ELVIRA VILLAMOR PAQUERA

CORPORATION LAW
CASE BRIEFS COMPILATION

(1) ONAPAL PHILIPPINES COMMODITIES, INC. vs. THE HONORABLE COURT OF APPEALS and
SUSAN CHUA

FACTS:
The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized and existing
corporation, was licensed as commission merchant/broker by the SEC, to engage in commodity futures
trading in Cebu City under Certificate of Registration No. CEB-182. 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, Frankwell Enterprises of Hongkong. If the transaction,
either buying or selling commodity futures, is consummated by the principal, the petitioner issues a
document known as “Confirmation of Contract and Balance Sheet” to the customer. An order of a
customer of the petitioner is supposed to be transmitted from Cebu to petitioner’s office in Manila.
From Manila, it should be forwarded to Hongkong and from there, transmitted to the Commodity
Futures Exchange in Japan.

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.
By delivery is meant the act by which the res or subject is placed in the actual or constructive possession
or control of another. It may be actual as when physical possession is given to the vendee or his
representative; or constructive which takes place without actual transfer of goods, but includes symbolic
delivery or substituted delivery as when the evidence of title to the goods, the key to the warehouse or
bill of lading/warehouse receipt is delivered.
As a contract in printed form, prepared by petitioner and served on private respondent, for the
latter’s signature, the trading contract bears all the indicia of a valid trading contract because it complies
with the Rules and Regulations on Commodity Futures Trading as prescribed by the SEC. But when the
transaction which was carried out to implement the written contract deviates from the true import of
the agreement as when no such delivery, actual or constructive, of the commodity or goods is made,
and final settlement is made by payment and receipt of only the difference in prices at the time of
delivery from that prevailing at the time the sale is made, the dealings in futures become mere
speculative contracts in which the parties merely gamble on the rise or fall in prices.

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.

ISSUE: WON their agreement is illegal.

WON it is considered as gambling contract.

HELD:

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.
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.
In England and America where contracts commonly called futures originated, such contracts
were at first held valid and could be enforced by resort to courts. Later these contracts were held invalid
for being speculative, and in some states in America, it was unlawful to make contracts commonly called
“futures”. Such contracts were found to be mere gambling or wagering agreements covered and
protected by the rules and regulations of exchange in which they were transacted under devices which
rendered it impossible for the courts to discover their true character. The evil sought to be suppressed
by legislation is the speculative dealings by means of such trading contracts, which degenerated into
mere gambling in the future price of goods/commodities ostensibly but not actually, bought or sold.

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.
 (2) Securities and Exchange Commission v. Interport Resources Corporation

Doctrine:
The mere absence of implementing rules cannot effectively invalidate provisions of law where a
reasonable construction that will support the law may be given. It is well established that administrative
authorities have the power to promulgate rules and regulations to confirm to the terms and standards
prescribed by the statute as well as purport to carry into effect its general policies. 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 2 factors: 1) the existence of a relationship giving access, directly or indirectly to information intended to
be available only for corporate purpose and not for the personal benefit of anyone and 2) the inherent unfairness involved
when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing.

Facts:
The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda Holdings Berhad). Under
said memorandum of agreement, IRC acquired100% of the entire capital stock of GEHI (Ganda Energy Holdings Inc.) which
would own and operate a 102 megawatt gas turbine power generating barge. In exchange, IRC will issue to GHB 55% of the
expanded capital stock of IRC. On the side, IRC would acquire 67% of the entire capital of PRCI (Philippine Racing Club). It is
alleged herein that a press release announcing the approval of the agreement was sent to the Philippine Stock Exchange
through facsimile and the SEC, but the facsimile machine of the SEC could not receive it. However, the
SEC received reports that the IRC failed to make timely public disclosures of its negotiations with GHB and that some of its
directors, heavily traded IRC shares utilizing this material insider information.

For this reason, the SEC required the directors to appear before the SEC to explain the alleged failure to disclose
material information as required by the Rules on Disclosure of Material Facts. Unsatisfied with the explanation, the SEC
issued an order finding that the IRC violated the Rules in connection with the then Old Securities Act when it failed to make
timely disclosures of its negotiations with GHB. In addition, the SEC found that the directors of IRC entered into transactions
involving IRC shares in violation of the Revised Securities Act.

