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ROBERTO SAN JOSE and DELFIN P. ANGCAO vs. JOSE MA.

OZAMIZ
G.R. No. 190590, July 12, 2017

TOPIC: INTRA-CORPORATE DISPUTE

FACTS:
• San Jose who was elected Corporate Secretary on 1996 of Philcomsat
Holdings Corporation (PHC) then known as Liberty Mines, Inc. He was also
elected as a member of the board of director and was reelected for several
times.
• Angcao was elected as assistant secretary and was likewise reelected
several times.
• San Jose resigned as a director and also relinquished his being the
corporate secretary.
• With this resignation, Angcao was elected to serve as the Corporate
Secretary of PHC. Since then, San Jose ceased to be connected with PHC
and has not held any position of office in PHC.
• Ozamis, a stockholder of PHC, wrote to the petitioner to request for a copy
of all the Minutes of the Meetings of the Board of Directors and Exec.
Committee from 2000 to 2007.
• The request was heeded with several postponements that the letter would
be taken up to the next Board Meeting and so on.
• Ozamis filed a complaint for inspection of books with the RTC.
• Petitioners argued that the RT had no jurisdiction over the complaint as
the subject matter thereof is under the jurisdiction of the Sandiganbayan.
• Petitioners asserted that since 80.35% of PHC is owned by Philippine
Communications Satellite Corporation (Philcomsat), and Philcomsat is
wholly owned by Philippine Overseas Telecommunications Corporation
(POTC), and both Philcomsat and POTC are subjects of a standing
sequestration order issued by the Presidential Commission on Good
Government (PCGG), the case should have been filed before the
Sandiganbayan.
• RTC dismissed the complaint for lack of jurisdiction contending that the
case is an intra-corporate dispute. It is noted that the Philcomsat has
controlling interest in PHC, and that POTC is the beneficial owner of
Philcomsat. Both POTC and Philcomsat are sequestered companies being
administered by the PCGG. Thus, falls under the Sandiganbayan
jurisdiction.
• Ozamiz argued that since it is a simple case for inspection of books, it is
an intra-corporate controversy under RA No. 8799 (SRC).
• CA reversed the lower courts ruling and ruled that the case filed by Ozamis
was a simple intra-corporate dispute, and the it was the RTC which has the
jurisdiction over the case.

ISSUE:
(1) Whether or not the RTC has jurisdiction over the case;
(2) Whether or not the case involves a mere intra-corporate dispute
because it concerns matters relating to the assets of the sequestered
corporation.

RULING:
(1) YES.
The court ruled that to determine whether or not a case involves an
intra-corporate dispute, two tests are applied — the relationship test and the
nature of the controversy test.
Under the relationship test, there is an intra-corporate controversy when
the conflict is (1) between the corporation, partnership, or association and
the public; (2) between the corporation, partnership, or association and the
State insofar as its franchise, permit, or license to operate is concerned; (3)
between the corporation, partnership, or association and its stockholders,
partners, members, or officers; and (4) among the stockholders, partners,
or associates themselves.
On the other hand, in accordance with the nature of controversy
test, an intra-corporate controversy arises when the controversy is not only
rooted in the existence of an intra-corporate relationship, but also in the
enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the
corporation.
In the case at bar, the complaint concerns PHILCOMSAT’s demand to
exercise its right of inspection as stockholder of PHC but which petitioners
refused on the ground of the ongoing power struggle within POTC and
PHILCOMSAT that supposedly prevents PHC from recognizing PHILCOMSAT’s
representative as possessing such right or authority from the legitimate
directors and officers. Clearly, the controversy is intra-corporate in nature as
they arose out of intracorporate relations between and among stockholders,
and between stockholders and the corporation.
Based on the foregoing tests, it is clear that this case involves an
intracorporate dispute. It is a conflict between a stockholder and the
corporation, which satisfies the relationship test, and it involves the
enforcement of the right of Ozamiz, as a stockholder, to inspect the books of
PHC and the obligation of the latter to allow its stockholder to inspect its
books.

