 October 2000, and the dismissal
was concurred in by the assistant chief state prosecutor and approved
by the chief state prosecutor.9 Petitioners filed a motion for
reconsideration but this was denied in February 2001. 10 With respect
to the charges of estafa under Article 315(2) of the Revised Penal
Code and of violation of the Revised Securities Act (which form the
crux of the issues before this Court), the Task Force concluded that
the subject transactions were loans which gave rise only to civil
liability; that petitioners were satisfied with the arrangement from
1996 to 2000; that petitioners never directly dealt with Nolasco and
Roxas; and that a check was not a security as contemplated by the

Revised Securities Act.
Petitioners then filed a joint petition for review with the Secretary of
Justice. On 15 October 2001, then Secretary Hernando Perez issued a
resolution which partially reversed the Task Force and instead
directed the filing of five (5) Informations for estafa under Article
315(2)(a) of the Revised Penal Code on the complaints of Chan and
petitioners Gabionza and Tan, and an Information for violation of
Section 4 in relation to Section 56 of the Revised Securities
Act.11 Motions for reconsideration to this Resolution were denied by
the Department of Justice in a Resolution dated 3 July 2002. 12
Even as the Informations were filed before the Regional Trial Court of
Makati City, private respondents assailed the DOJ Resolution by way
of a certiorari petition with the Court of Appeals. In its assailed
Decision13 dated 18 July 2003, the Court of Appeals reversed the DOJ
and ordered the dismissal of the criminal cases. The dismissal was
sustained by the appellate court when it denied petitioners motion
for reconsideration in a Resolution dated 28 November 2003. 14 Hence
this petition filed by Gabionza and Tan.
The Court of Appeals deviated from the general rule that accords
respect to the discretion of the DOJ in the determination of probable
cause. This Court consistently adheres to its policy of non-interference
in the conduct of preliminary investigations, and to leave to the
investigating prosecutor sufficient latitude of discretion in the
determination of what constitutes sufficient evidence to establish
probable cause for the filing of an information against a supposed
offender.15
At the outset, it is critical to set forth the key factual findings of the
DOJ which led to the conclusion that probable cause existed against
the respondents. The DOJ Resolution states, to wit:
The transactions in question appear to be mere renewals of the loans
the complainant-petitioners earlier granted to BSA. However, just
after they agreed to renew the loans, the ASB agents who dealt with
them issued to them receipts indicating that the borrower was ASB
Realty, with the representation that it was "the same entity as BSA or
connected therewith." On the strength of this representation, along
with other claims relating to the status of ASB and its supposed
financial capacity to meet obligations, the complainant-petitioners
acceded to lend the funds to ASB Realty instead. As it turned out,
however, ASB had in fact no financial capacity to repay the loans as it
had an authorized capital stock of only P500,000.00 and paid up
capital of only P125,000.00. Clearly, the representations regarding its
supposed financial capacity to meet its obligations to the
complainant-petitioners were simply false. Had they known that ASB
had in fact no such financial capacity, they would not have invested
millions of pesos. Indeed, no person in his proper frame of mind
would venture to lend millions of pesos to a business entity having
such a meager capitalization. The fact that the complainantpetitioners might have benefited from its earlier dealings with ASB,
through interest earnings on their previous loans, is of no moment, it
appearing that they were not aware of the fraud at those times they
renewed the loans.
The false representations made by the ASB agents who dealt with the
complainant-petitioners and who inveigled them into investing their
funds in ASB are properly imputable to respondents Roxas and
Nolasco, because they, as ASBs president and senior vice
president/treasurer, respectively, in charge of its operations, directed
its agents to make the false representations to the public, including
the complainant-petitioners, in order to convince them to invest their
moneys in ASB. It is difficult to make a different conclusion, judging
from the fact that respondents Roxas and Nolasco authorized and
accepted for ASB the fraud-induced loans. This makes them liable for
estafa under Article 315 (paragraph 2 [a]) of the Revised Penal Code.
They cannot escape criminal liability on the ground that they did not
personally deal with the complainant-petitioners in regard to the
transactions in question. Suffice it to state that to commit a crime,
inducement is as sufficient and effective as direct participation. 16
Notably, neither the Court of Appeals decision nor the dissent raises
any serious disputation as to the occurrence of the facts as narrated in
the above passage. They take issue instead with the proposition that
such facts should result in a prima facie case against either Roxas or
Nolasco, especially given that neither of them engaged in any face-toface dealings with petitioners. Leaving aside for the moment whether
this assumed remoteness of private respondents sufficiently insulates
them from criminal liability, let us first discern whether the abovestated findings do establish a prima facie case that petitioners were
indeed the victims of the crimes of estafa under Article 315(2)(a) of
the Revised Penal Code and of violation of the Revised Securities Act.
Article 315(2)(a) of the Revised Penal Code states:
ART. 315. Swindling (estafa). Any person who shall defraud
another by any of the means mentioned herein below shall be
punished by:
xxx xxx xxx
(2) By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneous with the commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power,
influence, qualifications, property, credit, agency, business or
imaginary transactions, or by means of other similar deceits;
xxx xxx xxx
The elements of estafa by means of deceit as defined under Article
315(2)(a) of the Revised Penal Code are as follows: (1) that there
must be a false pretense, fraudulent act or fraudulent means; (2) that
such false pretense, fraudulent act or fraudulent means must be made
or executed prior to or simultaneously with the commission of the
fraud; (3) that the offended party must have relied on the false
pretense, fraudulent act or fraudulent means, that is, he was induced
to part with his money or property because of the false pretense,
fraudulent act or fraudulent means; and (4) that as a result thereof,
the offended party suffered damage.17
Do the findings embodied in the DOJ Resolution align with the

foregoing elements of estafa by means of deceit?
First. The DOJ Resolution explicitly identified the false pretense,
fraudulent act or fraudulent means perpetrated upon the petitioners.
It narrated that petitioners were made to believe that ASBHI had the
financial capacity to repay the loans it enticed petitioners to extend,
despite the fact that "it had an authorized capital stock of
only P500,000.00 and paid up capital of only P125,000.00."18 The
deficient capitalization of ASBHI is evinced by its articles of
incorporation, the treasurers affidavit executed by Nolasco, the
audited financial statements of the corporation for 1998 and the
general information sheets for 1998 and 1999, all of which petitioners
attached to their respective affidavits.19
The Court of Appeals conceded the fact of insufficient capitalization,
yet discounted its impact by noting that ASBHI was able to make good
its loans or borrowings from 1998 until the first quarter of
2000.20 The short-lived ability of ASBHI, to repay its loans does not
negate the fraudulent misrepresentation or inducement it has
undertaken to obtain the loans in the first place. The material
question is not whether ASBHI inspired exculpatory confidence in its
investors by making good on its loans for a while, but whether such
investors would have extended the loans in the first place had they
known its true financial setup. The DOJ reasonably noted that "no
person in his proper frame of mind would venture to lend millions of
pesos to a business entity having such a meager capitalization." In
estafa under Article 315(2)(a), it is essential that such false statement
or false representation constitute the very cause or the only motive
which induces the complainant to part with the thing. 21
Private respondents argue before this Court that the true
capitalization of ASBHI has always been a matter of public record,
reflected as it is in several documents which could be obtained by the
petitioners from the SEC.22 We are not convinced. The material
misrepresentations have been made by the agents or employees of
ASBHI to petitioners, to the effect that the corporation was
structurally sound and financially able to undertake the series of loan
transactions that it induced petitioners to enter into. Even if ASBHIs

lack of financial and structural integrity is verifiable from the articles
of incorporation or other publicly available SEC records, it does not
follow that the crime of estafa through deceit would be beyond
commission when precisely there are bending representations that
the company would be able to meet its obligations. Moreover,
respondents argument assumes that there is legal obligation on the
part of petitioners to undertake an investigation of ASBHI before
agreeing to provide the loans. There is no such obligation. It is unfair
to expect a person to procure every available public record
concerning an applicant for credit to satisfy himself of the latters
financial standing. At least, that is not the way an average person
takes care of his concerns.
Second. The DOJ Resolution also made it clear that the false
representations have been made to petitioners prior to or
simultaneously with the commission of the fraud. The assurance given
to them by ASBHI that it is a worthy credit partner occurred before
they parted with their money. Relevantly, ASBHI is not the entity with
whom petitioners initially transacted with, and they averred that they
had to be convinced with such representations that Roxas and the
same group behind BSA were also involved with ASBHI.
Third. As earlier stated, there was an explicit and reasonable
conclusion drawn by the DOJ that it was the representation of ASBHI
to petitioners that it was creditworthy and financially capable to pay
that induced petitioners to extend the loans. Petitioners, in their
respective complaint-affidavits, alleged that they were enticed to
extend the loans upon the following representations: that ASBHI was
into the very same activities of ASB Realty Corp., ASB Development
Corp. and ASB Land, Inc., or otherwise held controlling interest
therein; that ASB could legitimately solicit funds from the public for
investment/borrowing purposes; that ASB, by itself, or through the
corporations aforestated, owned real and personal properties which
would support and justify its borrowing program; that ASB was
connected with and firmly backed by DBS Bank in which Roxas held a
substantial stake; and ASB would, upon maturity of the checks it
issued to its lenders, pay the same and that it had the necessary
resources to do so.23
Fourth. The DOJ Resolution established that petitioners sustained
damage as a result of the acts perpetrated against them. The damage
is considerable as to petitioners. Gabionza lost P12,160,583.32
whereas Tan lost 16,411,238.57.24 In addition, the DOJ Resolution
noted that neither Roxas nor Nolasco disputed that ASBHI had
borrowed funds from about 700 individual investors amounting to
close to P4B.25
To the benefit of private respondents, the Court of Appeals ruled,
citing Sesbreno v. Court of Appeals,26 that the subject transactions
"are akin to money market placements which partake the nature of a
loan, the non-payment of which does not give rise to criminal liability
for estafa." The citation is woefully misplaced. Sesbreno affirmed that
"a money market transaction partakes the nature of a loan and
therefore nonpayment thereof would not give rise to criminal liability
for estafa through misappropriation or conversion." 27 Estafa through
misappropriation or conversion is punishable under Article
315(1)(b), while the case at bar involves Article 315 (2)(a), a mode of
estafa by means of deceit. Indeed, Sesbreno explains: "In money
market placement, the investor is a lender who loans his money to a
borrower through a middleman or dealer. Petitioner here loaned his
money to a borrower through Philfinance. When the latter failed to
deliver back petitioner's placement with the corresponding interest
earned at the maturity date, the liability incurred by Philfinance was a
civil one."28 That rationale is wholly irrelevant to the complaint at bar,
which centers not on the inability of ASBHI to repay petitioners but on
the fraud and misrepresentation committed by ASBHI to induce
petitioners to part with their money.
To be clear, it is possible to hold the borrower in a money market
placement liable for estafa if the creditor was induced to extend a loan
upon the false or fraudulent misrepresentations of the borrower. Such
estafa is one by means of deceit. The borrower would not be generally
liable for estafa through misappropriation if he or she fails to repay
the loan, since the liability in such instance is ordinarily civil in nature.
We can thus conclude that the DOJ Resolution clearly supports a

