Source: https://es.scribd.com/document/94523024/Power-Homes-vs-SEC
Timestamp: 2019-04-25 15:56:19+00:00

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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),5 but failed to register them in violation of Sec. 8.1 of the same Act,6 public respondent SEC issued a CDO that reads: WHEREFORE, pursuant to the authority vested in the Commission, POWER HOMES UNLIMITED, CORP., its officers, directors, agents, representatives and any and all persons claiming and acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in the sale, offer or distribution of the securities upon the receipt of this order. In accordance with the provisions of Section 64.3 of Republic Act No. 8799, otherwise known as the Securities Regulation Code, the parties subject of this Cease and Desist Order may file a request for the lifting thereof within five (5) days from receipt. 7 On February 5, 2001, petitioner moved for the lifting of the CDO, which public respondent SEC denied for lack of merit on February 22, 2001. 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. It also applied for a temporary restraining order, which the appellate court granted. On May 23, 2001, the Court of Appeals consolidated petitioner’s case with CA-G.R. [SP] No. 62890 entitledProsperity.Com, Incorporated v. Securities and Exchange Commission (Compliance and Enforcement Department), Cristina T. De La Cruz, et al. On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was heard. On July 12, 2001, public respondent SEC filed its opposition. On July 13, 2001, the appellate court granted petitioner’s motion, thus: Considering that the Temporary Restraining Order will expire tomorrow or on July 14, 2001, and it appearing that this Court cannot resolve the petition immediately because of the issues involved which require a further study on the matter, and considering further that with the continuous implementation of the CDO by the SEC would eventually result to the sudden demise of the petitioner’s business to their prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant the preliminary injunction.
The Commission. 8799 provides: Sec. will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. which was not resolved by the Court of Appeals. let a writ of preliminary injunction be issued in favor of petitioner. after posting a bond in the amount of P500. Sec. Cease and Desist Order. Its essence is simply the opportunity to explain one’s position. the Court of Appeals issued its Consolidated Decision. after proper investigation or verification. Public respondent SEC abundantly allowed petitioner to prove its side. 64.1. public respondent SEC moved for reconsideration. On the first issue. Trite to state. 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. the Court of Appeals denied petitioner’s motion for reconsideration. All these were done before the CDO was issued by the public respondent SEC. No. The issues for determination are: (1) whether public respondent SEC followed due process in the issuance of the assailed CDO. (3) asked them to submit documents pertinent thereto.000. 64 of R. x x x x the petition for certiorari and prohibition filed by the other petitioner Powerhomes Unlimited Corporation is hereby DENIED for lack of merit and the questioned Cease and Desist Order issued by public respondent against it is accordingly AFFIRMED IN TOTO. . this petition for review. On June 18. 10 hence. On July 31. We hold that petitioner was not denied due process. The records reveal that public respondent SEC properly examined petitioner’s business operations when it (1) called into conference three of petitioner’s incorporators. – 64.A. and (4) visited petitioner’s business premises and gathered information thereat. 2003. (2) requested information from the incorporators regarding the nature of petitioner’s business operations. The disposition pertinent to petitioner reads:9 WHEREFORE.8 On August 8. a formal trial or hearing is not necessary to comply with the requirements of due process. 2001. unless restrained. 2004. motu proprio or upon verified complaint by any aggrieved party.WHEREFORE. may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice.00 to answer whatever damages the respondents may suffer should petitioner be adjudged not entitled to the injunctive relief herein granted.
12 An investment contract is defined in the Amended Implementing Rules and Regulations of R.1 of R. without a registration statement duly filed with and approved by the Commission. After recruiting 128 persons in a period of eight (8) months for each Left and Right business groups or a total of 256 enrollees whether directly referred by the BCO or through his down lines. His enrollment entitles him to recruit two investors who should pay US$234 each and out of which amount he shall receive US$92.700 is used as partial/full down payment for the real property chosen by the BCO from any of *petitioner’s+ accredited real estate developers. This accumulated amount of US$2. Corp.20 as property fund from the gross amount of US$11. has now an accumulated amount of US$2. The BCO is required to pay US$234 as his enrollment fee. transaction or scheme (collectively ‘contract’) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.700 constituting as his Property Fund placed in a Property Fund account with the Chinabank.412. Paragraph 5 of the same indicates that there exists no employer/employee relationship between the BCO and the Power Homes Unlimited.80 after deducting the amount of US$363. Securities shall not be sold or offered for sale or distribution within the Philippines. In case the two referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who become his/her own down lines. who is enrolled in the company’s referral program and who will ultimately purchase real property from any accredited real estate developers and as such he is entitled to a referral bonus/commission. in such form and with such substance as the Commission may prescribe. Public respondent SEC found the petitioner "as a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through effective leverage marketing. 8799 as a "contract. must be registered prior to sale or offer for sale or distribution to the public pursuant to Section 8.1. shall be made available to each prospective purchaser.20 after deducting the amount of US$36.776. No. information on the securities."13 . Requirement of Registration of Securities. the BCO who receives a total amount of US$11. The Terms and Conditions printed at the back of the application form indicate that the BCO shall mean an independent representative of Power Homes. Prior to such sale. – 8.A. the BCO will receive a total amount of US$147.The second issue is whether the business of petitioner involves an investment contract that is considered security11 and thus. 8799.A. No.80 as property fund from the gross amount of US$184. viz: Section 8." It also described the conduct of petitioner’s business as follows: The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner (BCO) who must fill-up and sign its application form.