(2) YES.
The Supreme Court ruled that the case merely involves a simple intra-
corporate dispute. Such cases are within the jurisdiction of the RTC. While
PD No. 902-A conferred original and exclusive jurisdiction over intra-
corporate disputes to the Securities and Exchange Commission, this was
transferred to the appropriate RTC under RA No. 8799, to wit: Section 5.2.
The Commission’s jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court.
The mere fact that a corporation’s shares of stocks are owned by a
sequestered corporation does not, by itself, automatically categorize the
matter as one involving sequestered assets, or matters incidental to or
related to transactions involving sequestered corporations and/or their
assets.
ONAPAL PHILIPPINES COMMODITIES, INC. vs.
THE HONORABLE COURT OF APPEALS and SUSAN CHUA,

FACTS:
ONAPAL Philippines Commodities, Inc. (petitioner), was licensed as
commission merchant/broker by the SEC, to engage in commodity futures
trading in Cebu City.

On April 27, 1983, petitioner and private respondent concluded a "Trading


Contract". Like all customers of the petitioner, private respondent was
furnished regularly with "Commodities Daily Quotations" showing daily
movements of prices of commodity futures traded and of market reports
indicating the volume of trade in different future exchanges in Hongkong,
Tokyo and other centers.Every time a customer enters into a trading
transaction with petitioner as broker, the trading order is communicated
by telex to its principal in Hongkong.

From the findings of the trial court, there were only two parties involved
as far as the transactions covered by the Trading Contract are concerned
— the petitioner and the private respondents.

In April of 1983, she was invited by defendant's Account Executive


Elizabeth Diaz to invest in the commodity futures trading by depositing
the amount of P500,000.00. She was then made to sign the Trading
Contract and other documents without making her aware/understand the
risks involved.

On June 2, 1983, plaintiff was informed by Miss Diaz that she had to
deposit an additional amount of P300,000.00 "to pay the difference" in
prices, otherwise she will lose her original deposit of P500,000.00;
Fearing the loss of her original deposit, plaintiff was constrained to
deposit an additional amount of P300,000.00. Since she was made to
understand that she could withdraw her deposit/investment anytime, she
not knowing how the business is operated/managed as she was not made
to understand what the business was all about, she wanted to withdraw
her investment; but Elizabeth Diaz, defendant's Account Executive, told
her she could not get out because there are some accounts hanging on
the transactions.

Plaintiff further testified that she understood the transaction of buying


and selling as speculating in prices, and her paying the difference
between gains and losses without actual delivery of the goods to be
gambling, and she would like to withdraw from this kind of business, the
risk of which she was not made aware of. Plaintiff further testified that
she stopped trading in commodity futures in September, 1983 when she
realized she was engaged in gambling. She was able to get only
P470,000.00 out of her total deposit of P800,000.00. In order to recover
the loss of P330,000.00, she filed this case and engaged the services of
counsel for P40,000.00 and expects to incur expenses of litigation in the
sum of P20,000.00."

The trial court ruled that the Trading Contract on “futures” is a specie of
gambling and therefore null and void. Accordingly, the petitioner (as
defendant in lower court) was ordered to refund to the private respondent
(as plaintiff) the losses incurred in the trading transactions.

ISSUE:
Whether or not the transaction in the Trading Contract is a gambling
agreement.

RULING:
The contract between the parties falls under the kind commonly called
"futures".The name of the party to whom the seller was to make delivery
when the future contract of sale was closed or from whom he was to
receive delivery in case of purchase is not given the memorandum
(contract). The business dealings between the parties were terminated by
the closing of the transaction of purchase and sale of commodities without
directions of the buyer because his margins were exhausted.

The term "futures" has grown out of those purely speculative transactions
in which there are nominal contracts to sell for future delivery, but where
in fact no delivery is intended or executed. The nominal seller does not
have or expect to have a stock of merchandise he purports to sell nor
does the nominal buyer expect to receive it or to pay for the price.
Instead of that, a percentage or margin is paid, which is increased or
diminished as the market rates go up and down, and accounted for to the
buyer. This is simple speculation, gambling or wagering on prices within a
given time; it is not buying and selling and is illegal as against public
policy.

The trading contract signed by private respondent and Albert Chiam,


representing petitioner, is a contract for the sale of products for future
delivery, in which either seller or buyer may elect to make or demand
delivery of goods agreed to be bought and sold, but where no such
delivery is actually made.A contract for the sale or purchase of
goods/commodity to be delivered at future time, if entered into without
the intention of having any goods/commodity pass from one party to
another, but with an understanding that at the appointed time, the
purchaser is merely to receive or pay the difference between the contract
and the market prices, is a transaction which the law will not sanction, for
being illegal.

