G.R. No. 22015           September 1, 1924

MARSHALL-WELLS COMPANY, plaintiff-appellant, vs.HENRY W. ELSER & CO., INC., defendant-appellee.

Hartigan and Welch for appellant.J. F. Boomer for appellee.

MALCOLM, J.:

Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a domestic corporation, in the Court of First Instance of Manila, for the unpaid balance of a bill of goods amounting to P2,660.74, sold by plaintiff to defendant and for which plaintiff holds accepted drafts. Defendant demurred to the complaint on the statutory ground that the plaintiff has not legal capacity to sue. In the demurrer, counsel stated that "The said complaint does not show that the plaintiff has complied with the laws of the Philippine Islands in that which is required of foreign corporations desiring to do business in the Philippine Islands, neither does it show that it was authorized to do business in the Philippine Islands." The demurrer was sustained by the trial judge. Inasmuch as the plaintiff could not allege compliance with the statute, the order was allowed to become final and an appeal was perfected.

To begin with the law as a fit setting for the issue. The Corporation Law (Act No. 1459) contains six sections relating particularly to foreign corporations. Section 68, as amended by Act No. 2900, provides that no foreign corporation "shall be permitted to transact business in the Philippine Islands until after it shall have obtained a license for that purpose from the Chief of the Mercantile Register of the Bureau of Commerce and Industry," upon order either of the Secretary of Finance or the Secretary of Commerce and Communications. No order for a license shall be issued except upon a statement under oath of the managing agent of the corporation, showing to the satisfaction of the proper Secretary that the corporation is solvent and in sound financial condition, and setting forth the resources and liabilities of the corporation. Said statement shall contain the following: (1) The name of the corporation; (2) the purpose for which it was organized; (3) the location of its principal or home office; (4) the capital stock of the corporation and the amount

thereof actually subscribed and paid into the treasury; (5) the net assets of the corporation over and above all debts, liabilities, obligations, and claims outstanding against it; and (6) the name of an agent residing in the Philippine Islands authorized by the corporation to accept evidence of summons and process in all legal proceedings against the corporation and of all notices affecting the corporation. Further evidence of the solvency and fair dealing of the corporation may be required. Upon filing in the Mercantile Register of the Bureau of Commerce and Industry the said statement, a certified copy of its charter, and the order of the Secretary for the issuance of a license, the Chief of the Mercantile Register "shall issue to the foreign corporation as directed in the order of license to do business in the Philippine Islands," and for the issuance of the license shall collect a fee fixed in accordance with the schedule established in section 8 of the Law.

Passing section 69 of the Corporation Law for the moment, section 70, as amended, covers the cases of foreign corporations "transacting business in the Islands at the time of the passage" of the Act. Section 71 authorizes the Secretary of Finance or the Secretary of Commerce and Communications, as the case may be, by and with the approval of the Governor-General, "to revoke the license to transact business in the Philippine Islands" of any foreign corporation. Section 72 concerns summons and legal process. Section 73 makes a foreign corporation bound by all the laws, rules, and regulations applicable to domestic corporations of the same class, with certain exceptions.

Returning now to section 69 of the Corporation Law, its literal terminology is as follows:

No foreign corporation or corporation formed, organized, or existing under any laws other that those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one

thousand pesos, or by both such imprisonment and fine, in the discretion of the court.

Is the obtaining of the license prescribed in section 68, as amended, of the Corporation Law a condition precedent to the maintaining of any kind of action in the courts of the Philippine Islands by a foreign corporation? The issue is framed to correspond with defendant's theory of the case on appeal, although possibly somewhat at variance with its stand in the lower court.

So far as we are informed, this is a question of first impression. The case of Dampfschieffs Rhederei Union vs. Compañia Trasatlantica ([1907], 8 Phil., 766), relating to the provisions of the Code of Commerce, only held that a foreign corporation which has not established itself in the Philippines, nor engaged in business in the Philippines, could, without filing its articles of incorporation in the mercantile registry, maintain an action against another for damages. The case of Spreckles vs. Ward ([1909], 12 Phil., 414), while making reference to a point similar to the one before us, was merely authority for the holding, that the provisions of section 69 of the Corporation Law denying to unregistered foreign corporations the right to maintain suits for the recovery of any debt, claim, or demand, do not impose on all plaintiff-litigants the burden of establishing by affirmative proof that they are not unregistered foreign corporations; that fact will not be presumed without some evidence tending to establish its existence. But the question is not alone new, but of prime importance, to the consideration of which we have given mature thought.