(2) in a common enterprise. the US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static principle. transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others. or scheme whereby a person (1) makes an investment of money. Turner Enterprises. one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to the public.A. (2) in a common enterprise.24 In this case. an investment contract in our jurisdiction must be proved to be: (1) an investment of money. Our definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. (3) with expectation of profits.22Although the proponents must establish all four elements. were obliged to contribute their own efforts in finding prospects and bringing them to sales meetings. 8799. 8799 appears to follow this flexible concept for it defines an investment contract as a contract. No. Thus. any investment contract covered by the Howey Test must be registered under the Securities Act. 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.14 In this case."23Needless to state. recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report.A. 16 held that "Congress was using a term whose meaning had been crystallized"17 under the state’s "blue sky" laws18 in existence prior to the adoption of the Securities Act. Interestingly. Inc. Howey Co. W. et al. (3) with the expectation of profits. It held that a literal reading of the requirement "solely" would lead to unrealistic results. On appeal from a grant of preliminary injunction. Prescinding from these premises. contract. The appellate court held: ."15 The US Supreme Court. Turner25 are similar to the case at bar. This is regardless of the fact that buyers. to be a security subject to regulation by the SEC. the 9thCircuit of the US Court of Appeals ruled that the element that profits must come "solely" from the efforts of others should not be given a strict interpretation. After Howey came the 1973 US case of SEC v. (4) primarily from efforts of others.20 It established a test to determine whether a transaction falls within the scope of an "investment contract. Our R. the facts of SEC v."21 Known as the Howey Test. No. the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an "investment contract" under the Securities Act’s definition of "security.19 Thus. (4) to be derived solely from the efforts of others. 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.It behooves us to trace the history of the concept of an investment contract under R. it ruled that the use of the catch-all term "investment contract" indicated a congressional intent to cover a wide range of investment transactions. we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an investment contract.J. Glenn W. in addition to investing money needed to purchase the contract. it requires a transaction. In Turner. regardless of whether its issuer was engaged in fraudulent practices.
No. entitles the principal investor to US$184 and the pyramid goes on. it must be registered with public respondent SEC. the purchaser is really buying the possibility of deriving money from the sale of the plansby Dare to individuals whom the purchaser has brought to Dare. its offering to the public was rightfully enjoined by public respondent SEC. 2004 Resolution denying petitioner’s Motion for Reconsideration are AFFIRMED. Thus. No. Under the scheme. films. Clearly. 8799. such as seminars. for which he will receive a part of what they pay. the accumulated amount received by the investor comes primarily from the efforts of his recruits. An investor enrolls in petitioner’s program by paying US$234. The promotional aspects of the plan. An investor enrolls under the scheme of petitioner to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. As petitioner failed to register the same. the petition is DENIED. otherwise the SEC cannot protect the investing public from fraudulent securities. he turns his efforts toward bringing others into the organization. affirming the January 26. No costs. and records.A. minimal. who then recruit at least two (2) each. Their value for any other purpose is. 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. We reject petitioner’s claim that the payment of US$234 is for the seminars on leverage marketing and not for any product. IN VIEW WHEREOF. As an investment contract that is security under R. 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. A minimum recruitment of four (4) investors by these two (2) recruits. are aimed at interesting others in the Plans. to put it mildly. The CDO was proper even without a finding of fraud. Rather.It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. We therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R. The July 31. Once an individual has purchased a Plan. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. SO ORDERED. . and its June 18." The business scheme of petitioner in the case at bar is essentially similar. 2001 Cease and Desist Order issued by public respondent Securities and Exchange Commission against petitioner Power Homes Unlimited Corporation. 2003 Decision of the Court of Appeals. His task is to bring prospective purchasers to "Adventure Meetings.A. 8799.
G. LAO.: IS the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a shareholder in such corporation? This is the main question for resolution in this petition for review on certiorari of the Amended Decision1 of the Court of Appeals (CA) affirming the Decision2 of the Regional Trial Court (RTC). petitioners. 2000. Pursuant to the law. otherwise known as the Securities Regulation Code. or transfer.5 On June 19. Lao Pong Bao. The Facts On October 15. purchase. CEB-25916-SRC. DIONISIO C. filed by the Heirs of Uy Lam Tiong against respondent Dionisio Lao. the petition with the SEC was transferred to the RTC in Cebu City and docketed as Civil Case No. 170585 October 6. was enacted. Cebu City in CEB-25916-SRC. DECISION REYES. president of Pacific Foundry Shop Corporation (PFSC). namely subscription. which shares were previously purchased from a certain Hipolito Lao. issuance of certificates of shares in their name and to be allowed to examine the corporate books of PFSC. alleged that he acquired 333 shares from respondent Dionisio Lao himself. transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. Civil Case No.. on the other hand. 4 Respondent denied petitioners' claim.R. petitioners had no right to be issued certificates or stocks or to inspect its corporate books. 1998. R. LAO. 2008 DAVID C. petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission (SEC) against respondent Dionisio Lao.6 . in which they are named as stockholders and directors of the corporation. The case was consolidated with another intracorporate dispute.3 Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC. Petitioners prayed for a declaration as stockholders and directors of PFSC. He alleged that the inclusion of their names in the corporation's General Information Sheet was inadvertently made. CEB-25910-SRC. Petitioner Jose Lao.T. Since they were neither stockholders nor directors of PFSC. respondents. Branch 11. He also claimed that petitioners did not acquire any shares in PFSC by any of the modes recognized by law. J. Republic Act 8799. Petitioner David Lao alleged that he acquired 446 shares in PFSC from his father. LAO and JOSE C. No. vs.