prima facie finding that the crime of estafa under Article 315 (2)(a)
has been committed against petitioners. Does it also establish a prima
facie finding that there has been a violation of the then-Revised
Securities Act, specifically Section 4 in relation to Section 56 thereof?
Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act,
generally requires the registration of securities and prohibits the sale
or distribution of unregistered securities. 29 The DOJ extensively
concluded that private respondents are liable for violating such
prohibition against the sale of unregistered securities:
Respondents Roxas and Nolasco do not dispute that in 1998, ASB
borrowed funds about 700 individual investors amounting to close to
P4 billion, on recurring, short-term basis, usually 30 or 45 days,
promising high interest yields, issuing therefore mere postdate
checks. Under the circumstances, the checks assumed the character of
"evidences of indebtedness," which are among the "securities"
mentioned under the Revised Securities Act. The term "securities"
embodies a flexible rather than static principle, one that is capable of
adaptation to meet the countless and variable schemes devised by
those who seek to use the money of others on the promise of profits
(69 Am Jur 2d, p. 604). Thus, it has been held that checks of a debtor
received and held by the lender also are evidences of indebtedness
and therefore "securities" under the Act, where the debtor agreed to
pay interest on a monthly basis so long as the principal checks
remained uncashed, it being said that such principal extent as would
have promissory notes payable on demand (Id., p. 606, citing Untied
States v. Attaway (DC La) 211 F Supp 682). In the instant case, the
checks were issued by ASB in lieu of the securities enumerated under
the Revised Securities Act in a clever attempt, or so they thought, to
take the case out of the purview of the law, which requires prior
license to sell or deal in securities and registration thereof. The
scheme was to designed to circumvent the law. Checks constitute
mere substitutes for cash if so issued in payment of obligations in the
ordinary course of business transactions. But when they are issued in
exchange for a big number of individual non-personalized loans
solicited from the public, numbering about 700 in this case, the checks
cease to be such. In such a circumstance, the checks assume the

character of evidences of indebtedness. This is especially so where the
individual loans were not evidenced by appropriate debt instruments,
such as promissory notes, loan agreements, etc., as in this case.
Purportedly, the postdated checks themselves serve as the evidences
of the indebtedness. A different rule would open the floodgates for a
similar scheme, whereby companies without prior license or
authority from the SEC. This cannot be countenanced. The subsequent
repeal of the Revised Securities Act does not spare respondents Roxas
and Nolasco from prosecution thereunder, since the repealing law,
Republic Act No. 8799 known as the "Securities Regulation Code,"
continues to punish the same offense (see Section 8 in relation to
Section 73, R.A. No. 8799).30
The Court of Appeals however ruled that the postdated checks issued
by ASBHI did not constitute a security under the Revised Securities
Act. To support this conclusion, it cited the general definition of a
check as "a bill of exchange drawn on a bank and payable on demand,"
and took cognizance of the fact that "the issuance of checks for the
purpose of securing a loan to finance the activities of the corporation
is well within the ambit of a valid corporate act" to note that a
corporation does not need prior registration with the SEC in order to
be able to issue a check, which is a corporate prerogative.
This analysis is highly myopic and ignorant of the bigger picture. It is
one thing for a corporation to issue checks to satisfy isolated
individual obligations, and another for a corporation to execute an
elaborate scheme where it would comport itself to the public as a
pseudo-investment house and issue postdated checks instead of
stocks or traditional securities to evidence the investments of its
patrons. The Revised Securities Act was geared towards maintaining
the stability of the national investment market against activities such
as those apparently engaged in by ASBHI. As the DOJ Resolution
noted, ASBHI adopted this scheme in an attempt to circumvent the
Revised Securities Act, which requires a prior license to sell or deal in
securities. After all, if ASBHIs activities were actually regulated by the
SEC, it is hardly likely that the design it chose to employ would have
been permitted at all.
But was ASBHI able to successfully evade the requirements under the
Revised Securities Act? As found by the DOJ, there is ultimately a
prima facie case that can at the very least sustain prosecution of
private respondents under that law. The DOJ Resolution is persuasive
in citing American authorities which countenance a flexible definition
of securities. Moreover, it bears pointing out that the definition of
"securities" set forth in Section 2 of the Revised Securities Act
includes "commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to
another."31 A check is a commercial paper evidencing indebtedness of
any person, financial or non-financial entity. Since the checks in this
case were generally rolled over to augment the creditors existing
investment with ASBHI, they most definitely take on the attributes of
traditional stocks.
We should be clear that the question of whether the subject checks fall
within the classification of securities under the Revised Securities Act
may still be the subject of debate, but at the very least, the DOJ
Resolution has established a prima facie case for prosecuting private
respondents for such offense. The thorough determination of such
issue is best left to a full-blown trial of the merits, where private
respondents are free to dispute the theories set forth in the DOJ
Resolution. It is clear error on the part of the Court of Appeals to
dismiss such finding so perfunctorily and on such flimsy grounds that
do not consider the grave consequences. After all, as the DOJ
Resolution correctly pointed out: "[T]he postdated checks themselves
serve as the evidences of the indebtedness. A different rule would
open the floodgates for a similar scheme, whereby companies without
prior license or authority from the SEC. This cannot be
countenanced."32
This conclusion quells the stance of the Court of Appeals that the
unfortunate events befalling petitioners were ultimately benign, not
malevolent, a consequence of the economic crisis that beset the
Philippines during that era.33 That conclusion would be agreeable
only if it were undisputed that the activities of ASBHI are legal in the
first place, but the DOJ puts forth a legitimate theory that the entire
modus operandi of ASBHI is illegal under the Revised Securities Act

and if that were so, the impact of the Asian economic crisis would not
obviate the criminal liability of private respondents.
Private respondents cannot make capital of the fact that when the DOJ
Resolution was issued, the Revised Securities Act had already been
repealed by the Securities Regulation Code of 2000. 34 As noted by the
DOJ, the new Code does punish the same offense alleged of
petitioners, particularly Section 8 in relation to Section 73 thereof.
The complained acts occurred during the effectivity of the Revised
Securities Act. Certainly, the enactment of the new Code in lieu of the
Revised Securities Act could not have extinguished all criminal acts
committed under the old law.
In 1909-1910, the Philippine and United States Supreme Courts
affirmed the principle that when the repealing act reenacts
substantially the former law, and does not increase the punishment of
the accused, "the right still exists to punish the accused for an offense
of which they were
convicted and sentenced before the passage of the later act." 35 This
doctrine was reaffirmed as recently as 2001, where the Court, through
Justice Quisumbing, held in Benedicto v. Court of Appeals 36 that an
exception to the rule that the absolute repeal of a penal law deprives
the court of authority to punish a person charged with violating the
old law prior to its repeal is "where the repealing act reenacts the
former statute and punishes the act previously penalized under the
old law."37 It is worth noting that both the Revised Securities Act and
the Securities Regulation Code of 2000 provide for exactly the same
penalty: "a fine of not less than five thousand (P5,000.00) pesos nor
more than five hundred thousand (P500,000.00) pesos or
imprisonment of not less than seven (7) years nor more than twenty
one (21) years, or both, in the discretion of the court." 38
It is ineluctable that the DOJ Resolution established a prima facie case
for violation of Article 315 (2)(a) of the Revised Penal Code and
Sections 4 in relation to 56 of the Revised Securities Act. We now turn
to the critical question of whether the same charges can be pinned

against Roxas and Nolasco likewise.
The DOJ Resolution did not consider it exculpatory that Roxas and
Nolasco had not themselves dealt directly with petitioners, observing
that "to commit a crime, inducement is as sufficient and effective as
direct participation."39 This conclusion finds textual support in Article
1740 of the Revised Penal Code. The Court of Appeals was unable to
point to any definitive evidence that Roxas or Nolasco did not instruct
or induce the agents of ASBHI to make the false or misleading
representations to the investors, including petitioners. Instead, it
sought to acquit Roxas and Nolasco of any liability on the ground that
the traders or employees of ASBHI who directly made the dubious
representations to petitioners were never identified or impleaded as
respondents.
It appears that the Court of Appeals was, without saying so, applying
the rule in civil cases that all indispensable parties must be impleaded
in a civil action.41 There is no equivalent rule in criminal procedure,
and certainly the Court of Appeals decision failed to cite any statute,
procedural rule or jurisprudence to support its position that the
failure to implead the traders who directly dealt with petitioners is
indeed fatal to the complaint.42
Assuming that the traders could be tagged as principals by direct
participation in tandem with Roxas and Nolasco the principals by
inducement does it make sense to compel that they be jointly
charged in the same complaint to the extent that the exclusion of one
leads to the dismissal of the complaint? It does not. Unlike in civil
cases, where indispensable parties are required to be impleaded in
order to allow for complete relief once the case is adjudicated, the
determination of criminal liability is individual to each of the
defendants. Even if the criminal court fails to acquire jurisdiction over
one or some participants to a crime, it still is able to try those accused
over whom it acquired jurisdiction. The criminal court will still be
able to ascertain the individual liability of those accused whom it
could try, and hand down penalties based on the degree of their
participation in the crime. The absence of one or some of the accused
may bear impact on the available evidence for the prosecution or

defense, but it does not deprive the trial court to accordingly try the
case based on the evidence that is actually available.
At bar, if it is established after trial that Roxas and Nolasco instructed
all the employees, agents and traders of ASBHI to represent the
corporation as financially able to engage in the challenged
transactions and repay its investors, despite their knowledge that
ASBHI was not established to be in a position to do so, and that
representatives of ASBHI accordingly made such representations to
petitioners, then private respondents could be held liable for estafa.
The failure to implead or try the employees, agents or traders will not
negate such potential criminal liability of Roxas and Nolasco. It is
possible that the non-participation of such traders or agents in the
trial will affect the ability of both petitioners and private respondents
to adduce evidence during the trial, but it cannot quell the existence of
the crime even before trial is had. At the very least, the nonidentification or non-impleading of such traders or agents cannot
negatively impact the finding of probable cause.
The assailed ruling unfortunately creates a wide loophole, especially
in this age of call centers, that would create a nearly fool-proof
scheme whereby well-organized criminally-minded enterprises can
evade prosecution for criminal fraud. Behind the veil of the
anonymous call center agent, such enterprises could induce the
investing public to invest in fictional or incapacitated corporations
with fraudulent impossible promises of definite returns on
investment. The rule, as set forth by the Court of Appeals ruling, will
allow the masterminds and profiteers from the scheme to take the
money and run without fear of the law simply because the defrauded
investor would be hard-pressed to identify the anonymous call center
agents who, reading aloud the script prepared for them in mellifluous
tones, directly enticed the investor to part with his or her money.
Is there sufficient basis then to establish probable cause against Roxas
and Nolasco? Taking into account the relative remoteness of private
respondents to petitioners, the DOJ still concluded that there was. To
repeat:
The false representations made by the ASB agents who dealt with the
complainant-petitioners and who inveigled them into investing their
funds in ASB are properly imputable to respondents Roxas and
Nolasco, because they, as ASBs president and senior vice
president/treasurer, respectively, respectively, in charge of its
operations, directed its agents to make the false representations to
the public, including the complainant-petitioners, in order to convince
them to invest their moneys in ASB. It is difficult to make a different
conclusion, judging from the fact that respondents Roxas and Nolasco
authorized and accepted for ASB the fraud-induced loans.43
Indeed, the facts as thus established cannot lead to a definite,
exculpatory conclusion that Roxas and Nolasco did not instruct, much
less forbid, their agents from making the misrepresentations to
petitioners. They could of course pose that defense, but such claim can
only be established following a trial on the merits considering that
nothing in the record proves without doubt such law-abiding
prudence on their part. There is also the fact that ABSHI, their
corporation, actually received the alleged amounts of money from
petitioners. It is especially curious that according to the ASBHI
balance sheets dated 31 December 1999, which petitioners attached
to their affidavit-complaints,44 over five billion pesos were booked as
"advances to stockholder" when, according to the general information
sheet for 1999, Roxas owned 124,996 of the 125,000 subscribed
shares of ASBHI.45 Considering that ASBHI had an authorized capital
stock of only P500,000 and a subscribed capital of P125,000, it can be
reasonably deduced that such large amounts booked as "advances to
stockholder" could have only come from the loans extended by over
700 investors to ASBHI.
It is true that there are exceptions that may warrant departure from
the general rule of non-interference with the determination of
probable cause by the DOJ, yet such exceptions do not lie in this case,
and the justifications actually cited in the Court of Appeals decision
are exceptionally weak and ultimately erroneous. Worse, it too hastily
condoned the apparent evasion of liability by persons who seemingly
profited at the expense of investors who lost millions of pesos. The
Courts conclusion is that the DOJS decision to prosecute private
respondents is founded on sufficient probable cause, and the ultimate