Corporations have no legal status beyond the bounds of the sovereignty by which they are created. A state may restrict the right of a foreign corporation to engage in business within its limits, and to sue in its courts. But by virtue of state comity, a corporation created by the laws of one state is usually allowed to transact business in other states and to sue in the courts of the forum. (Paul vs. Virginia [1869], 8 Wall., 168; Sioux Remedy Co., vs. Cope and Cope [1914], 235 U. S., 197; Cyclone Mining Co. vs. Baker Light & Power Co., [1908], 165 Fed., 996.)

But here we have present for resolution no question of constitutional law. Article 4 of the United States Constitution and the Fourteenth

Amendment to the Constitution are not invoked. The issue is not complicated with matters affecting interstate commerce under the American Constitution. Nor are we concerned with a question of private international law. It all simmers down to an issue of statutory construction.

Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to give it a literal meaning. Counsel would have the law read thus: "No foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary, desires for the court to consider the particular point under discussion with reference to all the law, and thereafter to give the law a common sense interpretation.

The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan., 1; American De Forest Wireless Telegraph Co. vs. Superior Court of City & County of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.)

Confronted with the option of giving to the Corporation Law a harsh interpretation, which would disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly help in

the development of trade; confronted with the option of barring from the courts foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted with the option of construing the law to mean that any corporation in the United States, which might want to sell to a person in the Philippine must send some representative to the Islands before the sale, and go through the complicated formulae provided by the Corporation Law with regard to the obtaining of the license, before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it shall possess the necessary license, — confronted with these options, can anyone doubt what our decision will be? The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra; Perkins, Philippine Business Law, p. 264.)

The noncompliance of a foreign corporation with the statute may be pleaded as an affirmative defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a foreign corporation, second, that it is doing business in the Philippines, and third, that it has not obtained the proper license as provided by the statute. (Standard Stock Food Co. vs. Jasper [1907], 76 Kan., 926; Spreckles vs. Ward, supra.)

The order appealed from shall be set aside and the record shall be returned to the court of origin for further proceedings. Without special finding as to costs in this instance, it is so ordered.

Johnson, Street, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.

SIGNETICS vs. CA

Facts:

1. The petitioner, Signetics was organized under the laws of the United States of America. Through Signetics Filipinas Corporation (SigFil), a wholly-owned subsidiary, Signetics entered into lease contract over a piece of land with Fruehauf Electronics Phils., Inc. (Freuhauf). 

2. Freuhauf sued Signetics for damages, accounting or return of certain machinery, equipment and accessories, as well as the transfer of title and surrender of possession of the buildings, installations and improvements on the leased land, before the RTC of Pasig (Civil Case No. 59264). Claiming that Signetics caused SigFil to insert in the lease contract the words "machineries, equipment and accessories," the defendants were able to withdraw these assets from the cost-free transfer provision of the contract. 

3. Service of summons was made on Signetics through TEAM Pacific Corp. on the basis of the allegation that Signetics is a "subsidiary of US PHILIPS CORPORATION, and may be served summons at Philips Electrical Lamps, Inc., Las Piñas, Metro Manila and/or c/o Technology Electronics Assembly & Management (TEAM) Pacific Corporation, Electronics Avenue, FTI Complex, Taguig, Metro Manila," service of summons was made on Signetics through TEAM Pacific Corporation.

4. Petitioner filed a motion to dismiss the complaint on the ground of lack of jurisdiction over its person. Invoking Section 14,

Rule 14, of the Rules of Court and the rule laid down in Pacific Micronisian Line, Inc., v. Del Rosario and Pelington  to the effect that the fact of doing business in the Philippines should first be established in order that summons could be validly made and jurisdiction acquired by the court over a foreign corporation. 

5. The RTC denied the Motion to dismiss. While the CA affirmed RTC. Hence this petition. The petitioner argues that what was effectively alleged in the complaint as an activity of doing business was "the mere equity investment" of petitioner in SigFil, which the petitioner insists, had theretofore been transferred to TEAM holdings, Ltd.