Lao and Jose C. or at least notice thereof given to the corporation for the purpose of registration. the claim or contention of the petitioners David C. to be issued certificates of stock of said corporation and to be allowed to exercise rights of stockholders of the same corporation. vs. Lao and Jose C. Until the transfer is registered. Diosomito.R.7 RTC Disposition On December 19. 58 Phil.During pre-trial. 707). A stock certificate. Florendo. No. there is a need for their acquisition of said shares to be registered in the Stock and Transfer Book of the corporation. before the transferee can acquire any right as against the corporation other than the right to have the transfer registered (12 Fletcher 339). Lao is wanting in merit because they have no stock certificates in their names. 2001. xxxx Secondly. he can not vote nor he voted for (Price & Sulu Development Corp.9 In denying the petition. Registration is necessary to entitle a person to exercise the rights of a stockholder and to hold office as director or other offices (12 Fletcher 343). a person who has acquired or purchased shares of stock of a corporation. the RTC ratiocinated: x x x Thus. An unrecorded transferee can not enjoy the status of a stockholder. the parties agreed to submit the case for resolution based on the evidence on record. the RTC rendered a Joint Decision8 with the following pertinent disposition. judgment is hereby rendered by the Court in these cases: (a) Denying the petition of David C. as they do not appear to have acquired shares of stock of the corporation either as subscribers or by purchase from a holder of outstanding shares or by purchase from the corporation of additionally issued shares. in view of the foregoing premises. as we very well know. and who desires to be recognized as . Lao and Jose C Lao do not appear to have become registered stockholders of Pacific Foundry Shop corporation. 61 Phil. A transfer must be registered. G. the petitioners David C. Lao to be recognized as stockholders and directors of Pacific Foundry Shop Corporation. L-57586. So. the transferee is not a stockholder but an outsider (Rivera vs. 1986). Martin. thus: WHEREFORE. If ever the said petitioners acquired shares of stock of the corporation. An unregistered transfer is not valid as against the corporation (Uson vs. October 8. is the evidence of ownership of corporate stock. 535). That is why it is explicitly provided in Section 63 of the Corporation Code of the Philippines that no transfer of shares of stock shall be valid until the transfer is recorded in the books of the corporation.
in PFSC.10 Petitioners appealed to the CA. 2005. numbering 446 for petitioner-appellant David C. (c) Ordering respondent-appellee. also state that petitioners-appellants David C. the petitioners David C. (b) Ordering respondent-appellee through the corporate secretary to issue to petitioners-appellants the certificates of stock for the aforementioned number of shares. Lao and Jose C. Lao served as Director in PFSC from 1990-1998. in the cases at bench. Lao. In modifying the RTC decision. thus: The General Information Sheet of PFSC for the years 1987-1998 state that petitionersappellants David C. Lao occupied various key positions in PFSC from 1987-1998 and Jose C. vs. as President of Pacific Foundry Shop Corporation. judgment is hereby rendered modifying the Joint Decision dated December 19.12 The CA decision was penned by Justice Arsenio Magpale and concurred in by Justices Sesinando Villon and Enrico Lanzanas. Lao. former corporate secretary of the PFSC. to allow petitioners-appellants to exercise their rights as stock holders. Consequently. Unfortunately. Lao and Jose C. their petition to be recognized as stockholders of Pacific Foundry Shop Corporation must fail. own shares of stock numbering 446 and 333. 2001 of the trial court in so far as it relates to Civil Case No. Lao and Jose C. Lao own 446 and 333 shares. supra).stockholder for the purpose of voting and exercising other rights of a stockholder. disposing as follows: WHEREFORE. Lao did not secure such a standing. It is also indicated therein that David C. premises considered. Martin. The Sworn Statements of Uy Lam Tiong. respectively. (d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January in accordance with the By-Laws of Pacific Foundry shop Corporation. the CA rendered a Decision11 modifying that of the RTC. Lao and 333 for petitioner-appellant Jose C. CA Disposition On May 27. CEB-25916-SRC by: (a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry Shop Corporation. respectively. must secure such a standing by having the acquisition or transfer recorded in the corporate books (Price & Sulu development Corp. per corporate records of PFSC. the appellate court gave credence to the General Information Sheet submitted by petitioners that names them as stockholders of PFSC. The minutes of the Annual .