determination of guilt or acquittal is best made through a full trial on
the merits. Indeed, many of the points raised by private respondents
before this Court, related as they are to the factual context
surrounding the subject transactions, deserve the full assessment and
verification only a trial on the merits can accord.
WHEREFORE, the petition is GRANTED. The assailed Decision and
Resolution of the Court of Appeals dated 18 July 2003 and 28
November 2003 are REVERSED and SET ASIDE. The Resolutions of
the Department of Justice in I.S. Nos. 2000-1418 to 1422 dated 15
October 2001 and 3 July 2002 are REINSTATED. Costs against private
respondents.
DANTE
Associate Justice
O.
TINGA
5. G.R. No. 171815
August 7, 2007
CEMCO
HOLDINGS,
INC., Petitioner,
vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES,
INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court seeks to
reverse and set aside the 24 October 2005 Decision 1 and the 6 March
2006 Resolution2 of the Court of Appeals in CA-G.R. SP No. 88758
which affirmed the judgment3 dated 14 February 2005 of the
Securities and Exchange Commission (SEC) finding that the
acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the shares of
stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas
Cement Corporation (ACC) in Union Cement Holdings Corporation
(UCHC) was covered by the Mandatory Offer Rule under Section 19 of
Republic Act No. 8799, otherwise known as the Securities Regulation
Code.
The 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
UCHCs 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 dated 5 July 2004, BCI informed the Philippine
Stock Exchange (PSE) that it and its subsidiary ACC had passed
resolutions to sell to Cemco BCIs stocks in UCHC equivalent to
21.31% and ACCs stocks in UCHC equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it
was stated that as a result of petitioner Cemcos acquisition of BCI and
ACCs shares in UCHC, petitioners total beneficial ownership, direct

and indirect, in UCC has increased by 36% and amounted to at least
53% of the shares of UCC, to wit4 :
Particulars
Percentage
Existing shares of Cemco in UCHC
9%
Acquisition by Cemco of BCIs and ACCs shares in 51%

UCHC
Total stocks of Cemco in UCHC
60%
Percentage of UCHC ownership in UCC
60%
Indirect ownership of Cemco in UCC
36%
Direct ownership of Cemco in UCC
17%
Total ownership of Cemco in UCC
53%
As a consequence of this disclosure, the PSE, in a letter to the SEC

dated 15 July 2004, 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.
In a letter dated 16 July 2004, Director Justina Callangan of the SECs
Corporate Finance Department responded to the query of the PSE that
while it was the stance of the department that the tender offer rule
was not applicable, the matter must still have to be confirmed by the
SEC en banc.
Thereafter, in a subsequent letter dated 27 July 2004, Director
Callangan confirmed that the SEC en banc had resolved that the
Cemco transaction was not covered by the tender offer rule.
On 28 July 2004, 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.
On 5 August 2004, a Share Purchase Agreement was executed by ACC
and BCI, as sellers, and Cemco, as buyer.
On 12 August 2004, the transaction was consummated and closed.
On 19 August 2004, respondent 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. Impleaded in the complaint were Cemco,
UCC, UCHC, BCI and ACC, which were then required by the SEC to file
their respective comment on the complaint. In their comments, they
were uniform in arguing that the tender offer rule applied only to a
direct acquisition of the shares of the listed company and did not
extend to an indirect acquisition arising from the purchase of the
shares of a holding company of the listed firm.
In a Decision dated 14 February 2005, 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.
Petitioner filed a petition with the Court of Appeals challenging the
SECs jurisdiction to take cognizance of respondents complaint and its
authority to require Cemco to make a tender offer for UCC shares, and
arguing that the tender offer rule does not apply, or that the SECs reinterpretation of the rule could not be made to retroactively apply to
Cemcos purchase of UCHC shares.
The Court of Appeals rendered a decision affirming the ruling o f 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 SECs jurisdiction. It, likewise, held that the tender
offer requirement under the Securities Regulation Code and its

Implementing Rules applies to Cemcos purchase of UCHC stocks. The
decretal portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision of the SEC is
AFFIRMED, and the preliminary injunction issued by the Court
LIFTED.5
Cemco filed a motion for reconsideration which was denied by the
Court of Appeals.
Hence, the instant petition.
In its memorandum, petitioner Cemco raises the following issues:
I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION
OVER NATIONAL LIFES COMPLAINT AND THAT THE SECS
RE-INTERPRETATION OF THE TENDER OFFER RULE IS
CORRECT, WHETHER OR NOT THAT REINTERPRETATION
CAN BE APPLIED RETROACTIVELY TO CEMCOS PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO
ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO
OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A
TENDER OFFER FOR UCC SHARES.
III.
WHETHER OR NOT CEMCOS PURCHASE OF UCHC SHARES IS
SUBJECT TO THE TENDER OFFER REQUIREMENT.
IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE

CA DECISION, IS AN INCOMPLETE JUDGMENT WHICH
PRODUCED NO EFFECT.6
Simply stated, the following are the issues:
1. Whether or not the SEC has jurisdiction over respondents
complaint and to require Cemco to make a tender offer for
respondents 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
publicly-listed 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.
On the first issue, petitioner Cemco contends that while the SEC can
take cognizance of respondents complaint on the alleged violation by
petitioner Cemco of the mandatory tender offer requirement under
Section 19 of Republic Act No. 8799, the same statute does not vest
the SEC with jurisdiction to adjudicate and determine the rights and
obligations of the parties since, under the same statute, the SECs
authority is purely administrative. Having been vested with purely
administrative authority, the SEC can only impose administrative
sanctions such as the imposition of administrative fines, the
suspension or revocation of registrations with the SEC, and the like.
Petitioner stresses that there is nothing in the statute which
authorizes the SEC to issue orders granting affirmative reliefs. Since
the SECs order commanding it to make a tender offer is an affirmative
relief fixing the respective rights and obligations of parties, such order
is void.
Petitioner further contends that in the absence of any specific grant of

jurisdiction by Congress, the SEC cannot, by mere administrative
regulation, confer on itself that jurisdiction.
Petitioners stance fails to persuade.
In taking cognizance of respondents 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 SECs 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. As correctly held by the Court of Appeals:
We are nonetheless convinced that the SEC has the competence to
render the particular decision it made in this case. A definite inference
may be drawn from the provisions of the SRC that the SEC has the
authority not only to investigate complaints of violations of the tender
offer rule, but to adjudicate certain rights and obligations of the
contending parties and grant appropriate reliefs in the exercise of its
regulatory functions under the SRC. Section 5.1 of the SRC allows a
general grant of adjudicative powers to the SEC which may be implied
from or are necessary or incidental to the carrying out of its express
powers to achieve the objectives and purposes of the SRC. We must
bear in mind in interpreting the powers and functions of the SEC that
the law has made the SEC primarily a regulatory body with the
incidental power to conduct administrative hearings and make
decisions. A regulatory body like the SEC may conduct hearings in the
exercise of its regulatory powers, and if the case involves violations or
conflicts in connection with the performance of its regulatory
functions, it will have the duty and authority to resolve the dispute for
the best interests of the public.8
For sure, the SEC has the authority to promulgate rules and
regulations, subject to the limitation that the same are consistent with
the declared policy of the Code. Among them is the protection of the
investors and the minimization, if not total elimination, of fraudulent
and manipulative devises. Thus, Subsection 5.1(g) of the law provides:
Prepare, approve, amend or repeal rules, regulations and orders, and

issue opinions and provide guidance on and supervise compliance
with such rules, regulations and orders.
Also, Section 72 of the Securities Regulation Code reads:
72.1. x x x To effect the provisions and purposes of this Code,
the Commission may issue, amend, and rescind such rules and
regulations and orders necessary or appropriate, x x x.
72.2. The Commission shall promulgate rules and regulations
providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise, of
and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. Such rules and regulations
may require such issuer to provide holders of equity securities
of such dates with such information relating to the reasons for
such purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the method
of purchase and such additional information as the
Commission deems necessary or appropriate in the public
interest or for the protection of investors, or which the
Commission deems to be material to a determination by
holders whether such security should be sold.
The power conferred upon the SEC to promulgate rules and
regulations is a legislative recognition of the complexity and the
constantly-fluctuating nature of the market and the impossibility of
foreseeing all the possible contingencies that cannot be addressed in
advance. As enunciated in Victorias Milling Co., Inc. v. Social Security
Commission9 :
Rules and regulations when promulgated in pursuance of the
procedure or authority conferred upon the administrative agency by
law, partake of the nature of a statute, and compliance therewith may
be enforced by a penal sanction provided in the law. This is so because
statutes are usually couched in general terms, after expressing the
policy, purposes, objectives, remedies and sanctions intended by the

legislature. The details and the manner of carrying out the law are
often times left to the administrative agency entrusted with its
enforcement. In this sense, it has been said that rules and regulations
are the product of a delegated power to create new or additional legal
provisions that have the effect of law.
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. In
fact, petitioner defended the jurisdiction of the SEC in its Comment
dated 15 September 2004, filed with the SEC wherein it asserted:
This Honorable Commission is a highly specialized body created for
the purpose of administering, overseeing, and managing the corporate
industry, share investment and securities market in the Philippines.
By the very nature of its functions, it dedicated to the study and
administration of the corporate and securities laws and has
necessarily developed an expertise on the subject. Based on said
functions, the Honorable Commission is necessarily tasked to issue
rulings with respect to matters involving corporate matters and share
acquisitions. Verily when this Honorable Commission rendered the
Ruling that " the acquisition of Cemco Holdings of the majority
shares of Union Cement Holdings, Inc., a substantial stockholder of a
listed company, Union Cement Corporation, is not covered by the
mandatory tender offer requirement of the SRC Rule 19," it was well
within its powers and expertise to do so. Such ruling shall be
respected, unless there has been an abuse or improvident exercise of
authority.10
Petitioner did not question the jurisdiction of the SEC when it
rendered an opinion favorable to it, such as the 27 July 2004
Resolution, where the SEC opined that the Cemco transaction was not
covered by the mandatory tender offer rule. It was only when the case
was before the Court of Appeals and after the SEC rendered an
unfavorable judgment against it that petitioner challenged the SECs
competence. As articulated in Ceroferr Realty Corporation v. Court of
Appeals11 :
While the lack of jurisdiction of a court may be raised at any stage of