Issue: Whether or not the lower court, had correctly assumed jurisdiction over the petitioner, a foreign corporation, on its claim in a motion to dismiss, that it had since ceased to do business in the Philippines.

YES.

1. Signetics cannot, at least in this early stage, assail, on the one hand, the veracity and correctness of the allegations in the complaint and proceed, on the other hand, to prove its own, in order to hasten a peremptory escape. As explained by the Court in Pacific Micronisian, summons may be served upon an agent of the defendant who may not necessarily be its "resident agent designated in accordance with law." The term "agent", in the context it is used in Section 14, refers to its general meaning, i.e., one who acts on behalf of a principal. 

The allegations in the complaint have thus been able to amply convey that not only is TEAM Pacific the business conduit of the petitioner in the Philippines but that, also, by the charge of fraud, is none other than the petitioner itself.

2. The rule is that, a foreign corporation, although not engaged in business in the Philippines, may still look up to our courts for relief; reciprocally, such corporation may likewise be "sued in Philippine courts for acts done against a person or persons in the Philippines" (Facilities Management Corporation v. De la Osa), provided that, in the latter case, it would not be impossible for court processes to reach the foreign corporation, a matter that can later be consequential in the proper execution of judgment. Hence, a State may not exercise jurisdiction in the absence of some good basis (and not offensive to traditional notions of fair play and substantial justice) for effectively exercising it, whether the proceedings are in rem, quasi in rem or in personam.

AGILENT TECHNOLOGIES vs. INTEGRATED SILICON TECHNOLOGY

FACTS: Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do business in the Philippines. Respondent Integrated Silicon is a private domestic corporation, 100% foreign owned, which is engaged in the business of manufacturing and assembling electronics components.

The juridical relation among the various parties in this case

can be traced to a 5-year Value Added Assembly Services Agreement (VAASA), between Integrated Silicon and HP-Singapore. Under the terms of the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials to Integrated Silicon. The VAASA had a five-year term with a provision for annual renewal by mutual written consent. Later, with the consent of Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to Agilent.

Later, Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent and its officers. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. Agilent filed a separate complaint against Integrated Silicon for “Specific Performance, Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages”.Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.

The trial court denied the MTD and granted petitioner Agilent’s application for a writ of replevin. Without filing a MR, respondents filed a petition for certiorari with the CA. The CA granted respondents’ petition for certiorari, set aside the assailed Order of the trial court (denying the MTD) and ordered the dismissal of the 2nd case. Hence, the instant petition.

ISSUE: WON an unlicensed foreign corporation not doing business in the Philippines lacks the legal capacity to file suit.

HELD: The petition is GRANTED. The Decision of the CA which dismissed the 2nd case is REVERSED and SET ASIDE. The Order denying the MTD is REINSTATED. Agilent’s application for a Writ of Replevin is GRANTED.

NO

A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine courts. A license is necessary only if a foreign corporation is “transacting” or “doing business” in the country. The Corporation Code provides:Sec. 133. Doing business without a license. — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

The aforementioned provision prevents an unlicensed foreign corporation “doing business” in the Philippines from accessing our courts.

[In a number of cases, however, we have held that an unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and benefited from said corporation. Such a suit is premised on the doctrine of estoppel. A party is estopped from challenging the personality of a corporation after having acknowledged the same by entering into a contract with it. This doctrine of estoppel to deny corporate existence and capacity applies to foreign as well as domestic corporations. The application of this principle prevents a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract.]The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements:

if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;

if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction;

if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality

in a suit brought before Philippine courts; and

if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction.

**The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the Philippines. However, there is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting” business in the Philippines. The Corporation Code itself is silent as to what acts constitute doing or transacting business in the Philippines.

[Jurisprudence has it, however, that the term “implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose and subject of its organization.”

In the Mentholatum case this Court discoursed on the two general tests to determine whether or not a foreign corporation can be considered as “doing business” in the Philippines. The first of these is the substance test, thus:

The true test [for doing business], however, seems to be whether the foreign corporation is continuing the body of the business or enterprise for which it was organized or

whether it has substantially retired from it and turned it over to another.

The second test is the continuity test, expressed thus:

The term [doing business] implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and object of its organization.]

**The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines “doing business” as follows:

Sec. 3, par. (d). The phrase “doing business” shall include soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in the progressive prosecution of, commercial gain or of the purpose and object of the

business organization.