m. 1988 at 3:00 o'clock p. Justice Magpale. Lao himself from the original 1. nonetheless the ponente voluntarily inhibits himself from further handling this case in order to free the entire court of the slightest suspicion of bias and prejudice against the respondent-appellee. 2005. 2005. Cebu City. shows that among those present were petitioners-appellants David C. On July 22. from resolving his pending motion for reconsideration. on January 28. Withal. Lao Pong Bao. On July 11.17 Amended Decision On August 31.Stockholders Meeting of PFSC on January 28. On the other hand.m. Lao claims that he acquired his 446 shares through his father. 1988 at 4:00 p. To substantiate their statements. disclose that petitioner-appellant David C. Lao asserts that he acquired his 333 shares through Dionisio C. they merely relied on the General Information Sheets submitted to the Securities and .333 shares of stocks of the latter. Justice Magpale issued a Resolution16 voluntarily inhibiting himself from further participating in the resolution of the pending motion for reconsideration. Lao was elected vice-president of PFSC. Both minutes were signed by the officers of PFSC including respondent-appellee. Branch 11. when the latter purchased said shares from Hipolito Lao. the CA rendered an Amended Decision18 affirming that of the RTC. the Minutes of the Meeting of the Board of Directors of PFSC at its Office at Hipodromo.19 The Amended Decision was penned by Justice Enrico Lanzanas and concurred in by Justices Sesinando Villon and Vicente Yap. Lao. Justice Magpale stated: Although the undersigned ponente does not agree with the imputations of respondentappellee and that the same are not any of those grounds mentioned in Rule 137 of the Revised Rules of Court. During the said meeting. David C. the May 27.13 Respondent filed a motion for reconsideration14 of the CA decision. Lao was nominated and elected Director of PFSC. petitioner-appellant David C. with a fallo reading: IN VIEW OF THE FOREGOING. Lao and Jose C.the third mode mentioned by the trial court. Jose C. Petitioner-appellants asseverations are unavailing. respondent moved to inhibit15 the ponente of the CA decision. 2005 Decision of this Court is hereby SET ASIDE and the Decision of the Regional Trial Court. 2005. The CA stated: Petitioners-appellants maintain that they acquired their shares of stocks through transfer . 25916-SRC is hereby AFIRMED in toto. Cebu City with respect to Civil Case No.
The General Information Sheets and the Minutes of the Meetings adduced by petitioners-appellants do not prove such allegation of fraud or deceit.e. it is but logical to conclude that the certificate of stock covering 446 shares of Hipolito Lao was in fact endorsed and delivered to Dionisio C. Corollary. In fact. In the absence thereof. In this jurisdiction. Lao is deemed to have been valid and well-founded unless proven otherwise. Lao utterly failed to confute the argument posited by respondentappellee or demonstrate compliance with any of the statutory requirements as to warrant a favorable ruling on his part. Jose C. No proof was ever shown that there was endorsement and delivery to him of the stock certificates representing the 446 shares of Hipolito Lao. Jose C. the presumption remains that private transactions have been fair and regular. as well as on the Minutes of the Stockholders Meeting and Board of Directors Meeting held on January 28. As for the alleged shares of Jose C. i. Dionisio C. endorsement and delivery. unfortunately however petitioners failed to do so.20 . Conversely. Lao. Lao could not be considered a stockholder of PFSC in the absence of support reflecting his right to the 333 shares other than the inclusion of his name in the General Information Sheets from 1987 to 1998 and the Minutes of the Stockholder's Meeting and Board of Director's Meeting. David C. 1988. xxxx To our mind. from the transferors. Lao was reflected by the Certificate of Stock as well as in PFSC's Stock and Transfer Book. Lao's mere allegation that Dionisio Lao illegally appropriated upon himself the 446 shares failed to hurdle such presumption. Hipolito Lao and Dionisio Lao. Thus. to them as transferees. Lao and as such is reflected in PFSC's Stock and Transfer Book x x x.Exchange Commission for the year 1987 to 1998. Lao was able to show conformity with the aforementioned requirements. They did not adduce evidence that would indubitably show that there was indeed a valid transfer of stocks. the transfer made by Hipolito Lao of the 446 shares of stocks to Dionisio C. Neither was the transfer registered in PFSC's Stock and Transfer Book. the 333 shares being claimed by him is still under the name of Dionisio C. neither fraud nor evil is presumed and the record does not show either as to establish by clear and sufficient evidence that may lead Us to believe such allegation. The party alleging the same has the burden of proof to present evidence necessary to establish his claim. Accordingly. In fact. Lao failed to show that there was endorsement and delivery to him of the stock certificates or any documents showing such transfer or assignment. David C. We find his position identically situated with David C. There is also no evidence on record that would clearly establish how he acquired said shares of PFSC. it is a rule that private transactions are presumed to have been faire and regular and that the regular course of business is presumed to have been followed. Lao.
1988. 5. . and that (c) petitioners had been directors and officers of the corporation. only two (2) issues are raised in this petition. Issues Petitioners raise five (5) issues for Our consideration.Petitioners moved for reconsideration but their motion was denied. Whether or not the admissions and representations of respondent in the General Information Sheets submitted by him to the Securities and Exchange Commission during the years 1987 to 1998 that (a) petitioners were stockholders of Pacific Foundry Shop Corporation. Lao and Jose C. and the Minutes of Meeting of the Board of Directors on January 28. malice. Rule 7 of the Rules of Court. the Minutes of the Annual Stockholders Meeting of PFSC on January 28. while the second involves the substantive issue of whether or not petitioners are indeed stockholders of PFSC. Securities and Exchange Commission. People of the Philippines. that (b) petitioner David C. are sufficient proof of petitioners ownership of stocks in the corporation. Whether or not the inhibition of Justice Magpale constitutes. or corrupt purpose" on the part of Justice Magpale. Our Ruling We deny the petition. 1988. et al. v. respectively. Lao owned 446 and 333 shares in the corporation. which is proscribed under Section 5. Whether or not respondent is stopped from questioning petitioners' ownership of stocks in the corporation in view of his admissions and representations in the General Information Sheets he submitted to the Securities and Exchange Commission from 1987 to 1998 that petitioners were stockholders and officers of the corporation. as amended. 2. as well as the Sworn Statement of Uy Lam Tiong. as basis for disqualification. 3. Magpale is proper when there is no "extrinsic evidence of bias. or other evidence can be considered pursuant to the decision of thisHonorable Court in Tan v. in effect. 22 Essentially. 206 SCRA 740. former Corporate Secretary. Whether or not the inhibition of Justice Arsenio J. The first concerns the voluntary inhibition of Justice Magpale. thus: 1. mentioned by Justice Magpale in his ponencia. which is required by this Honorable Court in its decision in Webb. the present petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. 276 SCRA 243 . bad faith.21 Hence. and decisions of this Honorable Court. forum shopping. Whether or not determination of ownership of shares of stock in a corporation shall be based on the Stock and Transfer Book alone. 4.