an action, nevertheless, the party raising such question may be
estopped if he has actively taken part in the very proceedings which
he questions and he only objects to the courts jurisdiction because
the judgment or the order subsequently rendered is adverse to him.
On the second issue, petitioner asserts that the mandatory tender
offer rule applies only to direct acquisition of shares in the public
company.
This contention is not meritorious.
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.12 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.13 Stated differently, 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.14 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. 15
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 (P50,000,000.00) 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; and furnish the issuer, a statement containing such of the

information required in Section 17 of this Code as the Commission
may prescribe. Such person or group of persons shall publish all
requests or invitations for tender, or materials making a tender offer
or requesting or inviting letters of such a security. Copies of any
additional material soliciting or requesting such tender offers
subsequent to the initial solicitation or request shall contain such
information as the Commission may prescribe, and shall be filed with
the Commission and sent to the issuer not later than the time copies of
such materials are first published or sent or given to security holders.
Under existing SEC Rules,16 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. 17
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.
This interpretation given by the SEC and the Court of Appeals must be
sustained.
The rule in this jurisdiction is that the construction given to a statute
by an administrative agency charged with the interpretation and
application of that statute is entitled to great weight by the courts,
unless such construction is clearly shown to be in sharp contrast with
the governing law or statute.18 The rationale for this rule relates not
only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative
agencies for addressing and satisfying those needs; it also relates to
accumulation of experience and growth of specialized capabilities by
the administrative agency charged with implementing a particular
statute.19
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.
SEN. S. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls
67% of the Company. Of course, he will pay a premium for the first
67%. Control yan, eh. Eh, kawawa yung mga maiiwan, ang 33%
because the value of the stock market could go down, could go down
after that, because there will (p. 41) be no more market. Wala nang
gustong bumenta. Wala nang I mean maraming gustong bumenta,
walang gustong bumili kung hindi yung majority owner. And they will
not buy. They already have 67%. They already have control. And this
protects the minority. And we have had a case in Cebu wherein Ayala
A who already owned 40% of Ayala B made an offer for another 40%
of Ayala B without offering the 20%. Kawawa naman yung nakahawak
ngayon ng 20%. Ang baba ng share sa market. But we did not have a
law protecting them at that time.
CHAIRMAN ROCO. So what is it that you want to achieve?
SEN. S. OSMEA. That if a certain group achieves a certain amount of
ownership in a corporation, yeah, he is obligated to buy anybody who
wants to sell.
CHAIRMAN ROCO. Pro-rata lang. (p. 42).
xxxx
REP. TEODORO. As long as it reaches 30, ayan na. Any type of
acquisition just as long as it will result in 30 (p.50) reaches 30,
ayan na. Any type of acquisition just as long as it will result in 30,
general tender, pro-rata.20(Emphasis supplied.)
Petitioner counters that the legislators reference to "any type of
acquisition" during the deliberations on the Securities Regulation
Code does not indicate that congress meant to include the "indirect"
acquisition of shares of a public corporation to be covered by the

tender offer rule. Petitioner also avers that it did not directly acquire
the shares in UCC and the incidental benefit of having acquired the
control of the said public company must not be taken against it.
These arguments are not convincing. 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. x x x.21
As to the third issue, petitioner stresses that the ruling on mandatory
tender offer rule by the SEC and the Court of Appeals should not have
retroactive effect or be made to apply to its purchase of the UCHC
shares as it relied in good faith on the letter dated 27 July 2004 of the
SEC which opined that the proposed acquisition of the UCHC shares
was not covered by the mandatory offer rule.
The argument is not persuasive.
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.22 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. In Serrano v. National
Labor Relations Commission,23 an argument was raised similar to the
case under consideration. Private respondent therein argued that the
new doctrine pronounced by the Court should only be applied
prospectively. Said postulation was ignored by the Court when it
ruled:
While a judicial interpretation becomes a part of the law as of the date
that law was originally passed, this is subject to the qualification that
when a doctrine of this Court is overruled and a different view is
adopted, and more so when there is a reversal thereof, the new
doctrine should be applied prospectively and should not apply to
parties who relied on the old doctrine and acted in good faith. To hold
otherwise would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired prior to
such adjudication.
It is apparent that private respondent misconceived the import of the
ruling. The decision in Columbia Pictures does not mean that if a new
rule is laid down in a case, it should not be applied in that case but
that said rule should apply prospectively to cases arising afterwards.
Private respondents view of the principle of prospective application

of new judicial doctrines would turn the judicial function into a mere
academic exercise with the result that the doctrine laid down would
be no more than a dictum and would deprive the holding in the case of
any force.
WHEREFORE, the Decision and Resolution of the Court of Appeals

dated 24 October 2005 and 6 March 2006, respectively, affirming the
Decision dated 14 February 2005 of the Securities and Exchange
Commission En Banc, are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
Indeed, when the Court formulated the Wenphil doctrine, which we

reversed in this case, the Court did not defer application of the rule
laid down imposing a fine on the employer for failure to give notice in
a case of dismissal for cause. To the contrary, the new rule was
applied right then and there. x x x.
Lastly, petitioner alleges that the decision of the SEC dated 14
February 2005 is "incomplete and produces no effect."
This contention is baseless.
The decretal portion of the SEC decision states:
In view of the foregoing, the letter of the Commission, signed by
Director Justina F. Callangan, dated July 27, 2004, addressed to the
Philippine Stock Exchange is hereby REVERSED and SET ASIDE.
Respondent Cemco is hereby directed to make a tender offer for UCC
shares to complainant and other holders of UCC shares similar to the
class held by respondent UCHC, at the highest price it paid for the
beneficial ownership in respondent UCC, strictly in accordance with
SRC Rule 19, Section 9(E).24
A reading of the above ruling of the SEC reveals that the same is
complete. It orders the conduct of a mandatory tender offer pursuant
to the procedure provided for under Rule 19(E) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code
for the highest price paid for the beneficial ownership of UCC shares.
The price, on the basis of the SEC decision, is determinable. Moreover,
the implementing rules and regulations of the Code are sufficient to
inform and guide the parties on how to proceed with the mandatory
tender offer.
6. G.R. No. 183905
April 16, 2009
GOVERNMENT
SERVICE,
INSURANCE
SYSTEM, Petitioner,
vs.
THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V.
ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F.
FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAEZ, and
FRANCIS GILES PUNO,Respondents.
corporate secretary for the annual meeting. 7 However, when the

proxy validation began on 22 May, the proceedings were presided
over by respondent Anthony Rosete (Rosete), assistant corporate
secretary and in-house chief legal counsel of Meralco. 8Private
respondents nonetheless argue that Rosete was the acting corporate
secretary of Meralco.9 Petitioner Government Service Insurance
System (GSIS), a major shareholder in Meralco, was distressed over
the proxy validation proceedings, and the resulting certification of
proxies in favor of the Meralco management. 10
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 184275
April 16, 2009
SECURITIES AND EXCHANGE COMMISSION, COMMISSIONER JESUS

ENRIQUE G. MARTINEZ IN HIS CAPACITY AS OFFICER-IN-CHARGE
OF THE SECURITIES AND EXCHANGE COMMISSION and HUBERT
G. GUEVARA IN HIS CAPACITY AS DIRECTOR OF THE COMPLIANCE
AND
ENFORCEMENT
DEPT.
OF
SECURITIES Petitioners,
vs.
ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO,
JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAEZ,
and FRANCIS GILES Respondents.
DECISION
TINGA, J.:
These are the undisputed facts.
The annual stockholders meeting (annual meeting) of the Manila
Electric Company (Meralco) was scheduled on 27 May 2008. 1 In
connection with the annual meeting, proxies 2 were required to be
submitted on or before 17 May 2008, and the proxy validation was
slated for five days later, or 22 May.3
In view of the resignation of Camilo Quiason, 4 the position of
corporate secretary of Meralco became vacant.5 On 15 May 2008, the
board of directors of Meralco designated Jose Vitug 6 to act as
On 23 May 2008, GSIS filed a complaint with the Regional Trial Court
(RTC) of Pasay City, docketed as R-PSY-08-05777-C4 seeking the
declaration of certain proxies as invalid. 11 Three days
later, on 26 May, GSIS filed a Notice with the RTC manifesting the
dismissal of the complaint.12 On the same day, GSIS filed an Urgent
Petition13 with the Securities and Exchange Commission (SEC) seeking
to restrain Rosete from "recognizing, counting and tabulating, directly
or indirectly, notionally or actually or in whatever way, form, manner
or means, or otherwise honoring the shares covered by" the proxies in
favor of respondents Manuel Lopez,14 Felipe Alfonso,15 Jesus
Francisco,16 Oscar
Lopez,
Christian
Monsod,17 Elpidio
18
19
Ibaez, Francisco Giles-Puno "or any officer representing
MERALCO Management," and to annul and declare invalid said
proxies.20 GSIS also prayed for the issuance of a Cease and Desist
Order (CDO) to restrain the use of said proxies during the annual
meeting scheduled for the following day. 21 A CDO22 to that effect
signed by SEC Commissioner Jesus Martinez was issued on 26 May
2008, the same day the complaint was filed. During the annual
meeting held on the following day, Rosete announced that the meeting
would push through, expressing the opinion that the CDO is null and
void.23
On 28 May 2008, the SEC issued a Show Cause Order (SCO) 24 against
private respondents, ordering them to appear before the Commission
on 30 May 2008 and explain why they should not be cited in
contempt. On 29 May 2008, respondents filed a petition for certiorari
with prohibition25 with the Court of Appeals, praying that the CDO and
the SCO be annulled. The petition was docketed as CA-G.R. SP No.

103692.
Many developments involving the Court of Appeals handling of CAG.R. SP No. 103692 and the conduct of several of its individual justices
are recounted in our Resolution dated 9 September 2008 in A.M. No.
08-8-11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On
CA-G.R. SP No. 103692).26 On 23 July 2008, the Court of Appeals
Eighth Division promulgated a decision in the case with the following
dispositive portion:
WHEREFORE, premises considered, the May 26, 2008 complaint filed
by GSIS in the SEC is hereby DISMISSED due to SECs lack of
jurisdiction, due to forum shopping by respondent GSIS, and due to
splitting of causes of action by respondent GSIS. Consequently, the
SECs undated cease and desist order and the SECs May 28, 2008
show cause order are hereby DECLARED VOID AB INITIO and without
legal effect and their implementation are hereby permanently
restrained.
The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred
from being considered, out of equitable considerations, as an election
contest in the RTC, because the prescriptive period of 15 days from
the May 27, 2008 Meralco election to file an election contest in the
RTC had already run its course, pursuant to Sec. 3, Rule 6 of the
interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint
in the SEC instead of the RTC.
Let seventeen (17) copies of this decision be officially TRANSMITTED
to the Office of the Chief Justice and three (3) copies to the Office of
the Court Administrator:
(1) for sanction by the Supreme Court against the "GSIS LAW
OFFICE" for unauthorized practice of law,
(2) for sanction and discipline by the Supreme Court of GSIS
lawyers led by Atty. Estrella Elamparo-Tayag, Atty. Marcial C.
Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers

for violation of Sec. 27 of Rule 138 of the Revised Rules of
Court, pursuant to Santayana v. Alampay, A.C. No. 5878, March
21, 2005 454 SCRA 1, and pursuant to Land Bank of the
Philippines v. Raymunda Martinez, G.R. No. 169008, August 14,
2007:
(a) for violating express provisions of law and defying
public policy in deliberately displacing the Office of the
Government Corporate Counsel (OGCC) from its duty as
the exclusive lawyer of GSIS, a government owned and
controlled corporation (GOCC), by admittedly filing and
defending cases as well as appearing as counsel for
GSIS, without authority to do so, the authority belonging
exclusively to the OGCC;
(b) for violating the lawyers oath for failing in their
duty to act as faithful officers of the court by engaging in
forum shopping;
(c) for violating express provisions of law most
especially those on jurisdiction which are mandatory;
and
(d) for violating Sec. 3, Rule 2 of the 1997 Rules of Civil
Procedure by deliberately splitting causes of action in
order to file multiple complaints: (i) in the RTC of Pasay
City and (ii) in the SEC, in order to ensure a favorable
order.27
The promulgation of the said decision provoked a searing
controversy, as detailed in our Resolution in A.M. No. 08-8-11-CA.
Nonetheless, the appellate courts decision spawned three different
actions docketed with their own case numbers before this Court. One
of them, G.R. No. 183933, was initiated by a Motion for Extension of
Time to File Petition for Review filed by the Office of the Solicitor
General (OSG) in behalf of the SEC, Commissioner Martinez in his
capacity as officer-in-charge of the SEC, and Hubert Guevarra in his
capacity as Director of the Compliance and Enforcement Department

of the SEC.28 However, the OSG did not follow through with the filing
of the petition for review adverted to; thus, on 19 January 2009, the
Court resolved to declare G.R. No. 183933 closed and terminated. 29
The two remaining cases before us are docketed as G.R. No. 183905
and 184275. G.R. No. 183905 pertains to a petition for certiorari and
prohibition filed by GSIS, against the Court of Appeals, and
respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibaez and
Puno, all of whom serve in different corporate capacities with Meralco
or First Philippines Holdings Corporation, a major stockholder of
Meralco and an affiliate of the Lopez Group of Companies. This
petition seeks of the Court to declare the 23 July 2008 decision of the
Court of Appeals null and void, affirm the SECs jurisdiction over the
petition filed before it by GSIS, and pronounce that the CDO and the
SCO orders are valid. This petition was filed in behalf of GSIS by the
"GSIS Law Office;" it was signed by the Chief Legal Counsel and
Assistant Legal Counsel of GSIS, and three self-identified
"Attorney[s]," presumably holding lawyer positions in GSIS. 30
The OSG also filed the other petition, docketed as G.R. No. 184275. It
identifies as its petitioners the SEC, Commissioner Martinez in his
capacity as OIC of the SEC, and Hubert Guevarra in his capacity as
Director of the Compliance and Enforcement Department of the SEC
the same petitioners in the aborted petition for review initially
docketed as G.R. No. 183933. Unlike what was adverted to in the
motion for extension filed by the same petitioners in G.R. No. 183933,
the petition in G.R. No. 184275 is one for certiorari under Rule 65 as
indicated on page 3 thereof,31 and not a petition for review.
Interestingly, save for the first page which leaves the docket number
blank, all 86 pages of this petition for certiorari carry a header
wrongly identifying the pleading as the non-existent petition for
review under G.R. No. 183933. This petition seeks the "reversal" of the
assailed decision of the Court of Appeals, the recognition of the
jurisdiction of the SEC over the petition of GSIS, and the affirmation of
the CDO and SCO.
II.
Private respondents seek the expunction of the petition filed by the

SEC in G.R. No. 184275. We agree that the petitioners therein, namely:
the SEC, Commissioner Marquez and Guevarra, are not real parties-ininterest to the dispute and thus bereft of capacity to file the petition.
By way of simple illustration, to argue otherwise is to say that the trial
court judge, the National Labor Relations Commission, or any quasijudicial agency has the right to seek the review of an appellate court
decision reversing any of their rulings. That prospect, as any serious
student of remedial law knows, is zero.
The Court, through the Resolution of the Third Division dated 2
September 2008, had resolved to treat the petition in G.R. No. 184275
as a petition for review on certiorari, but withheld giving due course
to it.32 Under Section 1 of Rule 45, which governs appeals by
certiorari, the right to file the appeal is restricted to "a party,"
meaning that only the real parties-in-interest who litigated the
petition for certiorari before the Court of Appeals are entitled to
appeal the same under Rule 45. The SEC and its two officers may have
been designated as respondents in the petition for certiorari filed with
the Court of Appeals, but under Section 5 of Rule 65 they are not
entitled to be classified as real parties-in-interest. Under the
provision, the judge, court, quasi-judicial agency, tribunal,
corporation, board, officer or person to whom grave abuse of
discretion is imputed (the SEC and its two officers in this case) are
denominated only as public respondents. The provision further states
that "public respondents shall not appear in or file an answer or
comment to the petition or any pleading therein." 33 Justice Regalado
explains:
[R]ule 65 involves an original special civil action specifically directed
against the person, court, agency or party a quo which had committed
not only a mistake of judgment but an error of jurisdiction, hence
should be made public respondents in that action brought to nullify
their invalid acts. It shall, however be the duty of the party litigant,
whether in an appeal under Rule 45 or in a special civil action in Rule
65, to defend in his behalf and the party whose adjudication is
assailed, as he is the one interested in sustaining the correctness of
the disposition or the validity of the proceedings.
xxx The party interested in sustaining the proceedings in the lower

court must be joined as a co-respondent and he has the duty to defend
in his own behalf and in behalf of the court which rendered the
questioned order. While there is nothing in the Rules that prohibit the
presiding judge of the court involved from filing his own answer and
defending his questioned order, the Supreme Court has reminded
judges of the lower courts to refrain from doing so unless
ordered by the Supreme Court. 34 The judicial norm or mode of
conduct to be observed in trial and appellate courts is now
prescribed in the second paragraph of this section.
amicable settlement. The judge took the extraordinary step of filing in

his own behalf a petition for review on certiorari with this Court,
assailing the decision of the Court of Appeals which had reversed him.
In disallowing the judges petition, the Court explained:
xxx
And the answer must be in the negative, Section 1 of Rule 45 allows a

party to appeal by certiorari from a judgment of the Court of Appeals
by filing with this Court a petition for review on certiorari. But
petitioner judge was not a party either in the expropriation
proceeding or in the certiorari proceeding in the Court of Appeals. His
being named as respondent in the Court of Appeals was merely to
comply with the rule that in original petitions for certiorari, the court
or the judge, in his capacity as such, should be named as party
respondent because the question in such a proceeding is the
jurisdiction of the court itself (See Mayol v. Blanco, 61 Phil. 547
[19351, cited in Comments on the Rules of Court, Moran, Vol. II, 1979
ed., p. 471). "In special proceedings, the judge whose order is under
attack is merely a nominal party; wherefore, a judge in his official
capacity, should not be made to appear as a party seeking reversal of a
decision that is unfavorable to the action taken by him. A decent
regard for the judicial hierarchy bars a judge from suing against the
adverse opinion of a higher court,. . . ." (Alcasid v. Samson, 102 Phil.
785, 740 [1957])
A person not a party to the proceedings in the trial court or in the

Court of Appeals cannot maintain an action for certiorari in the
Supreme Court to have the judgment reviewed. 35
Rule 65 does recognize that the SEC and its officers should have been
designated as public respondents in the petition for certiorari filed
with the Court of Appeals. Yet their involvement in the instant petition
is not as original party-litigants, but as the quasi-judicial agency and
officers exercising the adjudicative functions over the dispute
between the two contending factions within Meralco. From the onset,
neither the SEC nor Martinez or Guevarra has been considered as a
real party-in-interest. Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that every action must be prosecuted or defended
in the name of the real party in interest, that is "the party who stands
to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit." It would be facetious to assume that
the SEC had any real interest or stake in the intra-corporate dispute
within Meralco.
We find our ruling in Hon. Santiago v. Court of Appeals 36 quite
apposite to the question at hand. Petitioner therein, a trial court judge,
had presided over an expropriation case. The litigants had arrived at
an amicable settlement, but the judge refused to approve the same,
even declaring it invalid. The matter was elevated to the Court of
Appeals, which promptly reversed the trial court and approved the
While the issue in the Court of Appeals and that raised by petitioner
now is whether the latter abused his discretion in nullifying the deeds
of sale and in proceeding with the expropriation proceeding, that
question is eclipsed by the concern of whether Judge Pedro T.
Santiago may file this petition at all.
ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue

by the petitioner.37
Justice Isagani Cruz added, in a Concurring Opinion in Santiago: "The
judge is not an active combatant in such proceeding and must leave it
to the parties themselves to argue their respective positions and for
the appellate court to rule on the matter without his participation." 38
Note that in Santiago, the Court recognized the good faith of the judge,
who perceived the amicable settlement "as a manifestly iniquitous
and illegal contract."39 The SEC could have similarly felt in good faith
that the assailed Court of Appeals decision had unduly impaired its
prerogatives or caused some degree of hurt to it. Yet assuming that
there are rights or prerogatives peculiar to the SEC itself that the
appellate court had countermanded, these can be vindicated in the
petition for certiorari filed by GSIS, whose legal capacity to challenge
the Court of Appeals decision is without question. There simply is no
plausible reason for this Court to deviate from a time-honored rule
that preserves the purity of our judicial and quasi-judicial offices to
accommodate the SECs distrust and resentment of the appellate
courts decision. The expunction of the petition in G.R. No. 184275 is
accordingly in order.
At this point, only one petition remainsthe petition for certiorari
filed by GSIS in G.R. No. 183905. Casting off the uncritical and
unimportant aspects, the two main issues for adjudication are as
follows: (1) whether the SEC has jurisdiction over the petition filed by
GSIS against private respondents; and (2) whether the CDO and SCO
issued by the SEC are valid.
II.
It is our resolute inclination that this case, which raises interesting
questions of law, be decided solely on the merits, without regard to
the personalities involved or the well-reported drama preceding the
petition. To that end, the Court has taken note of reports in the media
that GSIS and the Lopez group have taken positive steps to divest or
significantly reduce their respective interests in Meralco. 40 These are
developments that certainly ease the tension surrounding this case,
not to mention reason enough for the two groups to make an internal
reassessment of their respective positions and interests in relation to
this case. Still, the key legal questions raised in the petition do not
depend at all on the identity of any of the parties, and would obtain
the same denouement even if this case was lodged by unknowns as
petitioners against similarly obscure respondents.
With the objective to resolve the key questions of law raised in the
petition, some of the issues raised diminish as peripheral. For
example, petitioners raise arguments tied to the behavior of
individual justices of the Court of Appeals, particularly former Justice
Vicente Roxas, in relation to this case as it was pending before the
appellate court. The Court takes cognizance of our Resolution in A.M.
No. 08-8-11-CA dated 9 September 2008, which duly recited the
various anomalous or unbecoming acts in relation to this case
performed by two of the justices who decided the case in behalf of the
Court of Appealsformer Justice Roxas (the ponente) and Justice
Bienvenido L. Reyes (the Chairman of the 8th Division) as well as
three other members of the Court of Appeals. At the same time, the
consensus of the Court as it deliberated on A.M. No. 08-8-11-CA was to
reserve comment or conclusion on the assailed decision of the Court
of Appeals, in recognition of the reality that however stigmatized the
actions and motivations of Justice Roxas are, the decision is still the
product of the Court of Appeals as a collegial judicial body, and not of
one or some rogue justices. The penalties levied by the Court on these
appellate court justices, in our estimation, redress the unwholesome
acts which they had committed. At the same time, given the
jurisprudential importance of the questions of law raised in the
petition, any result reached without squarely addressing such
questions would be unsatisfactory, perhaps derelict even.
III.
We now examine whether the SEC has jurisdiction over the petition
filed by GSIS. To recall, SEC has sought to enjoin the use and annul the
validation, of the proxies issued in favor of several of the private
respondents, particularly in connection with the annual meeting.
A.
Jurisdiction is conferred by no other source but law. Both sides have
relied upon provisions of Rep. Act No. 8799, otherwise known as the
Securities Regulation Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related rules to support
their competing contentions that either the SEC or the trial courts has
exclusive original jurisdiction over the dispute.
annual meeting did not contain any proxy form as required under
AIRR-SRC Rule 20.
GSIS primarily anchors its argument on two correlated provisions of

the SRC. These are Section 53.1 and Section 20.1, which we cite:
On the other hand, private respondents argue before us that under

Section 5.2 of the SRC, the SECs jurisdiction over all cases enumerated
in Section 5 of Presidential Decree No. 902-A was transferred to the
courts of general jurisdiction or the appropriate regional trial court.
The two particular classes of cases in the enumeration under Section
5 of Presidential Decree No. 902-A which private respondents
especially refer to are as follows:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1.