An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as amended by RA 8179), would demonstrate that the acts enumerated in the VAASA do not constitute “doing business” in the Philippines. The said provision provides that the following shall not be deemed “doing business”:

(1) Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;

(2) Having a nominee director or officer to represent its interest in such corporation;

(3) Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;

(4) The publication of a general advertisement through any print or broadcast media;

(5) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

(6) Consignment by a foreign entity of equipment with a local company to be used in the processing of products for

export;

(7) Collecting information in the Philippines; and

(8) Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is one that is for profit-making.

By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such, we hold that, based on the evidence presented thus far, Agilent cannot be deemed to be “doing business” in the Philippines. Respondents’ contention that Agilent lacks the legal capacity to file suit is therefore devoid of merit. As a foreign corporation not doing business in the Philippines, it needed no license before it can sue before our courts.

THE HOME INSURANCE COMPANY, Petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. Respondent. G. R. L-34382, July 20, 1983

FACTS:On or about January 13, 1967, S. Kajikita & Co. on board the SS ‘Eastern Jupiter,’

which is owned by the respondent, from Osaka, Japan coils of “Black Hot Rolled Copper Wires Rods.” The shipment was covered by Bill of Lading with arrival notice to the Phelps Dodge Copper Products Corporation, the consignee. It was also insured with the plaintiff against all risks in the amount of P1,580,105.06.

The coils discharged from the vessel were in bad order, consisting of loose and partly cut coils which had to be considered scrap. The plaintiff paid the consignee under insurance the amount of P3,260.44 for the loss/damage suffered by the cargo. Plaintiff, a foreign insurance company duly authorized to do business in the Philippines, made demands for payment of the aforesaid amount against the carrier and transportation company for reimbursement of the aforesaid amount, but each refused to pay the same. The Eastern Shipping Lines filed its answer and denied the allegations of Paragraph I which refer to the plaintiff’s capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. Angel Jose Transportation, on the other hand, admitted the jurisdictional averments in paragraphs 1, 2 and 3 of the heading parties. The Court of First Instance dismissed the complaint on the ground that the appellant had failed to prove its capacity to sue. The petitioner then filed a petition for review on certiorari.

ISSUE: Whether or not that the trial court erred in dismissing the finding that plaintiff-appellant has no capacity to sue.

RULING:The court held that the objective of the law is to subject the foreign corporation to

the jurisdiction of our court. The Corporation Law must be given reasonable, not an unduly harsh interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries.

Counsel for appellant contends that at the time of the service of summons, the appellant had not yet been authorized to do business. But, the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of the case.

The court find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial, which shall include such supporting particulars as are particularly within the pleader's knowledge. At the very least, the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary

evidence that it had the authority to engage in the insurance business at the time it filed the complaints.

CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.GR No. 171815, August 7, 2007Chico-Nazario, J.

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 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 toCemco 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 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, Cemcowas 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 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. 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. [12] A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such

company.[13] Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer.[14] Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.

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:

“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”

Securities and Exchange Commission v. Interport Resources Corporation

NATURE: Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision,1 dated 20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities and Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent corporation Interport Resources Corporation (IRC) and members of its board of directors, respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with respect

to Sections 8, 30 and 36 of the Revised Securities Act.

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 n 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.

Facts:- The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda Holdings Berhad). Under said memorandum of agreement, IRC acquired 100% 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, INSIDER TRADING 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.) Whether or not their right to due process was violated when the SEC denied the parties of

their right to cross examination.

Ratio:- 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 tule 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 obligatd 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 n 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 an 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 is 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.

G.R. No. 158941             February 11, 2008

TIMESHARE REALTY CORPORATION, petitioner, vs.CESAR LAO and CYNTHIA V. CORTEZ, respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the October 30, 2002 Resolution1 of the Court of Appeals (CA), which denied due course to the appeal of Timeshare Realty Corporation (petitioner) from the March 25, 2002 Decision2 of the Securities and Exchange Commission (SEC) in SEC Case No. 01-99-6199; and the July 4, 2003 CA Resolution,3 which denied petitioner’s Motion for Reconsideration.

As found by the SEC,4 the antecedent facts are as follows:

On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V. Cortez (respondents), one timeshare of Laguna de Boracay for US$7,500.00 under Contract No. 135000998 payable in eight months and fully paid by the respondents.