for just or valid reasons other than those mentioned above. disinterested. Here. It is also illogical to presume that the Amended Decision would not have been issued with or without the participation of Justice Magpale. No judge should preside in a case in which he feels that he is not wholly free. or his wife or child. In cases of voluntary inhibition. Disqualification of judges. is pecuniarily interested as heir. administrator. . water under the bridge. the law leaves to the sound discretion of the judge the decision to decide for himself the question of whether or not he will inhibit himself from the case. and independent. Justice Magpale voluntarily inhibited himself "in order to free the entire court [CA] of the slightest suspicion of bias and prejudice x x x. A judge may. . The Amended Decision is too far removed from the issue of voluntary inhibition. Section 1. legatee. It is highly specious to assume that Justice Magpale would have ruled in favor of petitioners on the pending motion for reconsideration if he took a different course and opted to stay on with the case. or counsel. worse. But We cannot take that basic proposition too far."23 We certainly cannot nullify the decision of Justice Magpale recusing himself from the case because that is a matter left entirely to his discretion. or to counsel within the fourth degree. Rule 137 of the Rules of Court provides: Section 1. Petitioners claim that the motion to inhibit Justice Magpale from resolving the pending motion for reconsideration was improper and unethical. or in which he is related to either party within the sixth degree of consanguinity or affinity. It does not follow that petitioners would be better off were it not for the voluntary inhibition. We agree with petitioners that it may seem unpalatable and even revolting when a losing party seeks the disqualification of a judge who had previously ruled against him in the hope that a new judge might be more favorable to him. or in which he has presided in any inferior court when his ruling or decision is the subject of review. in the exercise of his sound discretion. They argue that Justice Magpale should have resolved the pending motion.Voluntary inhibition is within the sound discretion of a judge. Petitioners cannot bank on his voluntary inhibition to nullify the Amended Decision later issued by the appellate court. or in which he has been executor. constituted proscribed forum shopping. signed by them and entered upon the record. guardian. or otherwise. instead of voluntarily inhibiting himself from the case. It is. They assert that the "bias and prejudice" grounds alleged by private respondent were unsubstantiated and. Nor can We fault him for doing so. creditor. That Justice Magpale opted to voluntarily recuse himself from the appealed case is already fait accompli. impartial. trustee. without the written consent of all parties in interest. disqualify himself from sitting in a case. computed according to the rules of the civil law. in popular idiom.No judge or judicial officer shall sit in any case in which he.
Petitioners insist that they are shareholders of PFSC. In contrast. however. As correctly ruled by the CA: Au contraire. countersigned by the secretary or assistant secretary. Petitioners did not present any deed of assignment. 63. the transfer was duly registered in the stock and transfer book of the corporation. He had in his possession the certificates of stocks of Hipolito Lao. at the very least. shall be valid. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. The certificates of stocks were also properly endorsed to him. He was able to validate that he has the physical possession of the certificates covering the shares of Hipolito Lao. and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Petitioner David Lao alleges that he acquired 446 shares in the corporation from his father. They claim purchasing shares in PFSC. There is likewise no deed of assignment between petitioner Jose Lao and private respondent Dionisio Lao. disclose that petitioners have no certificates of shares in their name. which shares were previously purchased from a certain Hipolito Lao.Petitioners failed to prove that they are shareholders of PSFC. Petitioner Jose Lao. respondent has proven his right over the disputed shares. between Lao Pong Bao and Hipolito Lao. .The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president. Thus. respondent was able to prove that he is the owner of the disputed shares. as claimed by petitioners. They failed to prove the due delivery of the certificates of shares of the sellers to them. they failed to prove possession. Lao. Nor is there any written document that there was a sale of shares. Section 63 of the Corporation Code provides: Sec. the number of the certificate or certificates and the number of shares transferred. Dionisio C. More importantly. or between Lao Pong Bao and petitioner David Lao. Lao Pong Bao. petitioners must prove. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. Again. Absent a written document.24 It is prima facie evidence that the holder is a shareholder of a corporation. A certificate of stock is the evidence of a holder's interest and status in a corporation. No transfer. it was Hipolito Lao who properly endorsed said . except as between the parties. Lao was able to show through competent evidence that he is undeniably the owner of the disputed shares of stocks being claimed by David C. Certificate of stock and transfer of shares. the date of the transfer. however. Records. as between the parties. Notably. possession of the certificates of shares in the name of the alleged seller. alleges that he acquired 333 shares from respondent Dionisio Lao. on the other hand. until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction. or any similar instrument.