The Commission may, in its discretion,make such investigations as
it deems necessary to determine whether any person has
violated or is about to violate any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency, other selfregulatory organization, and may require or permit any person to
file with it a statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. The Commission may
publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may
deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and
regulations thereunder, or in securing information to serve as a
basis for recommending further legislation concerning the
matters to which this Code relates: xxx (emphasis supplied)
SEC. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy
solicitation must be made in accordance with rules and regulations to
be issued by the Commission;
The argument, stripped of extravagance, is that since proxy
solicitations following Section 20.1 have to be made in accordance
with rules and regulations issued by the SEC, it is the SEC under
Section 53.1 that has the jurisdiction to investigate alleged violations
of the rules on proxy solicitations. The GSIS petition invoked AIRRAIRR-SRC Rule 20, otherwise known as "The Proxy Rule," which
enumerates the requirements as to form of proxy and delivery of
information to security holders. According to GSIS, the information
statement Meralco had filed with the SEC in connection with the
xxx
(2) Controversies arising out of intra-corporate, partnership, or
association relations, between and among stockholders, members, or
associates; or association of which they are stockholders, members, or
associates, respectively;
3) Controversies in the election or appointment of directors, trustees,
officers or managers of corporations, partnerships, or associations;
xxx
In addition, private respondents cite the Interim Rules on IntraCorporate Controversies (Interim Rules) promulgated by this Court in
2001, most pertinently, Section 2 of Rule 6 (on Election Contests),
which defines "election contests" as follows:
SEC. 2. Definition. An election contest refers to any controversy or
dispute involving title or claim to any elective office in a stock or
nonstock corporation, the validation of proxies, the manner and
validity of elections and the qualifications of candidates, including the
proclamation of winners, to the office of director, trustee or other
officer directly elected by the stockholders in a close corporation or
by members of a nonstock corporation where the articles of
incorporation or bylaws so provide. (emphasis supplied)
The correct answer is not clear-cut, but there is one. In private

respondents favor, the provisions of law they cite pertain directly and
exclusively to the statutory jurisdiction of trial courts acquired by
virtue of the transfer of jurisdiction following the passage of the SRC.
In contrast, the SRC provisions relied upon by GSIS do not
immediately or directly establish that bodys jurisdiction over the
petition, since it necessitates the linkage of Section 20 to Section 53.1
of the SRC before the point can bear on us.
On the other hand, the distinction between "proxy solicitation" and
"proxy validation" cannot be dismissed offhand. The right of a
stockholder to vote by proxy is generally established by the
Corporation Code,41 but it is the SRC which specifically regulates the
form and use of proxies, more particularly the procedure of proxy
solicitation, primarily through Section 20.42 AIRR-SRC Rule 20 defines
the terms solicitand solicitation:
The terms solicit and solicitation include:
A. any request for a proxy whether or not accompanied by or
included in a form of proxy
B. any request to execute or not to execute, or to revoke, a
proxy; or
C. the furnishing of a form of proxy or other communication to
security holders under circumstance reasonably calculated to
result in the procurement, withholding or revocation of a
proxy.
It is plain that proxy solicitation is a procedure that antecedes proxy
validation. The former involves the securing and submission of
proxies, while the latter concerns the validation of such secured and
submitted proxies. GSIS raises the sensible point that there was no
election yet at the time it filed its petition with the SEC, hence no
proper election contest or controversy yet over which the regular
courts may have jurisdiction. And the point ties its cause of action to
alleged irregularities in the proxy solicitation procedure, a process

that precedes either the validation of proxies or the annual meeting
itself.
Under Section 20.1, the solicitation of proxies must be in accordance
with rules and regulations issued by the SEC, such as AIRR-SRC Rule 4.
And by virtue of Section 53.1, the SEC has the discretion "to make such
investigations as it deems necessary to determine whether any person
has violated" any rule issued by it, such as AIRR-SRC Rule 4. The
investigatory power of the SEC established by Section 53.1 is central
to its regulatory authority, most crucial to the public interest
especially as it may pertain to corporations with publicly traded
shares. For that reason, we are not keen on pursuing private
respondents insistence that the GSIS complaint be viewed as rooted
in an intra-corporate controversy solely within the jurisdiction of the
trial courts to decide. It is possible that an intra-corporate controversy
may animate a disgruntled shareholder to complain to the SEC a
corporations violations of SEC rules and regulations, but that motive
alone should not be sufficient to deprive the SEC of its investigatory
and regulatory powers, especially so since such powers are
exercisable on a motu proprio basis.
At the same time, Meralco raises the substantial point that nothing in
the SRC empowers the SEC to annul or invalidate improper proxies
issued in contravention of Section 20. It cites that the penalties
defined by the SEC itself for violation of Section 20 or AIRR-SRC Rule
20 are limited to a reprimand/warning for the first offense, and
pecuniary fines for succeeding offenses. 43 Indeed, if the SEC does not
have the power to invalidate proxies solicited in violatio n of its
promulgated rules, serious questions may be raised whether it has the
power to adjudicate claims of violation in the first place, since the
relief it may extend does not directly redress the cause of action of the
complainant seeking the exclusion of the proxies.
There is an interesting point, which neither party raises, and it
concerns Section 6(g) of Presidential Decree No. 902-A, which states:
SEC. 6. In order to effectively exercise such jurisdiction, the

Commission shall possess the following powers:
xxx
(g) To pass upon the validity of the issuance and use of proxies and
voting trust agreements for absent stockholders or members;
xxx
As promulgated then, the provision would confer on the SEC the
power to adjudicate controversies relating not only to proxy
solicitation, but also to proxy validation. Should the proposition hold
true up to the present, the position of GSIS would have merit,
especially since Section 6 of Presidential Decree No. 902-A was not
expressly repealed or abrogated by the SRC.44
Yet a closer reading of the provision indicates that such power of the
SEC then was incidental or ancillary to the "exercise of such
jurisdiction." Note that Section 6 is immediately preceded by Section
5, which originally conferred on the SEC "original and exclusive
jurisdiction to hear and decide cases" involving "controversies in the
election or appointments of directors, trustees, officers or managers
of such corporations, partnerships or associations." The cases
referred to in Section 5 were transferred from the jurisdiction of the
SEC to the regular courts with the passage of the SRC, specifically
Section 5.2. Thus, the SECs power to pass upon the validity of proxies
in relation to election controversies has effectively been withdrawn,
tied as it is to its abrogated jurisdictional powers.
Based on the foregoing, it is evident that the linchpin in deciding the
question is whether or not the cause of action of GSIS before the SEC is
intimately tied to an election controversy, as defined under Section
5(c) of Presidential Decree No. 902-A. To answer that, we need to
properly ascertain the scope of the power of trial courts to resolve
controversies in corporate elections.
B.
Shares of stock in corporations may be divided into voting shares and

non-voting shares, which are generally issued as "preferred" or
"redeemable" shares.45 Voting rights are exercised during regular or
special meetings of stockholders; regular meetings to be held annually
on a fixed date, while special meetings may be held at any time
necessary or as provided in the by-laws, upon due notice.46 The
Corporation Code provides for a whole range of matters which can be
voted upon by stockholders, including a limited set on which even
non-voting stockholders are entitled to vote on.47 On any of these
matters which may be voted upon by stockholders, the proxy device is
generally available.48
Under Section 5(c) of Presidential Decree No. 902-A, in relation to the
SRC, the jurisdiction of the regular trial courts with respect to
election-related
controversies
is specifically confined to
"controversies in the election or appointment of directors, trustees,
officers or managers of corporations, partnerships, or associations."
Evidently, the jurisdiction of the regular courts over so-called election
contests or controversies under Section 5(c) does not extend to every
potential subject that may be voted on by shareholders, but only to
the election of directors or trustees, in which stockholders are
authorized to participate under Section 24 of the Corporation Code. 49
This qualification allows for a useful distinction that gives due effect
to the statutory right of the SEC to regulate proxy solicitation, and the
statutory jurisdiction of regular courts over election contests or
controversies. The power of the SEC to investigate violations of its
rules on proxy solicitation is unquestioned when proxies are obtained
to vote on matters unrelated to the cases enumerated under Section 5
of Presidential Decree No. 902-A. However, when proxies are solicited
in relation to the election of corporate directors, the resulting
controversy, even if it ostensibly raised the violation of the SEC rules
on proxy solicitation, should be properly seen as an election
controversy within the original and exclusive jurisdiction of the trial
courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of
Presidential Decree No. 902-A.
The conferment of original and exclusive jurisdiction on the regular

courts over such controversies in the election of corporate directors
must be seen as intended to confine to one body the adjudication of all
related claims and controversy arising from the election of such
directors. For that reason, the aforequoted Section 2, Rule 6 of the
Interim Rules broadly defines the term "election contest" as
encompassing all plausible incidents arising from the election of
corporate directors, including: (1) any controversy or dispute
involving title or claim to any elective office in a stock or nonstock
corporation, (2) the validation of proxies, (3) the manner and
validity of elections and (4) the qualifications of candidates, including
the proclamation of winners. If all matters anteceding the holding of
such election which affect its manner and conduct, such as the proxy
solicitation process, are deemed within the original and exclusive
jurisdiction of the SEC, then the prospect of overlapping and
competing jurisdictions between that body and the regular courts
becomes frighteningly real. From the language of Section 5(c) of
Presidential Decree No. 902-A, it is indubitable that controversies as
to the qualification of voting shares, or the validity of votes cast in
favor of a candidate for election to the board of directors are properly
cognizable and adjudicable by the regular courts exercising original
and exclusive jurisdiction over election cases. Questions relating to
the proper solicitation of proxies used in such election are
indisputably related to such issues, yet if the position of GSIS were to
be upheld, they would be resolved by the SEC and not the regular
courts, even if they fall within "controversies in the election" of
directors.
The Court recognizes that GSISs position flirts with the abhorrent evil
of split jurisdiction,50 allowing as it does both the SEC and the regular
courts to assert jurisdiction over the same controversies surrounding
an election contest. Should the argument of GSIS be sustained, we
would be perpetually confronted with the spectacle of election
controversies being heard and adjudicated by both the SEC and the
regular courts, made possible through a mere allegation that the
anteceding proxy solicitation process was errant, but the competing
cases filed with one objective in mind to affect the outcome of the
election of the board of directors. There is no definitive statutory
provision that expressly mandates so untidy a framework, and we are