Respondents, however, questioned the authority of the SEC to investigate on said matter since according to PD
902-A, jurisdiction upon the matter was conferred upon the PED (Prosecution and Enforcement Department) of the SEC –
however, this issue is already moot since pending the disposition of the case, the Securities Regulation Code was passed
thereby effectively repealing PD 902-A and abolishing the PED. They also contended that their right to due process was
violated when the SEC required them to appear before the SEC to show cause why sanctions should not be imposed upon
them since such requirement shifted the burden of proof to respondents. The case reached the CA and said court ruled in
favor of the respondents and effectively enjoined the SEC from filing any criminal, civil or administrative cases against
respondents. In its resolution, the CA stated that since there are no rules and regulations implementing the rules regarding
DISCLOSURE, INSIDERTRADING OR ANY OF THE PROVISIONS OF THE REVISED SECURITIES ACT, the SEC has no statutory
authority to file any suit against respondents.

The CA, therefore, prohibited the SEC from taking cognizance or initiating any action against the respondents for
the alleged violations of the Revised Securities Act.

Issue:
1.) Whether or not the SEC has authority to file suit against respondents for violations of the RSA.2
2.) Whether or not their right to due process was violated when the SEC denied the parties of their right to cross
examination.
Held:

The Revised Securities Act does not require the enactment of implementing rules to make it
binding and effective. The provisions of the RSA are sufficiently clear and complete by themselves. The
requirements are specifically set out and the acts which are enjoined are determinable. To rule that
absence of implementing rules can render ineffective an act of Congress would empower administrative
bodies to defeat the legislative will by delaying the implementing rules. Where the statute contains
sufficient standards and an unmistakable intent (as in this case, the RSA) there should be no impediment
as to its implementation.

The court does not discern any vagueness or ambiguity in the RSA such that the acts proscribed
and/or required would not be understood by a person of ordinary intelligence. The provision explains in
simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of
illegal conduct and that 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 2 factors: 1) 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 2) the inherent unfairness involved when a party takes
advantage of such information knowing it is unavailable to those with whom he is dealing.

This obligation to disclose is imposed upon "insiders" which are particularly officers, directors or
controlling stockholders but that definition has already been expanded and not includes those persons
whose relationship of former relationship to the issuer or the security that is not generally available and
the one who learns such a fact from an insider knowing that the person from whom he learns such fact
is an insider. In some case, however, there may be valid corporate reasons for the nondisclosure of
material information but it should not be used for non-corporate purposes. - Respondent contends that
the terms "material fact", "reasonable person", "nature and reliability" and "generally available" are
vaguely used in the RSA because under the provision of the said law what is required to be disclosed is a
fact of special significance, meaning: 1. a material fact which would be likely to affect the market price
of a security or; 2. one which a reasonable person would consider especially important in determining
his course of action with regard to the shares of stock.

But the court dismissed said contention and stated that material fact is already defined and
explained as one which induces or tends to induce or otherwise affect the sale or purchase of securities.
On the other hand, "reasonable person" has already been used many times in jurisprudence and in law
since it is a standard on which most of legal doctrines stand (even the doctrine on negligence uses such
standard) and it has been held to mean "a man who relies on the calculus of common sense of which all
reasonable men have in abundance"

As to "nature and reliability" the proper adjudicative body would be able to determine if facts of
a certain nature and reliability can influence a reasonable person's decision to retain, buy or sell
securities and thereafter explain and justify its factual findings in its decision since the same must be
viewed in connection with the particular circumstances of a case. As to "generally available", the court
held also that such is a matter which may be adjudged given the particular circumstances of the case.
The standards of which cannot remain at a standstill.
 There is no violation of due process in this case since the proceedings before the PED are
summary in nature. The hearing officer may require the parties to submit their respective verified
position papers together will all supporting documents and affidavits of witnesses. A formal hearing is
not mandatory and it is within the discretion of the hearing officer to determine whether or not there is
a need for a formal hearing.

Moreover, the law creating the PED empowers it to investigate violations of the rules and
regulations and to file and prosecute such cases. It does not have adjudicatory powers. Thus, the PED
need not comply with the provisions of the Administrative Code on adjudication. The SEC retained
jurisdiction to investigate violations of the RSA, reenacted in the Securities Regulations Code despite the
abolition of the PED. In this case, the SEC already commenced investigating the respondents for
violations of the RSA but during the pendency of the case the Securities and Regulations Code was
passed thereby repealing the RSA. However, the repeal cannot deprive the SEC of its jurisdiction to
continue investigating the case. - Investigations by the SEC are a requisite before a criminal case may be
referred to the DOJ since the SEC is an administrative agency with the special competence to do so.
According to the doctrine of primary jurisdiction, the courts will not determine a controversy involving a
question within the jurisdiction of an 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.
 (3) Power Homes Unlimited Corp. vs. SEC