The written trading contract in question is not illegal but the transaction
between the petitioner and the private respondent purportedly to
implement the contract is in the nature of a gambling agreement and falls
within the ambit of Article 2018 of the New Civil Code, which is quoted
hereunder:
If a contract which purports to be for the delivery of goods,
securities or shares of stock is entered into with the intention that
the difference between the price stipulated and the exchange or
market price at the time of the pretended delivery shall be paid by
the loser to the winner, the transaction is null and void. The loser
may recover what he has paid.

The facts clearly establish that the petitioner is a direct participant in the
transaction, acting through its authorized agents. It received the
customer's orders and private respondent's money.In the realities of the
transaction, the parties merely speculated on the rise and fall in the price
of the goods/commodity subject matter of the transaction. If private
respondent's speculation was correct, she would be the winner and the
petitioner, the loser, so petitioner would have to pay private respondent
the "margin". But if private respondent was wrong in her speculation then
she would emerge as the loser and the petitioner, the winner. The
petitioner would keep the money or collect the difference from the private
respondent. This is clearly a form of gambling provided for with
unmistakeable certainty under Article 2018 abovestated. It would thus be
governed by the New Civil Code and not by the Revised Securities Act nor
the Rules and Regulations on Commodity Futures Trading laid down by
the SEC.

After considering all the evidence in this case, it appears that petitioner
and private respondent did not intend, in the deals of purchasing and
selling for future delivery, the actual or constructive delivery of the
goods/commodity, despite the payment of the full price therefor. The
contract between them falls under the definition of what is called
"futures". The payments made under said contract were payments of
difference in prices arising out of the rise or fall in the market price above
or below the contract price thus making it purely gambling and declared
null and void by law.

Under Article 2018, the private respondent is entitled to refund from the
petitioner what she paid. There is no evidence that the orders of private
respondent were actually transmitted to the petitioner's principal in
Hongkong and Tokyo. There was no arrangement made by petitioner with
the Central Bank for the purpose of remitting the money of its customers
abroad. The money which was supposed to be remitted to Frankwell
Enterprises of Hongkong was kept by petitioner in a separate account in a
local bank. Having received the money and orders of private respondent
under the trading contract, petitioner has the burden of proving that said
orders and money of private respondent had been transmitted. But
petitioner failed to prove this point.
CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY
OF THE PHILIPPINES, INC.
GR No. 171815, August 7, 2007

FACTS:
Union Cement Corporation (UCC), a publicly-listed company, has two
principal stockholders – UCHC, a non-listed company, with shares amounting
to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s stocks
were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the
other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed
the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had
passed resolutions to sell to Cemco BCI’sstocks in UCHC equivalent to
21.31% and ACC’s stocks in UCHC equivalent to 29.69%.

As a result of this disclosure, the PSE inquired as to whether the Tender


Offer Rule under Rule 19 of the Implementing Rules of the Securities
Regulation Code is not applicable to the purchase by petitioner of the
majority of shares of UCC. The SEC en banc had resolved that
the Cemco transaction was not covered by the tender offer rule.

Feeling aggrieved by the transaction, the respondent, National Life


Insurance Company of the Philippines, Inc., a minority stockholder of UCC,
sent a letter toCemco demanding the latter to comply with the rule on
mandatory tender offer. Cemco, however, refused.

National Life Insurance Company of the Philippines, Inc. filed a complaint


with the SEC asking it to reverse its 27 July 2004 Resolution and to declare
the purchase agreement of Cemco void and praying that the mandatory
tender offer rule be applied to its UCC shares.

The SEC ruled in favor of the respondent by reversing and setting aside its
27 July 2004 Resolution and directed petitioner Cemco to make a tender
offer for UCC shares to respondent and other holders of UCC shares similar
to the class held by UCHC in accordance with Section 9(E), Rule 19 of the
Securities Regulation Code.

On petition to the Court of Appeals, the CA rendered a decision affirming the


ruling of the SEC. It ruled that the SEC has jurisdiction to render the
questioned decision and, in any event, Cemco was barred by estoppel from
questioning the SEC’s jurisdiction. It, likewise, held that the tender offer
requirement under the Securities Regulation Code and its Implementing
Rules applies to Cemco’s purchase of UCHC stocks. Cemco’s motion for
reconsideration was likewise denied.
ISSUES:

1. Whether or not the SEC has jurisdiction over respondent’s


complaint and to require Cemco to make a tender offer for
respondent’s UCC shares.

2. Whether or not the rule on mandatory tender offer applies to the


indirect acquisition of shares in a listed company, in this case,
the indirect acquisition by Cemco of 36% of UCC, a 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.

