Russel Anne Bundoc | JD-2B | College of Law, Bulacan State University | Corpo | Case Digests

I. SHORT TITLE: GSIS v CA

II. FULL TITLE: 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. IBAÑEZ, and FRANCIS GILES PUNO,
respondents.

III. TOPIC: Corporation Law - Proxy solicitation and proxy validation

IV. STATEMENT OF FACTS:

During the annual stockholders meeting of the Manila Electric Company
(MERALCO,) due to the resignation of the corporate secretary Quiason, the Board of
Directors (BoD) of MERALCO designated Vitug to act as corporate secretary. However,
the proxy validation was presided over by respondent Rosete, assistant corporate
secretary and in-house chief legal counsel of MERALCO.
GSIS thereafter filed a complaint with the RTC of Pasay City seeking the
nullification of the proxies which were validated during the aforementioned proceeding
presided over by respondent Rosete. On the very same day, a Cease and Desist Order
(CDO) was then issued and signed by SEC Commissioner Jesus Martinez to restrain the
use of said proxies during the annual meeting. Nevertheless, Rosete continued the
meeting despite the foregoing.
The SEC then issued a Show Cause Order (SCO) against Rosete ordering them to
give an explanation why they should not be cited in contempt.
On appeal, the CA Eighth Division held that the complaint filed by GSIS is
dismissed for lack of jurisdiction, forum shopping by splitting of causes of action.
Thereafter, three different action arose therefrom, one of which involves the jurisdiction
of the SEC over the contested petition as well as the validity of the CDO and SCO.

V. ISSUE:
1. Whether or not the SEC has jurisdiction over the petition filed by GSIS against
private respondents.

2. Whether or not the CDO and SCO issued by the SEC are valid.

VI. RULING:
1. No. 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,
Russel Anne Bundoc | JD-2B | College of Law, Bulacan State University | Corpo | Case Digests

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. 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.

2. No. The lack of jurisdiction of the SEC over the subject matter of GSIS’s
petition necessarily invalidates the CDO and SCO issued by that body. 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.
The CDO bore the signature of Commissioner Jesus Martinez, identified therein
as “Officer-in-Charge,” and nobody else’s. The SEC is a collegial body composed of a
Chairperson and four (4) Commissioners. In order to constitute a quorum to conduct
business, the presence of at least three (3) Commissioners is required. 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.
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.

VII. DISPOSITIVE PORTION:

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.