REYNALDO M. LOZANO, PETITIONER, VS. HON. ELIEZER R. DE LOS SANTOS, PRESIDING JUDGE, RTC, BR. 58, ANGELES CITY; AND ANTONIO ANDA, RESPONDENTS.

Lozano versus De los Santos

The Case

This is a petition for certiorari filed by Reynaldo M. Lozano against Judge Eliezer R. De los Santos of the Regional Trial Court of Angeles City and against Antonio Anda. Lozano asks the Supreme Court to annul the trial court's decision, which had ordered the dismissal of his complaint for damages on the ground that the Securities and Exchange Commission, not the municipal trial court, had jurisdiction. The case matters because it draws the boundary of the Securities and Exchange Commission's original and exclusive jurisdiction over intra-corporate controversies, and because it reminds every reviewee that jurisdiction is fixed by law and cannot be created by the agreement or acquiescence of the parties.

Procedural History

Lozano filed a complaint for damages before the Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga. Anda moved to dismiss on the ground of lack of jurisdiction, insisting that the matter belonged to the Securities and Exchange Commission. The municipal circuit trial court denied the motion, and it denied reconsideration as well. Anda then went up to the Regional Trial Court of Angeles City on a petition for certiorari. The trial court agreed with Anda, found the dispute to be intra-corporate, and ordered the municipal circuit trial court to dismiss the complaint. It likewise denied reconsideration. Lozano then brought this petition for certiorari before the Supreme Court.

Facts

Lozano was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Incorporated, while Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Incorporated. Both associations were duly registered with the Securities and Exchange Commission, but they were two separate entities. In August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, the two men agreed to consolidate their associations into a single common association, the Unified Mabalacat-Angeles Jeepney Operators' and Drivers' Association, Incorporated. They also agreed to elect one set of officers with the sole authority to collect the daily dues from the members of the consolidated association.

Elections were held on October 29, 1995, and both men ran for president. Lozano won. Anda protested, alleged fraud, and refused to recognize the results. He also refused to abide by their agreement and continued collecting dues from the members of his own association despite demands to desist.

Lozano was thus constrained to file a complaint to restrain Anda from collecting the dues and to order him to pay damages of 25,000 pesos and attorney's fees of 500 pesos. The proposed unified association, however, had never been approved by the Securities and Exchange Commission, and no articles of consolidation had been submitted.

Issues

• Whether or not the Securities and Exchange Commission has jurisdiction over a complaint for damages between the presidents of two separate associations who had planned to consolidate but whose consolidation had not been approved or registered with the Commission.
• Whether or not the doctrine of corporation by estoppel may supply the intra-corporate relationship that jurisdiction requires.

Applicable Provisions

Section 5 of Presidential Decree Number 902-A provides:

Section 5. The Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide cases involving: (a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. (b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. (c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or associations.

This is the jurisdictional grant the Court construes, and the case turns on whether the parties' relationship falls within it.

Ruling

On the first issue, the Court held that the Securities and Exchange Commission has no jurisdiction. The grant of jurisdiction must be viewed in the light of the Commission's nature and function, and it is determined by a concurrence of two elements: the status or relationship of the parties, and the nature of the question that is the subject of their controversy. The first element requires an intra-corporate or partnership relation. The second requires that the dispute be intrinsically connected with the regulation of the corporation, partnership or association, or deal with its internal affairs.

Here, there was no intra-corporate nor partnership relation between Lozano and Anda. The controversy arose out of their plan to consolidate their respective associations, but that unified association was still a proposal. It had not been approved by the Commission, and its officers and members had not submitted articles of consolidation in accordance with the Corporation Code. The Court stressed that consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the Commission. The two associations to which the parties belonged were separate entities, and the dispute was between members of separate and distinct associations. There was therefore no intra-corporate relation, much less an intra-corporate dispute.

On the second issue, the Court held that corporation by estoppel cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through, or waived, enlarged or diminished by, any act or omission of the parties, and it cannot be conferred by the acquiescence of the court. Corporation by estoppel is founded on equity and applies when persons assume to form a corporation, exercise corporate functions, and enter into business relations with third persons. Where no third person is involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

Doctrine

First, the Securities and Exchange Commission's jurisdiction over intra-corporate controversies under Section 5 of Presidential Decree Number 902-A requires a concurrence of two elements: an intra-corporate or partnership relationship between the parties, and a dispute intrinsically connected with the regulation of the corporation or association or with its internal affairs. Absent either element, the regular courts retain jurisdiction.

Second, a consolidation of corporations or associations takes effect only upon the issuance of a certificate of consolidation by the Securities and Exchange Commission. Until then, the constituent entities remain separate, and a dispute between members of those separate entities is not an intra-corporate dispute.

Third, jurisdiction is fixed by law. It cannot be acquired through, or waived, enlarged or diminished by, any act or omission of the parties, nor conferred by the acquiescence of the court. The doctrine of corporation by estoppel, being a rule of equity, cannot override jurisdictional requirements.

Disposition

The petition was granted. The decision and order of the Regional Trial Court of Angeles City were set aside, and the Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga was ordered to proceed with dispatch in resolving the complaint for damages. No costs.

Remember This

Memorize the two-element test for Securities and Exchange Commission jurisdiction, and the rule that consolidation is effective only upon issuance of the certificate of consolidation. Examiners like to use this case to test the intra-corporate jurisdiction of the Commission and the rule that jurisdiction is fixed by law and cannot be conferred by estoppel or agreement.