disinclined to construe the SRC in such a manner as to pave the way
for the splitting of jurisdiction.
Unlike either Section 20.1 or Section 53.1, which merely alludes to the
rule-making or investigatory power of the SEC, Section 5 of Pres.
Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly
granting as it does "original and exclusive jurisdiction" first to the SEC,
and now to the regular courts. The fact that the jurisdiction of the
regular courts under Section 5(c) is confined to the voting on election
of officers, and not on all matters which may be voted upon by
stockholders, elucidates that the power of the SEC to regulate proxies
remains extant and could very well be exercised when stockholders
vote on matters other than the election of directors.
That the proxy challenge raised by GSIS relates to the election of the
directors of Meralco is undisputed. The controversy was engendered
by the looming annual meeting, during which the stockholders of
Meralco were to elect the directors of the corporation. GSIS very well
knew of that fact. On 17 March 2008, the Meralco board of directors
adopted a board resolution stating:
RESOLVED that the board of directors of the Manila Electric Company
(MERALCO) delegate, as it hereby delegates to the Nomination &
Governance Committee the authority to approve and adopt
appropriate rules on: (1) nomination of candidates for election to
the board of directors; (2) appreciation of ballots during the
election of members of the board of directors; and (3) validation of
proxies for regular or special meetings of the stockholders. 51
In addition, the Information Statement/Proxy form filed by First
Philippine Holdings Corporation with the SEC pursuant to Section 20
of the SRC, states:
REASON FOR SOLICITATION OF VOTES
The Solicitor is soliciting proxies from stockholders of the
Company for the purpose of electing the directors named under
the subject headed Directors in this Statement as well as to vote

the matters in the agenda of the meeting as provided for in the
Information Statement of the Company. All of the nominees are
current directors of the Company.52
Under the circumstances, we do not see it feasible for GSIS to posit
that its challenge to the solicitation or validation of proxies bore no
relation at all to the scheduled election of the board of directors of
Meralco during the annual meeting. GSIS very well knew that the
controversy falls within the contemplation of an election controversy
properly within the jurisdiction of the regular courts. Otherwise, it
would have never filed its original petition with the RTC of Pasay. GSIS
may have withdrawn its petition with the RTC on a new assessment
made in good faith that the controversy falls within the jurisdiction of
the SEC, yet the reality is that the reassessment is precisely wrong as a
matter of law.
IV.
The lack of jurisdiction of the SEC over the subject matter of GSISs
petition necessarily invalidates the CDO and SDO issued by that body.
However, especially with respect to the CDO, there is need for this
Court to squarely rule on the question pertaining to its validity, if only
for jurisprudential value and for the guidance of the SEC.
To recount the facts surrounding the issuance of the CDO, GSIS filed
its petition with the SEC on 26 May 2008. The CDO, six (6) pages in all
with three (3) pages devoted to the tenability of granting the
injunctive relief, was issued on the very same day, 26 May 2008,
without notice or hearing. The CDO bore the signature of
Commissioner Jesus Martinez, identified therein as "Officer-inCharge," and nobody elses.
The provisions of the SRC relevant to the issuance of a CDO are as
follows:
SEC. 5. Powers and Functions of the Commission.- 5.1. The
Commission shall act with transparency and shall have the powers
and functions provided by this Code, Presidential Decree No. 902-A,

the Corporation Code, theInvestment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and
functions:
xxx
(i) Issue cease and desist orders to prevent fraud or injury to the
investing public;
xxx
[SEC.] 53.3. Whenever it shall appear to the Commission that any
person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange, registered
securities association, clearing agency or other self-regulatory
organization, it may issue an order to such person to desist from
committing such act or practice: Provided, however, That the
Commission shall not charge any person with violation of the rules of
an Exchange or other self regulatory organization unless it appears to
the Commission that such Exchange or other self-regulatory
organization is unable or unwilling to take action against such person.
After finding that such person has engaged in any such act or practice
and that there is a reasonable likelihood of continuing, further or
future violations by such person, the Commission may issue ex-parte a
cease and desist order for a maximum period of ten (10) days,
enjoining the violation and compelling compliance with such
provision. The Commission may transmit such evidence as may be
available concerning any violation of any provision of this Code, or
any rule, regulation or order thereunder, to the Department of Justice,
which may institute the appropriate criminal proceedings under this
Code.
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.
64.2. Until the Commission issues a cease and desist order, the fact
that an investigation has been initiated or that a complaint has been
filed, including the contents of the complaint, shall be confidential.
Upon issuance of a cease and desist order, the Commission shall make
public such order and a copy thereof shall be immediately furnished
to each person subject to the order.
64.3. Any person against whom a cease and desist order was issued
may, within five (5) days from receipt of the order, file a formal
request for a lifting thereof. Said request shall be set for hearing by
the Commission not later than fifteen (15) days from its filing and the
resolution thereof shall be made not later than ten (10) days from the
termination of the hearing. If the Commission fails to resolve the
request within the time herein prescribed, the cease and desist order
shall automatically be lifted.
There are three distinct bases for the issuance by the SEC of the CDO.
The first, allocated by Section 5(i), is predicated on a necessity "to
prevent fraud or injury to the investing public". No other requisite or
detail is tied to this CDO authorized under Section 5(i).
The second basis, found in Section 53.3, involves a determination by
the SEC that "any person has engaged or is about to engage in any act
or practice constituting a violation of any provision of this Code, any
rule, regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other selfregulatory organization." The provision additionally requires a finding
that "there is a reasonable likelihood of continuing [or engaging in]
further or future violations by such person." The maximum duration
of the CDO issued under Section 53.3 is ten (10) days.
The third basis for the issuance of a CDO is Section 64. This CDO is
founded on a determination of an act or practice, which 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". Section 64.1 plainly provides three segregate instances upon
which the SEC may issue the CDO under this provision: (1) after
proper investigation or verification, (2) motu proprio, or (3) upon
verified complaint by any aggrieved party. While no lifetime is
expressly specified for the CDO under Section 64, the respondent to
the CDO may file a formal request for the lifting thereof, which the SEC
must hear within fifteen (15) days from filing and decide within ten
(10) days from the hearing.
It appears that the CDO under Section 5(i) is similar to the CDO under
Section 64.1. Both require a common finding of a need to prevent
fraud or injury to the investing public. At the same time, no mention is
made whether the CDO defined under Section 5(i) may be issued exparte, while the CDO under Section 64.1 requires "grave and
irreparable" injury, language absent in Section 5(i). Notwithstanding
the similarities between Section 5(i) and Section 64.1, it remains clear
that the CDO issued under Section 53.3 is a distinct creation from that
under Section 64.
The Court of Appeals cited the CDO as having been issued in violation
of the constitutional provision on due process, which requires both
prior notice and prior hearing.53 Yet interestingly, the CDO as
contemplated in Section 53.3 or in Section 64, may be issued "exparte" (under Section 53.3) or "without necessity of hearing" (under
Section 64.1). Nothing in these provisions impose a requisite hearing
before the CDO may be issued thereunder. Nonetheless, there are
identifiable requisite actions on the part of the SEC that must be
undertaken before the CDO may be issued either under Section 53.3
or Section 64. In the case of Section 53.3, the SEC must make two
findings: (1) that such person has engaged in any such act or practice,
and (2) that there is a reasonable likelihood of continuing, (or
engaging in) further or future violations by such person. In the case of
Section 64, the SEC must adjudge that the act, 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."
Noticeably, the CDO is not precisely clear whether it was issued on the
basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The CDO
actually refers and cites all three provisions, yet it is apparent that a
singular CDO could not be founded on Section 5.1, Section 53.3 and
Section 64 collectively. At the very least, the CDO under Section 53.3
and under Section 64 have their respective requisites and terms.
GSIS was similarly cagey in its petition before the SEC, it demurring to
state whether it was seeking the CDO under Section 5.1, Section 53.3,
or Section 64. Considering that injunctive relief generally avails upon
the showing of a clear legal right to such relief, the inability or
unwillingness to lay bare the precise statutory basis for the prayer for
injunction is an obvious impediment to a successful
application. Nonetheless, the error of the SEC in granting the CDO
without stating which kind of CDO it was issuing is more
unpardonable, as it is an act that contravenes due process of law.
We have particularly required, in administrative proceedings, that the
body or tribunal "in all controversial questions, render its decision in
such a manner that the parties to the proceeding can know the
various issues involved, and the reason for the decision
rendered."54 This requirement is vital, as its fulfillment would afford
the adverse party the opportunity to interpose a reasoned and
intelligent appeal that is responsive to the grounds cited against it.
The CDO extended by the SEC fails to provide the needed reasonable
clarity of the rationale behind its issuance.
The subject CDO first refers to Section 64, citing its provisions, then
stating: "[p]rescinding from the aforequoted, there can be no doubt
whatsoever that the Commission is in fact mandated to take up, if
expeditiously, any verified complaint praying for the provisional
remedy of a cease and desist order."55 The CDO then discusses the
nature of the right of GSIS to obtain the CDO, as well as "the urgent
and paramount necessity to prevent serious damage because the
stockholders meeting is scheduled on May 28, 2008 x x x" Had the
CDO stopped there, the unequivocal impression would have been that
the order is based on Section 64.
But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n)
in full, ratiocinating that under these provisions, the SEC had "the
power to issue cease and desist orders to prevent fraud or injury to
the public and such other measures necessary to carry out the
Commissions role as regulator."56 Immediately thence, the CDO cites
Section 53.3 as providing "that whenever it shall appear to the
Commission that nay person has engaged or is about to engage in any
act or practice constituting a violation of any provision, any rule,
regulation or order thereunder, the Commission may issue ex-parte a
cease and desist order for a maximum period of ten (10) days,
enjoining the violation and compelling compliance therewith." 57
The citation in the CDO of Section 5.1, Section 53.3 and Section 64
together may leave the impression that it is grounded on all three
provisions, and that may very well have been the intention of the SEC.
Assuming that is so, it is legally impermissible for the SEC to have
utilized both Section 53.3 and Section 64 as basis for the CDO at the
same time. The CDO under Section 53.3 is premised on distinctly
different requisites than the CDO under Section 64. Even more
crucially, the lifetime of the CDO under Section 53.3 is confined to a
definite span of ten (10) days, which is not the case with the CDO
under Section 64. This CDO under Section 64 may be the object of a
formal request for lifting within five (5) days from its issuance, a
remedy not expressly afforded to the CDO under Section 53.3.
Any respondent to a CDO which cites both Section 53.3 and Section 64
would not have an intelligent or adequate basis to respond to the
same. Such respondent would not know whether the CDO would have
a determinate lifespan of ten (10) days, as in Section 53.3, or would
necessitate a formal request for lifting within five (5) days, as
required under Section 64.1. This lack of clarity is to the obvious
prejudice of the respondent, and is in clear defiance of the
constitutional right to due process of law. Indeed, the veritable
mlange that the assailed CDO is, with its jumbled mixture of premises
and conclusions, the antithesis of due process.
Had the CDO issued by the SEC expressed the length of its term,
perhaps greater clarity would have been offered on what Section of
the SRC it is based. However, the CDO is precisely silent as to its

lifetime, thereby precluding much needed clarification. In view of the
statutory differences among the three CDOs under the SRC, it is
essential that the SEC, in issuing such injunctive relief, identify the
exact provision of the SRC on which the CDO is founded. Only by doing
so could the adversely affected party be able to properly evaluate
whatever his responses under the law.
To make matters worse for the SEC, the fact that the CDO was signed,
much less apparently deliberated upon, by only by one commissioner
likewise renders the order fatally infirm.
The SEC is a collegial body composed of a Chairperson and four (4)
Commissioners.58 In order to constitute a quorum to conduct
business, the presence of at least three (3) Commissioners is
required.59 In the leading case of GMCR v. Bell,60 we definitively
explained the nature of a collegial body, and how the act of one
member of such body, even if the head, could not be considered as
that of the entire body itself. Thus:
We hereby declare that the NTC is a collegial body requiring a
majority vote out of the three members of the commission in order to
validly decide a case or any incident therein. Corollarily, the vote
alone of the chairman of the commission, as in this case, the vote of
Commissioner Kintanar, absent the required concurring vote coming
from the rest of the membership of the commission to at least arrive
at a majority decision, is not sufficient to legally render an NTC order,
resolution or decision.
Simply put, Commissioner Kintanar is not the National
Telecommunications Commission. He alone does not speak for and in
behalf of the NTC. The NTC acts through a three-man body, and the
three members of the commission each has one vote to cast in every
deliberation concerning a case or any incident therein that is subject
to the jurisdiction of the NTC. When we consider the historical milieu
in which the NTC evolved into the quasi-judicial agency it is now
under Executive Order No. 146 which organized the NTC as a threeman commission and expose the illegality of all memorandum
circulars negating the collegial nature of the NTC under Executive