As discussed. The information in the document will still have to be correlated with the corporate books of PFSC. this was done merely to comply with the reportorial requirements with the SEC. Petitioners-appellants never secured such a standing as stockholders of PFSC and consequently. This maybe against the law but "practice. As between the General Information Sheet and the corporate books. it is the latter that is controlling. We note that petitioners agreed to submit their case for decision based merely on the documents on record. Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which they were named as shareholders of PFSC. the burden would have been with PFSC to prove that they are not shareholders of the corporation. We agree with the RTC and CA decision that petitioners are not shareholders of PFSC." If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise the rights granted unto him by law as stockholder. they do not appear in the corporate books as registered shareholders. These circumstances are more in accord with the valid transfer contemplated by Section 63 of the Corporation Code. Hence. no matter how long continued. . no testimonial evidence was presented to prove the alleged purchase of shares.certificates to herein Dionisio Lao and that such transfer was registered in PFSC's Stock and Transfer Book.25 The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company. All told. As professed by respondent-appellee. If they had certificates of shares. the bare assertion of petitioners that they are shareholders cannot prevail. for this may have come to pass by mistake. They claim that respondent is now estopped from contesting the General Information Sheet. Moreover. petitioners failed to hurdle their burden.26 It should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. cannot give rise to any vested right. that document alone does not conclusively prove that they are shareholders of PFSC. As correctly ruled by the CA: We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers does not make one a stockholder of a corporation. with more reason that such rights be denied to a person who is not a stockholder of a corporation. expediency or negligence. Absent any documentary or testimonial evidence. There is no written document evidencing their claimed purchase of shares. While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to the SEC. their petition should be denied. This is so because they do not have any certificates of shares in their name.
Pascual brought against his brother. Ester P.. recovery of sums of money. and the latters wife Loreta Pascual. and Teresita P. the petition is DENIED and the appealed Amended Decision AFFIRMED IN FULL. this petition for review of the decision 1 of the appellate court. Pascual.WHEREFORE. along with Araceli P. chanrobles virtual law library . and the latters wife involves an intra-corporate dispute beyond the jurisdiction of the Regional Trial Court. Castro. therefore. We affirm. Branch 121.Respondents. Abad. PASCUAL. petitioner Alfredo P. August 25. The pertinent parts of his complaint read:chanrobles virtual law library 3. reconveyance of real property based on implied trust resulting from fraud. Rivera. Montenegro. No. Jr. are legitimate children of Luciano Pascual. RTC. They. Kaloocan City. The trial court held that the action did not constitute an intra-corporate dispute and. chanrobles virtual law library The facts are as follows: chanrobles virtual law library On February 7. Defendant Loreta Pascual is the wife of defendant Alfredo. declaration of nullity of TCT. DECISION MENDOZA. Plaintiff Ernesto and defendant Alfredo Pascual are full blood brothers. Pascual filed a complaint in the Regional Trial Court for accounting.R. Sr. Luciano Pascual. The Court of Appeals sustained the order of the trial court. Edgardo P. Corazon P. Hence. (now deceased). and damages against his brother. denied petitioners motion to dismiss. Kalookan City in which it was filed. Sr. Petitioners. in her capacity as Presiding Judge. 1996. PASCUAL and HON. ERNESTO P. Manuel. 138542. SECOND DIVISION [G. J. v. Pascual.: chanrobles virtual law library The question for decision in this case is whether an action for reconveyance of a piece of land and for accounting and damages which private respondent Ernesto P. Branch 121. ADORACION ANGELES. PASCUAL and LORETA S. petitioner Alfredo. 2000] ALFREDO P. Leonor P. and Consolacion Pascual. SO ORDERED. COURT OF APPEALS (former Seventh Division). private respondent Ernesto P.
which held family properties in Quezon City. General Manager. chanrobles virtual law library . chanrobles virtual law library 6. defendant Alfredo held family property in trust for Luciano Sr. Defendant Alfredo would each time be sensitive. As a result. Luciano. and drunk. Pascual. In addition.R. . Pascual & Co.4. . Since defendant Alfredo was President of L. Pascual & Sons. and Consolacion. Between 1963 to 1975. defendant Alfredo turned over zero profit to plaintiff Ernesto as far as his share was concerned. he discovered that when defendant Alfredo caused the dissolution of Phillens Manufacturing Corporation by asking for a shortening of its term.R. Luciano R. chanrobles virtual law library 10.) chanrobles virtual law library 7. which held substantial shares in Phillens. his eldest son. . Sr. Inc. Sr. chanrobles virtual law library 8. and for his brothers and sisters. Pascual & Sons. defendant Alfredo became President. Plaintiff was only 20 years old then. defendant Alfredo gave the latter no accounting at any point in time contrary to what their father intended. chanrobles virtual law library 5. Because of defendant Alfredos icy silence and unmistakable attempts to claim the lid on plaintiff Ernesto Pascual.R. chanrobles virtual law library . and Vice-Chairman of the Board of Phillens. acquired substantial shares in Phillens Manufacturing Corp. Pascual & Sons. Because from 1969 to 1990. plaintiff asked defendant Alfredo for an accounting in L. With Lucianos substantial shareholdings. Inc. Pascual & Sons. Inc. . plaintiff tried to arrange a meeting between them about the matter of accounting -. (Plaintiff is a stockholder of L. evasive. so nothing became of those efforts. parceled out and assigned a good number of these shares in the names of his children. Although during and after the lifetime of the parties parents. Manila. a registered partnership distinct from L. . . and Baguio. R. which would be discussed in that requested meeting.R.. chanrobles virtual law library 12. Inc. chanrobles virtual law library . defendant Alfredo represented in an affidavit of undertaking that chanrobles virtual law library (a) he is the owner of the majority of the outstanding capital stock of the corporation. Defendant Alfredo was also president of L.without any success during a 5-year period (1990-1995). plaintiff conducted an inquiry. plaintiff wanted this matter taken up in a meeting he requested with defendant Alfredo.