Sometime in February 1998, the SEC issued a resolution to the effect that petitioner was without authority to sell securities, like timeshares, prior to February 11, 1998. It further stated in the resolution/order that the Registration Statement of petitioner became effective only on February 11, 1998. It also held that the 30 days within which a purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of money paid applies to all purchase agreements entered into by petitioner prior to the effectivity of the Registration Statement.

Petitioner sought a reconsideration of the aforesaid order but the SEC denied the same in a letter dated March 9, 1998.

On March 30, 1998, respondents wrote petitioner demanding their right and option to cancel their Contract, as it appears that Laguna de Boracay is selling said shares without license or authority from the SEC. For failure to get an answer to the said letter, respondents this time, through counsel, reiterated their demand through another letter dated June 29, 1998. But despite repeated demands, petitioner failed and refused to refund or pay respondents.5

Respondents directly filed with SEC En Banc6 a Complaint7 against petitioner and the Members of its Board of Directors - Julius S. Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178.8 Petitioner filed an Answer9 to the Complaint but the SEC En Banc, in an Order10

dated April 25, 2000, expunged the Answer from the records due to tardiness.

On March 25, 2002, the SEC En Banc rendered a Decision in favor of respondents, ordering petitioner, together with Julius S. Strachan, Angel G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the amount of US$7,500.00.11

Petitioner filed a Motion for Reconsideration12 which the SEC En Banc denied in an Order13 dated June 24, 2002.

Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July 4, 200214 and had 15 days or until July 19, 2002 within which to appeal. However, on July 10, 2002, petitioner sought from the CA an extension of 30 days, counted from July 19, 2002, or until August 19, 2002, within which to appeal.15 The CA partly granted the motion in an Order dated July 24, 2002, to wit:

As prayed for, but conditioned on the timeliness of its filing, the Motion for Extension to File Petition for Review dated 09 July 2002 and filed before this Court on 10 July 2002 is GRANTED and petitioners are given a non-extendible period of fifteen (15) days from 10 July 2002 or until 25 July 2002 within which to file the desired petition, otherwise, the above-entitled case will be dismissed. (Emphasis supplied.) 16

Petitioner purportedly received the July 24, 2002 CA Order on July 29, 2002,17 but filed a Petition for Review with the CA on August 19, 2002.18

In the assailed October 30, 2002 Resolution, the CA dismissed the Petition for Review, thus:

Under Section 4, Rule 43 of the 1997 Revised Rules of Civil Procedure, petitioners shall not be given an extension longer than fifteen (15) days from the expiration of the reglementary period, except for the most compelling reason.

Thus, on 24 July 2002, in the absence of a compelling reason that justifies the granting of a longer period of extension, this Court issued a resolution wherein petitioners were given an extension of ONLY fifteen days from 10 July 2002 or until 25 July 2002 within which to file the petition for review, otherwise, the above entitled case will be dismissed.

However, records show that petitioners filed their petition for review only on 19 August 2002, which is twenty-five (25) days beyond the allowed 15-day extended period granted by this Court.

WHEREFORE, the appeal from the decision of the Securities and Exchange Commission (SEC) Case No. 01-99-6199 is hereby DISMISSED for failure of the petitioners to file their Petition for

Review under the 15-day period granted by this Court as provided by Rule 43, Section 4 of the 1997 Revised Rules of Civil Procedure.

SO ORDERED.19

and denied petitioner's Motion for Reconsideration in the assailed Resolution dated July 4, 2003.20

Petitioner filed the present petition, urging us to look beyond the procedural lapse in its appeal, and resolve the following substantive issues:

Whether or not the eventual approval or issuance of license has retroactive effect and therefore ratifies all earlier transactions;

Whether or not a party in a contract could withdraw or rescind unilaterally without valid reason.21

We deny the petition.