RULING:

1. Yes. In taking cognizance of respondent’s complaint against petitioner


and eventually rendering a judgment which ordered the latter to make
a tender offer, the SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit:

“13. Violation. If there shall be violation of this Rule by pursuing


a purchase of equity shares of a public company at threshold
amounts without the required tender offer, the Commission,
upon complaint, may nullify the said acquisition and direct the
holding of a tender offer. This shall be without prejudice to the
imposition of other sanctions under the Code.”

The foregoing rule emanates from the SEC’s power and authority to
regulate, investigate or supervise the activities of persons to ensure
compliance with the Securities Regulation Code, more specifically the
provision on mandatory tender offer under Section 19 thereof. As a
regulatory agency, it has the incidental power to conduct hearings and
render decisions fixing the rights and obligations of the parties.

Moreover, petitioner is barred from questioning the jurisdiction of the


SEC. It must be pointed out that petitioner had participated in all the
proceedings before the SEC and had prayed for affirmative relief.
2. Yes. Tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a
public company.

A public company is defined as a corporation which is listed on an


exchange, or a corporation with assets exceeding P50,000,000.00 and
with 200 or more stockholders, at least 200 of them holding not less
than 100 shares of such company.

In other words, a tender offer is an offer by the acquiring person to


stockholders of a public company for them to tender their shares
therein on the terms specified in the offer.

Tender offer is in place to protect minority shareholders against any


scheme that dilutes the share value of their investments. It gives the
minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at
the same price as those of the majority shareholders.

The SEC and the Court of Appeals ruled that the indirect acquisition by
petitioner of 36% of UCC shares through the acquisition of the non-
listed UCHC shares is covered by the mandatory tender offer rule.

The legislative intent of Section 19 of the Code is to regulate activities


relating to acquisition of control of the listed company and for the
purpose of protecting the minority stockholders of a listed
corporation. Whatever may be the method by which control of a
public company is obtained, either through the direct purchase of its
stocks or through an indirect means, mandatory tender offer
applies. As appropriately held by the Court of Appeals:

“The petitioner posits that what it acquired were stocks of UCHC and
not UCC. By happenstance, as a result of the transaction, it became
an indirect owner of UCC. We are constrained, however, to construe
ownership acquisition to mean both direct and indirect. What is
decisive is the determination of the power of control. The legislative
intent behind the tender offer rule makes clear that the type of activity
intended to be regulated is the acquisition of control of the listed
company through the purchase of shares. Control may [be] effected
through a direct and indirect acquisition of stock, and when this takes
place, irrespective of the means, a tender offer must
occur. The bottomline of the law is to give the shareholder of the
listed company the opportunity to decide whether or not to sell in
connection with a transfer of control.xxx”

3. No. The action of the SEC on the PSE request for opinion on the
Cemco transaction cannot be construed as passing merits or giving
approval to the questioned transaction. As aptly pointed out by the
respondent, the letter dated 27 July 2004 of the SEC was nothing but
an approval of the draft letter prepared by Director Callanga.

There was no public hearing where interested parties could have been
heard. Hence, it was not issued upon a definite and concrete
controversy affecting the legal relations of parties thereby making it a
judgment conclusive on all the parties. Said letter was merely
advisory. Jurisprudence has it that an advisory opinion of an agency
may be stricken down if it deviates from the provision of the statute.

Since the letter dated 27 July 2004 runs counter to the Securities
Regulation Code, the same may be disregarded as what the SEC has
done in its decision dated 14 February 2005.

Assuming arguendo that the letter dated 27 July 2004 constitutes a


ruling, the same cannot be utilized to determine the rights of the
parties. What is to be applied in the present case is the subsequent
ruling of the SEC dated 14 February 2005 abandoning the opinion
embodied in the letter dated 27 July 2004.
Power Homes Unlimited Corp. v. SEC

G.R. No. 164182, [February 26, 2008], 570 PHIL 161-173

Petitioner Power Homes Unlimited Corp. is a domestic corporation duly


registered with public respondent SEC on October 13, 2000. Its primary
purpose is: To engage in the transaction of promoting, acquiring, managing,
leasing, obtaining options on, development, and improvement of real estate
properties for subdivision and allied purposes, and in the purchase, sale
and/or exchange of said subdivision and properties through network
marketing.

On October 27, 2000, respondent Noel Manero requested SEC to


investigate petitioner's business alleging that they are selling properties that
were inexistent and without any broker's license.

