Facts:
The case entails a conflict between the Makati Stock Exchange, Inc. (MKSE), its directors, and respondent Miguel V. Campos regarding the allocation of Initial Public Offerings (IPOs). Campos, having served the MKSE in various capacities, including Chairman Emeritus, claimed that a Board Resolution passed on June 3, 1993, wrongfully deprived him of his right to participate equally in the IPO allocations.
Upon filling a Petition with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC), Campos obtained a Temporary Restraining Order and a Writ of Preliminary Injunction barring MKSE from implementing the Resolution.
MKSE and its directors filed a Motion to Dismiss on three grounds: mootness due to the cancellation of MKSE’s license, lack of jurisdiction by SICD, and failure of Campos’ Petition to state a cause of action. The SICD denied the Motion to Dismiss, which led MKSE to file two separate Petitions for Certiorari with the SEC en banc.
The SEC en banc nullified the SICD’s grant of Preliminary Injunction and eventually dismissed Campos’ Petition, stating it failed to state a cause of action. Challenging these SEC en banc Orders, Campos filed a Petition for Certiorari with the Court of Appeals, which granted his petition, nullifying the SEC en banc orders.
MKSE then sought a reversal of the appellate court’s decision and denied the existence of a stated cause of action in a Petition for Review to the Supreme Court. After Campos’ death, his surviving spouse was substituted as respondent.
Procedural Posture:
The detailed procedural posture of the case is as follows:
1. Respondent Campos filed a Petition with SICD, SEC (SEC Case No. 02-94-4678).
2. SICD granted a Temporary Restraining Order, followed by a Writ of Preliminary Injunction, against MKSE.
3. Petitioners filed a Petition for Certiorari with the SEC en banc (SEC-EB No. 393) challenging the SICD Order granting the Preliminary Injunction.
4. Petitioners also contested the SICD’s denial of their Motion to Dismiss in another Petition for Certiorari (SEC-EB No. 403).
5. SEC en banc annulled both the Grant of Preliminary Injunction and the denial of the Motion to Dismiss and dismissed Campos’ Petition.
6. Campos petitioned for Certiorari against SEC en banc Orders with the Court of Appeals (CA-G.R. SP No. 38455), which granted his petition.
7. Petitioners filed a Petition for Review to the Supreme Court against the Court of Appeals’ decisions.
Issues:
1. Whether the SEC en banc committed grave abuse of discretion in dismissing Campos’ Petition for failure to state a cause of action.
2. Whether the grant of IPO allocations to Campos as MKSE Chairman Emeritus amounted to a legally enforceable right.
3. Whether the Court of Appeals erred in annulling the SEC en banc’s Orders which were based on extended inquiry and examination of evidence outside the scope of determining the existence of a stated cause of action.
4. Whether Campos’ claim for damages relating to IPO allocations, allegedly meant for distribution to the public and not personal purchase, constitutes a nuisance suit.
Court’s Decision:
The Supreme Court resolved the issues by granting the Petition of MKSE, reversing and setting aside the decision and resolution of the Court of Appeals, and reinstating the Orders of the SEC en banc. The main grounds are:
1. The Petition filed by Campos with the SICD did not adequately establish a cause of action, failing to state the legal basis for the claimed right to subscribe to IPO allocations.
2. The mere assertion of a right and claim of an obligation in the Petition without identifying the legal source does not suffice to establish a cause of action.
3. The alleged practice of allocation of IPO shares among MKSE members does not constitute a legally enforceable obligation or a source of rights as identified in the Civil Code.
4. Even if the SEC en banc considered extraneous evidence beyond the allegations in the Petition, this was deemed to be non-prejudicial error, as the main conclusion of the SEC en banc to dismiss the Petition was valid and in accordance with the law.
Doctrine:
A cause of action arises from either law, contracts, quasi-contracts, acts or omissions punished by the law, or quasi-delicts. A Petition fails to state a cause of action if it does not articulate the legal basis of the claimed right or the corresponding obligation. Customary practices, unless codified into law or embodied within a contract, do not give rise to enforceable rights.
Class Notes:
– Essential elements of a cause of action: legal right of the plaintiff, correlative obligation of the defendant, and act or omission of the defendant violating said legal right.
– Admissions by hypothetical admissions: if a defendant moves to dismiss for lack of cause of action, they hypothetically admit all allegations of the complaint.
Relevant statutes:
– Civil Code Article 1157 (Sources of Obligations)
– Civil Code Article 1156 (Definition of Obligations)
Historical Background:
The historical context of the case reflects the evolving practice and governance of securities exchanges in the Philippines during the 1990s, a period marked by increasing scrutiny over corporate practices and shareholder rights. The dispute sheds light on the interpretation of corporate by-laws, the significance of common practices within stock exchanges, and how such practices intersect with legally enforceable rights.
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