A judgment must become final at the time appointed by law22 -- this is a fundamental principle upon which rests the efficacy of our courts whose processes and decrees command obedience only when these are perceived to have some degree of permanence and predictability. Thus, an appeal from such judgment, not being a natural right but a mere statutory privilege, must be perfected according to the mode and within the period prescribed by the law and the rules; otherwise, the appeal is forever barred, and the judgment becomes binding.23

Section 70 of Republic Act No. 879924 which was enacted on July 19, 2000, is the law which governs petitioner’s appeal from the orders of the SEC En Banc. It prescribes that such appeal be taken to the CA "by petition for review in accordance with the pertinent provisions of the Rules of Court," specifically Rule 43.25

Section 4 of Rule 43 is restrictive in its treatment of the period within which a petition may be filed:

Section 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is

required by law for its effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis supplied.)

Petitioner’s Motion for Extension of Time to File Petition for Review flouted the foregoing restriction: it sought, not a 15-day, but a 30-day extension of the appeal period;26 and it did not even bother to cite a compelling reason for such extension, other than its counsel’s caseload which, as we have repeatedly ruled, hardly qualifies as an imperative cause for moderation of the rules.27

Its motion for extension being inherently flawed, petitioner should not have presumed that the CA would fully grant the same.28 Instead, it should have exercised due diligence by filing the proper petition within the allowable period,29 or at the very least, ascertaining from the CA whether its motion for extension had been acted upon.30 As it were, petitioner’s counsel left the country, unmindful of the possibility that his client’s period to appeal was about to lapse - as it indeed lapsed on July 25, 1999, after the CA allowed them a 15-day extension only, in view of the restriction under Section 4, Rule 43. Thus, petitioner has only itself to blame that the Petition for Review it filed on August 19, 1999 was late by 25 days. The CA cannot be faulted for dismissing it.

The Court notes that the CA reckoned the 15-day extension it granted to petitioner from July 10, 1999, the date petitioner filed its Motion for Extension, rather than from July 19, 1999, the date of expiration of petitioner’s original period to appeal. While such computation of the CA appears to be erroneous, petitioner did not question it in the present petition. But even if we do reckon the 15-day extension period from July 19, 1999, the same would have ended on August 3, 1999, making petitioner’s appeal still inexcusably tardy by 16 days. Either way we reckon it, therefore, petitioner’s appeal was not

perfected within the period prescribed under Rule 43.

Nevertheless, the Court opts to resolve the substantive issues raised by petitioner in its appeal so as to determine the lawful rights of the parties and put an end to the litigation.

Petitioner claims that at the time it entered into a timeshare purchase agreement with respondents on October 6, 1996, it already possessed the requisite license and marketing agreement to engage in such transactions,31 as evidenced by its registration with the SEC as a corporation.32 Petitioner argues that when it was registered and authorized by the SEC as broker of securities33 - such as the Laguna de Boracay timeshares - this had the effect of ratifying its October 6, 1996 purchase agreement with respondents, and removing any cause for the latter to rescind it.

The Court is not persuaded.

As cited by the SEC En Banc in its March 25, 2002 Decision, as early as February 13, 1998, the SEC, through Director Linda A. Daoang, already rendered a ruling on the effectivity of the registration statement of petitioner, viz:

This has reference to your registration statement which was rendered effective 11 February 1998. The 30 days within which a purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of money paid, applies to all purchase agreements entered into by the registrant prior to the effectivity of the registration statement. The 30-day rescission period for contracts signed before the Registration Statement was rendered effective shall commence on 11 February 1998. The rescission period for contracts after 11 February 1998 shall commence on the date of purchase agreement. (Emphasis supplied.)34

Petitioner sought a reconsideration of said ruling but the same was denied by Director Daoang in an Order dated March 9, 1998.35

However, petitioner did not resort to any other administrative remedy against said ruling, such as by questioning the same before the SEC En Banc. Having failed to exhaust the administrative remedies available to it, petitioner is already bound by said ruling and can no

longer question the same through a direct and belated recourse to us.36

Finally, the provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration as a corporation already authorizes it to deal with unregistered timeshares. Corporate registration is just one of several requirements before it may deal with timeshares:

Section 8. Procedure for registration. - (a) All securities required to be registered under subsection (a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect to such securities, containing or having attached thereto, the following:

x x x x

(36) Unless previously filed and registered with the Commission and brought up to date:

(a) A copy of its articles of incorporation with all amendments thereof and its existing by-laws or instruments corresponding thereto, whatever the name, if the issuer be a corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed under Section 4 from dealing with unregistered timeshares, thus:

Section 4. Requirement of registration of securities. - (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided. (Emphasis supplied.)

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.