On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from


public respondent SEC whether petitioner's business involves "legitimate
network marketing."

On the bases of the letters of respondent Manero and Munsayac, public


respondent SEC held a conference on December 13, 2000 that was attended
by petitioner's incorporators. The attendees were requested to submit copies
of petitioner's marketing scheme and list of its members with addresses.

The following day or on December 14, 2000, petitioner submitted to


public respondent SEC copies of its marketing course module and letters of
accreditation/authority or confirmation from Crown Asia, Fil-Estate Network
and Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business


premises of petitioner wherein it gathered documents such as certificates of
accreditation to several real estate companies, list of members with web
sites, sample of member mail box, webpages of two (2) members, and lists
of Business Center Owners who are qualified to acquire real estate
properties and materials on computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or


offer for sale or distribution of investment contracts, which are considered
securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities
Regulation Code), but failed to register them in violation of Sec. 8.1 of the
same Act, public respondent SEC issued a Cease and Desist Order
(CDO).
Aggrieved, petitioner went to the Court of Appeals imputing grave
abuse of discretion amounting to lack or excess of jurisdiction on public
respondent SEC for issuing the order. The CA dismissed the petition for lack
of merit and affirmed the CDO in toto.

Petitioner Power Homes argued that the payment of US$234 is for the
seminars on leverage marketing and not for any product.

ISSUES:

1. Whether public respondent SEC followed due process in the


issuance of the assailed CDO; and

2. Whether petitioner's business constitutes an investment contract


which should be registered with public respondent SEC before its sale
or offer for sale or distribution to the public.

HELD:

1.Yes, due process is observed.
 The records reveal that public respondent
SEC properly examined petitioner's business operations when it
 : (1)
called into conference three of petitioner's incorporators, (2) requested
information from the incorporators regarding the nature of petitioner's
business operations, (3) asked them to submit documents pertinent thereto,
and (4) visited petitioner's business premises and gathered information
thereat.

All these were done before the CDO was issued by the public
respondent SEC. Trite to state, a formal trial or hearing is not necessary
to comply with the requirements of due process. Its essence is simply
the opportunity to explain one's position. Public respondent SEC
abundantly allowed petitioner to prove its side.
Sec. 64 of R.A. No. 8799 provides:

Sec. 64. Cease and Desist Order. — 64.1. The Commission, after
proper investigation or verification, motu proprioor upon
verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in its
judgment the act or practice, unless restrained, will operate as a fraud
on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public.
2. Yes, it constitutes investment contract.

The CDO was proper even without a finding of fraud. As an investment


contract that is security under R.A. No. 8799, it must be registered with
public respondent SEC, otherwise the SEC cannot protect the
investing public from fraudulent securities. The strict regulation of
securities is founded on the premise that the capital markets depend on the
investing public's level of confidence in the system.

The petitioner was engaged in the sale or distribution of an investment


contract. In the case of SEC v. Turner, the SEC brought a suit to enjoin
the violation of federal securities laws by a company offering to sell to
the public contracts characterized as self-improvement courses. On
appeal from a grant of preliminary injunction, the US Court of Appeals of the
9th Circuit held that self-improvement contracts which primarily offered the
buyer the opportunity of earning commissions on the sale of contracts to
others were "investment contracts" and thus were "securities" within
the meaning of the federal securities laws.

The appellate court held: It is apparent from the record that what is sold is
not of the usual "business motivation" type of courses. Rather, the
purchaser is really buying the possibility of deriving money from the
sale of the plans by Dare to individuals whom the purchaser has brought
to Dare. The promotional aspects of the plan, such as seminars, films, and
records, are aimed at interesting others in the Plans. Their value for any
other purpose is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing
others into the organization, for which he will receive a part of what they
pay. His task is to bring prospective purchasers to "Adventure Meetings."

The business scheme of petitioner in the case at bar is essentially similar. An


investor enrolls in petitioner's program by paying US$234. This entitles him
to recruit two (2) investors who pay US$234 each and out of which amount
he receives US$92. A minimum recruitment of four (4) investors by these
two (2) recruits, who then recruit at least two (2) each, entitles the principal
investor to US$184 and the pyramid goes on.

We reject petitioner's claim that the payment of US$234 is for the seminars
on leverage marketing and not for any product. Clearly, the trainings or
seminars are merely designed to enhance petitioner's business of teaching
its investors the know-how of its multi-level marketing business.