Order No. 146, we are left with only one logical conclusion: the NTC is
a collegial body and was a collegial body even during the time when it
was acting as a one-man regime.61
We can adopt a virtually word-for-word observation with respect to
former Commissioner Martinez and the SEC. Simply put,
Commissioner Martinez is not the SEC. He alone does not speak for
and in behalf of the SEC. The SEC acts through a five-person body, and
the five members of the commission each has one vote to cast in every
deliberation concerning a case or any incident therein that is subject
to the jurisdiction of the SEC.
GSIS attempts to defend former Commissioner Martinezs action, but
its argument is without merit. It cites SEC Order No. 169, Series of
2008, whereby Martinez was designated as "Officer-in-Charge of the
Commission for the duration of the official travel of the Chairperson to
Paris, France, to attend the 33rd Annual Conference of the [IOSCO]
from May 26-30, 2008."62 As officer-in-charge (OIC), Martinez was
"authorized to sign all documents and papers and perform all other
acts and deeds as may be necessary in the day-to-day operation of the
Commission".1avvphi1
It is clear that Martinez was designated as OIC because of the official
travel of only one member, Chairperson Fe Barin. Martinez was not
commissioned to act as the SEC itself. At most, he was to act in place of
Chairperson Barin in the exercise of her duties as Chairperson of the
SEC. Under Section 4.3 of the SRC, the Chairperson is the chief
executive officer of the SEC, and thus empowered to "execute and
administer the policies, decisions, orders and resolutions approved by
the Commission," as well as to "have the
general executive direction and supervision of the work and operation
of the Commission."63 It is in relation to the exercise of these duties of
the Chairperson, and not to the functions of the Commission, that
Martinez was "authorized to sign all documents and papers and
perform all other acts and deeds as may be necessary in the day-today operation of the Commission."
GSIS likewise cites, as authority for Martinezs unilateral issuance of

the CDO, Section 4.6 of the SRC, which states that the SEC "may, for
purposes of efficiency, delegate any of its functions to any department
or office of the Commission, an individual Commissioner or staff
member of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or regulation."
Reliance on this provision is inappropriate. First, there is no
convincing demonstration that the SEC had delegated to Martinez the
authority to issue the CDO. The SEC Order designating Martinez as OIC
only authorized him to exercise the functions of the absent
Chairperson, and not of the Commission. If the Order is read as
enabling Martinez to issue the CDO in behalf of the Commission, it
would be akin to conceding that the SEC Chairperson, acting alone,
can issue the CDO in behalf of the SEC itself. That again contravenes
our holding in GMCR v. Bell.
In its dispositive portion, the Court of Appeals likewise pronounced

that the complaint filed by GSIS with the SEC should be barred from
being considered "as an election contest in the RTC", given that the
fifteen (15) day prescriptive period to file an election contest with the
RTC, under Section 3, Rule 6 of the Interim Rules, had already run its
course.64 Yet no such relief was requested by private respondents in
their petition for certiorari filed with the Court of Appeals 65 . Without
disputing the legal predicates surrounding this pronouncement, we
note that its tenor, if not the text, unduly suggests an unwholesome
pre-emptive strike. Given our observations in A.M. No. 08-8-11-CA of
the "undue interest" exhibited by the author of the appellate court
decision, such declaration is best deleted. Nonetheless, we do trust
that any court or tribunal that may be confronted with that premise
adverted to by the Court of Appeals would know how to properly
treat the same.
In addition, it is clear under Section 4.6 that the ability to delegate

functions to a single commissioner does not extend to the exercise of
the review or appellate authority of the SEC. The issuance of the CDO
is an act of the SEC itself done in the exercise of its original
jurisdiction to review actual cases or controversies. If it has not been
clear to the SEC before, it should be clear now that its power to issue a
CDO can not, under the SRC, be delegated to an individual
commissioner.
B.
V.
In the end, even assuming that the events narrated in our Resolution
in A.M. No. 08-8-11-CA constitute sufficient basis to nullify the
assailed decision of the Court of Appeals, still it remains clear that the
reliefs GSIS seeks of this Court have no basis in law. Notwithstanding
the black mark that stains the appellate courts decision, the first
paragraph of its fallo, to the extent that it dismissed the complaint of
GSIS with the SEC for lack of jurisdiction and consequently nullified
the CDO and SDO, defies unbiased scrutiny and deserves affirmation.
A.
Finally, we turn to the sanction on the lawyers of GSIS imposed by the

Court of Appeals.
Nonetheless, we find that as a matter of law the sanctions are
unwarranted. The charter of GSIS 66 is unique among government
owned or controlled corporations with original charter in that it
allocates a role for its internal legal counsel that is in conjunction with
or complementary to the Office of the Government Corporate Counsel
(OGCC), which is the statutory legal counsel for GOCCs. Section 47 of
GSIS charter reads:
SEC. 47. Legal Counsel.The Government Corporate Counsel shall be
the legal adviser and consultant of GSIS, but GSIS may assign to the
Office of the Government Corporate Counsel (OGCC) cases for legal
action or trial, issues for legal opinions, preparation and review of
contracts/agreements and others, as GSIS may decide or determine
from time to time: Provided, however, That the present legal services
group in GSIS shall serve as its in-house legal counsel.
The GSIS may, subject to approval by the proper court, deputize any
personnel of the legal service group to act as special sheriff in the
enforcement of writs and processes issued by the court, quasi-judicial
agencies or administrative bodies in cases involving GSIS. 67
The designation of the OGCC as the legal counsel for GOCCs is set forth
by statute, initially by Rep. Act No. 3838, then reiterated by the
Administrative Code of 1987.68 Given that the designation is statutory
in nature, there is no impediment for Congress to impose a different
role for the OGCC with respect to particular GOCCs it may charter.
Congress appears to have done so with respect to GSIS, designating
the OGCC as a "legal adviser and consultant," rather than as counsel to
GSIS. Further, the law clearly vests unto GSIS the discretion, rather
than the duty, to assign cases to the OGCC for legal action, while
designating the present legal services group of GSIS as "in-house legal
counsel." This situates GSIS differently from the Land Bank of the
Philippines, whose own in-house lawyers have persistently argued
before this Court to no avail on their alleged right
mere pawns or puppets in the internecine fights businessmen and

their associates wage against other businessmen in the quest for
corporate dominance. In the end, the petitions did afford this Court to
clarify consequential points of law, points rooted in principles which
will endure long after the names of the participants in these cases
have been forgotten.
WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack
of capacity of the petitioner to bring forth the suit.
The petition in G.R. No. 183905 is DISMISSED for lack of merit except
that the second and third paragraphs of the fallo of the assailed
decision dated 23 July 2008 of the Court of Appeals, including
subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second
paragraph, are hereby DELETED.
No pronouncements as to costs.
SO ORDERED.
OGCC. 69
to file petitions before us instead of the

Nothing in the Land
Bank charter 70 vested it with the discretion to choose when to assign
cases to the OGCC, notwithstanding the establishment of its own Legal
Department.71
Congress is not bound to retain the OGCC as the primary or exclusive
legal counsel of GSIS even if it performs such a role for other GOCCs.
To bind Congress to perform in that manner would be akin to
elevating the OGCCs statutory role to irrepealable status, and it is
basic that Congress is barred from passing irrepealable laws. 72
C.
We close by acknowledging that the surrounding circumstances
behind these petitions are unfortunate, given the events as narrated in
A.M. No. 08-8-11-CA. While due punishment has been meted on the
errant magistrates, the corporate world may very well be reminded
that the members of the judiciary are not to be viewed or treated as
7. UNION BANK, SUPRA.

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COMMERCIAL LAW REVIEW I

1. G.R. No. 138949

[SECURITIES REGULATION CODE (RA NO. 8799]

"Records show that on April 4, 1997, petitioner, through its

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

"On July 17, 1997, respondent Commission wrote petitioner,

1997, and considering that the reasons advanced are [a]

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

Commission adopted the policy of 'full material disclosure'

"C. Whether or not Respondent Court of Appeals gravely erred

Because its securities are exempt from the registration requirements

"Sec. 5. Exempt Securities. (a) Except expressly provided, the

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

(3) Any security issued or guaranteed by any banking

RSA Rules 11 (a)-1, 34 (a)-1 and 34 (c)-1 require the submission of

This provision exempts from registration the securities issued by

"However, the exemption from the registration requirement

That petitioner is under the supervision of the Bangko Sentral ng

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

Contending that both respondent and the CA erred in imposing an

the CA does nor mean that its right to be heard was

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

G.R. No. 86738 November 13, 1991

shares, while Nestle S.A. subscribed to and paid up the balance of

Nepomuceno, Hofilena & Guingona for petitioner.

On 28 March 1985, petitioner Nestle filed a letter signed by its

On 16 December 1983, the Board of Directors and stockholders of

(4) The distribution by a corporation, actively engaged

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

to the security holder or other creditors of a

remuneration had been given, directly or indirectly, in connection

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

(c) A fee equivalent to one-tenth of one per centum of

subscribed has been paid either in actual cash or in property

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

[t]he principle that the contemporaneous construction

basis, under Section 6(b); and thereunder, to grant or withhold

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

condition of the corporation and the potential value of the shares of

COMMERCIAL LAW REVIEW I

G.R. No. 135808

[SECURITIES REGULATION CODE (RA NO. 8799]

IRC alleged that on 8 August 1994, a press release announcing the

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

timely disclosure of its negotiations with GHB. In addition, the SEC

(Brokers and Exchanges Department), which is hereby

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

Court of Appeals likewise noted that it found no statutory authority

Section 144 (Violations of the Code) of the Corporation Code.

COMMERCIAL LAW REVIEW I

[SECURITIES REGULATION CODE (RA NO. 8799]

provisions of law, where a reasonable construction that will support