defendant Alfredo caused an appraisal of the fair market value of the land and buildings of Phillens in Kalookan. 1989. By taking a position adverse to the trust and to his familys. stockholders. on inquiry. to which all the stockholders have consented. direct or indirect. whether existing or contingent.(b) that the corporation has no obligation. Metro Manila chanrobles virtual law library Gentlemen: chanrobles virtual law library This will certify that the P3. 1990. 1990 letter to the Securities & Exchange Commission falsely representing as follows: chanrobles virtual law library October 8. [sic] chanrobles virtual law library Securities & Exchange Commission chanrobles virtual law library E. chanrobles virtual law library ALFREDO P. Plaintiff also discovered. is [sic] my personal advances. that defendant Alfredo had written an October 8. due or payable to any person whomsoever. defendant Alfredo had not paid plaintiff what was properly owing to him. de los Santos Avenue chanrobles virtual law library Mandaluyong. 1990 chanrobles virtual law library Examiner & Appraiser Dept. excluding equipment. chanrobles virtual law library 14. chanrobles virtual law library (c) he is assuming and will pay any and all valid claims or demands by creditors. chanrobles virtual law library 13. remaining stock and inventory. Aware that Cuervo had appraised such . Further.3-million notes payable as shown in the balance sheet of Phillens Manufacturing Corporation as of June 30. defendant Alfredo. to his dismay. I am likewise giving my consent to the dissolution of the corporation.chanrobles virtual law library Since I am assuming the assets and liabilities of the company. greatly profiting from Phillens. now held he owned majority and will undertake to pay any claimant or creditor. plaintiff discovered that last April 3. PASCUAL chanrobles virtual law library 16. chanrobles virtual law library Very truly yours. natural or juridical. presented after the dissolution of the corporation. Yet. or any third person or persons.
(A copy of the April 3. and for his brothers and sisters. and Consolacion.. 1997. the trial court held that. Luciano R. In an order. As trustee defendant Alfredo did not turn over the properties and sums due to plaintiff and the former even failed to account for the trust estate and its earnings. The court also allowed the amendment of the complaint.chanrobles virtual law library 5. chanrobles virtual law library . pending resolution of the motion for reconsideration. plaintiff became owner by operation of law of 1/9 of his parents stockholdings since they died intestate without obligations. Inc. positions which he held until 1990 when Phillens was dissolved. the trial court granted petitioners motion and dismissed the complaint on the ground that the complaint stemmed from alleged fraudulent acts and misrepresentations of petitioner Alfredo P. petitioners filed a motion to dismiss on the ground that the complaint raises an intra-corporate controversy between the parties over which original and exclusive jurisdiction is vested in the Securities and Exchange Commission (SEC). defendant Alfredo caused in bad faith the cancellation of TCT C-28572 and the issuance of TCT 215804 in his and defendant Loretas name (copy of which is here attached as Annex D). However. (Phillens) and thus the SEC had jurisdiction over the case. At first. Pascual as a corporate officer of Phillens Manufacturing Corp.5 million. together with L. Luciano Sr. Thus. died in 1984 while Consolacion died in 1986. acquired approximately 38% of shares in Phillens Manufacturing Corp. which constitutes fraud and a breach of trust.977. General Manager. Sr. the trial court reconsidered its order and reinstated respondents action. Pascual & Sons.chanrobles virtual law library 6.000 as of March 10. dated September 29. chanrobles virtual law library On March 21. That TCT is of course void. to the grave prejudice of the latter. chanrobles virtual law library 7. defendant Alfredo hatched a ploy to buy for himself such properties at only P4. It appears that. said stockholdings and the properties of Phillens. 1989 Cuervo report addressed to defendant Alfredo is here attached as Annex A. plaintiff included. defendant Alfredo became President. 1989. With Lucianos substantial shareholdings. Defendant Alfredo held in trust for the benefit of Luciano Sr. To consummate his fraudulent design. and Vice-Chairman of Phillensin 1968 or 1969. proceeding as it does from a void transfer. on respondents motion. 1996.R.) chanrobles virtual law library 18.properties at P10. respondent amended his complaint by alleging the following matters which are underlined: chanrobles virtual law library 4. there were no more corporate affairs to speak of at the time of the filing of the complaint. since the corporation had been dissolved in 1990 and its corporate affairs terminated in 1993. Pascual. a close corporation.