Facts:
Power Homes (P) was engaged in managing real estate properties for subdivision & allied
purposes and in the purchase, exchange, and/or sale of such through network marketing. Manero &
Munsayac requested SEC (R) to investigate P’s business since he attended a seminar conducted by P
where the latter claimed to sell properties that were inexistent and without any broker’s license &
desires to know if network marketing is legitimate. P submitted to R copies of its marketing course
module and letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and
Pioneer 29 Realty Corporation after a conference held by R. R found P to be engaged in the sale or offer
for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of R.A.
No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same
Act. R then issued a CDO to P to enjoin the latter from engaging in the sale, offer or distribution of the
securities.

Issue:
Whether P’s business constitutes investment contracts which should be registered with R before
its sale or offer for sale or distribution to the public.

Held:

Yes. The court ruled that P failed the Howey Test. It requires a transaction, contract, or scheme
whereby a person:
(1) Makes an investment of money
(2) In a common enterprise
(3) With the expectation of profits
(4) To be derived solely from the efforts of others.

Any investment contract covered by the Howey Test must be registered under the Securities
Act, regardless of whether its issuer was engaged in fraudulent practices. R.A. No. 8799 defines an
Investment contract as a contract, transaction or scheme 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. In the
case at bar, P’s business involves security contracts wherein an investor enrolls in P’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.

The trainings or seminars are merely designed to enhance P’s business of teaching its investors
the know-how of its multi-level marketing business. An investor enrolls under the scheme of P to be
entitled to recruit other investors and to receive commissions from the investments of those directly
recruited by him. Under the scheme, the accumulated amount received by the investor comes primarily
from the efforts of his recruits.
 (4) CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.

FACTS:
Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders –
UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with17.03%.
Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other
hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed the Philippine Stock Exchange (PSE)
that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to
21.31% and ACC’s stocks in UCHC equivalent to 29.69%.

As a consequence of this disclosure, the PSE inquired as to whether 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, respondent National Life
Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco
demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.
Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC
asking it to reverse its 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
2004Resolution 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.

HELD:

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
Rule19(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 19thereof. 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 .
Stated differently, a tender 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:

Xxx 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 bottom line 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
 (5) ROBERTO V. SAN JOSE v. JOSE MA. OZAMIZ

Facts:
San Jose was elected Corporate Secretary of Philcomsat Holdings Corporation (PHC). Petitioners
argue that since the maJonty of the stocks of PHC is owned by corporations sequestered by the PCGG,
the case concerns assets of sequestered corporations, and thus the Sandiganbayan is the proper court
with jurisdiction.
Issues:
Whether the CA erred in remanding the case back to the RTC after finding that the complaint
was within the jurisdiction of the RTC.
Ruling:
The mere fact that a corporation's shares of stocks are owned by a sequestered corporation
does not, by itself, automatically categorize the matter as one involving sequestered assets, or matters
incidental to or related to transactions involving sequestered corporations and/or their assets. To be
clear, jurisdiction of a court is conferred by law and the jurisdiction of the Sandiganbayan in relation to
sequestered property is conferred by Presidential Decree (PD) No. 1606, as amended by RA No. 8249...
c. Civil and criminal cases filed pursuant to and in connection with Executive Order Nos. 1, 2, 14 and 14-
A, issued in 1986.
In turn, these Executive Orders refer to the recovery by the PCGG of the illgotten wealth of
former President Ferdinand E. Marcos, his relatives, dummies, and other agents. Petitioners' insistence
that the RTC has no jurisdiction over the case seems to be based on the interpretation of the phrase "all
incidents arising from, incidental to, or related to such cases necessarily fall likewise under the
Sandiganbayan's exclusive and original jurisdiction." Unfortunately, this is an erroneous interpretation
because the term "cases," as referred to in the said paragraph, pertains to "the Funds, Moneys, Assets,
and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents,
or Nominees." In this case, there is no question on any illegally acquired or misappropriated property by
former President Marcos or his agents. This case does not relate to the recovery of ill-gotten wealth or
any property that needs to be sequestered or assets that have already been placed under sequestration.
Thus, the subject matter of this case does not arise from, or is incidental to, or is related to the Executive
Orders cited in the law that would vest jurisdiction with the Sandiganbayan.
We find that the CA was correct in remanding the case back to the RTC. As earlier discussed, 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,[24] this was transferred to the appropriate RTC under RA No.
8799