therefore. . chanrobles virtual law library First.3 In order to cover-up such serious breach of trust.chanrobles virtual law library Petitioners reiterate their contention that the complaint against them involves an intracorporate dispute cognizable by the SEC and. between any or all of them and the corporation.528 square meters located in Caloocan City. chanrobles virtual law library b) Controversies arising out of intra-corporate or partnership relations. members or associates. shortly after ownership was transferred to him. 5 provides: chanrobles virtual law library In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations.chanrobles virtual law library 8. C215804. in violation of his duties as trustee. Said property was appraised conservatively to have a market value of no less than P10. and further caused the destruction of Phillens records thereby rendering its stocks valueless after its corporate affairs were wound up in 1993.1.9 Million in 1989. partnership or association and the state insofar . P. between and among stockholders. 902-A. chanrobles virtual law library This contention has no merit. C-28572 with an area of 7. partnerships and other forms of association registered with it as expressly granted under existing laws and decrees. Petitioners contend that the existence of a corporation at the time of filing of a complaint involving an intra-corporate dispute is not required in order that such dispute be cognizable by the SEC because such requirement is not found in P. One of the properties composing the trust estate. 902-A. partnership or association of which they are stockholders. manipulated and succeeded in transferring title to and possession in his favor of TCT No. was registered in the name of defendants under devious and fraudulent circumstances engineered by Alfredo. C-28572 in 1989 for an alleged consideration of P4.2 Although Alfredo was fully aware of its market value. and between such corporation.5 Million. the Regional Trial Court should have dismissed the complaint.D.chanrobles virtual law library 8. They complain that the trial court should not have allowed the amendment of the complaint because it was done in order to confer jurisdiction on the trial court.4 Defendants presently appear as legal and beneficial owners by virtue of TCT No. chanrobles virtual law library 8. . . No.chanrobles virtual law library 8. TCT No.8. Alfredo maliciously caused the dissolution of Phillens in 1990. it shall have original and exclusive jurisdiction to hear and decide cases involving: chanrobles virtual law library . Alfredo schemed. members.D. or associates. respectively.
chanrobles virtual law library Nor is the controversy corporate in nature. 5 P. and chanrobles virtual law library (3) Those between the corporation and the State but only insofar as its franchise or right to exist as an entity is concerned. supervision. not the SEC. and part of this estate includes the corporate interests in Phillens. he became co-owner in the estate left by him. chanrobles virtual law library (2) Those between and among stockholders and members. 5(b) does not define what an intra-corporate controversy is. It appears that private respondent was never a stockholder in Phillens. on the other hand.D. on one hand. of which the parties predecessor-in-interest.4 chanrobles virtual law library We hold that the Court of Appeals correctly ruled that the regular courts. and sometimes by the National Labor Relations Commission. . As we have stated before. .as it concerns their individual franchise or right to exist as such entity. Luciano Pascual. partnerships or associations. insofar as intra-corporate controversies are concerned. and the corporation. That petitioner Alfredo Pascual was a corporate officer holding in trust for his brother their fathers corporate interests did not create an intra-corporate relationship between them. 3 gives the SEC jurisdiction. the grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. 902-A.3 Recent decisions of this Court consider not only the subject of their controversy but also the status of the parties. on the other hand. upon the death of their father. chanrobles virtual law library Sec. comes into play only if a corporation still exists. and control over all corporations. It is thus clear that there is no corporate relationship involved here. 2 to wit: chanrobles virtual law library (1) Those between and among stockholders and members. chanrobles virtual law library . Private respondents allegation is that. chanrobles virtual law library The second test. He also alleges that petitioners repudiated the trust relationship created between them and appropriated to themselves even the property that should have belonged to respondent. it can be deduced that the regulatory and adjudicatory functions of the SEC. . who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines. Sr. have jurisdiction over this case. but case law has fashioned out two tests for determining what suit is cognizable by the SEC or the regular courts.. focuses on the nature of the controversy itself. The first test uses the enumeration in 5(b) of the relationships to determine jurisdiction. chanrobles virtual law library . From this. was a stockholder and whose properties are being litigated. Petitioners and private respondent never had any corporate relations in Phillens. No.
the supervisory authority of the SEC over the corporation has likewise come to an end. Jr. 2000. etc. 8799. respondent Ernesto P. Pascual of the implied trust created between him and his brother. all cases of this nature. But in the case of a dissolved corporation. and what is left to be determined is properly within the competence of regular courts. requires the expertise of the SEC. even without the amendments. in those cases. (Chairman). . The original complaint alleged that Phillens has already been completely dissolved. the question whether this case should be filed in the SEC is now only of academic interest. Thus. for all its business has been properly accounted for already.. were transferred to the regular courts. the jurisdiction of the SEC to decide cases involving intra-corporate dispute was transferred to courts of general jurisdiction and. it having been completely dissolved in 1993. Hence. JJ. chanrobles virtual law library SO ORDERED. no such expertise is required. There is no question that assessing the financial status of an existing corporation.. In addition. concur. The amendments made by respondent were merely for the purpose of making more specific his original allegations. consequently. chanrobles virtual law library Second. whereas in the present case.2. for.7 which took effect on August 8. of corporate properties has previously been held to be within the jurisdiction of the SEC. the allegations in the original complaint were sufficient to confer jurisdiction on the trial court. reconveyance. chanrobles virtual law library It may be noted in this connection that pursuant to R. and De Leon. in accordance therewith. a distinction can be drawn between those cases and the case at bar. it alleged a breach by petitioner Alfredo P. chanrobles virtual law library Bellosillo. which were actually made to confer jurisdiction on the trial court after the original complaint was dismissed. chanrobles virtual law library It is true that a complaint for accounting. the decision of the Court of Appeals is AFFIRMED. it would be remanded to the Regional Trial Court just the same. Buena. after the death of their father. the corporations involved were still existing. For even if it involves an intra-corporate dispute. Quisumbing. Pascual.In the case at bar. Petitioners contend that the lower courts erred in allowing the amendment of the complaint. there is no more corporation involved. with the exception only of those submitted for decision.A. 6 Nonetheless. 5. chanrobles virtual law library This contention has no basis. chanrobles virtual law library WHEREFORE. the corporation whose properties are being contested no longer exists. for purposes of an action for accounting. No.

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