G.R. No. 64013. November 28, 1983
UNION GLASS & CONTAINER CORPORATION AND CARLOS PALANCA, JR., IN HIS CAPACITY AS PRESIDENT OF UNION GLASS & CONTAINER CORPORATION, PETITIONERS, VS. THE SECURITIES AND EXCHANGE CO…
ESCOLIN, J.:
This petition for certiorari and prohibition seeks to annul
and set aside the Order of the Securities and Exchange Commission, dated September 25, 1981, upholding its
jurisdiction in SEC Case No. 2035, entitled “Carolina Hofileña,
Complainant, versus Development Bank of the Philippines,
et al., Respondents.”
Private respondent Carolina Hofileña,
complainant in SEC Case No. 2035, is a stockholder of Pioneer Glass
Manufacturing Corporation, Pioneer Glass for short, a domestic corporation
engaged in the operation of silica mines and the manufacture of glass and
glassware. Since 1967, Pioneer Glass had
obtained various loan accommodations from the Development Bank of the Philippines
[DBP], and also from other local and foreign sources which DBP quaranteed.
As security for said loan accommodations, Pioneer Glass mortgaged
and/or assigned its assets, real and personal, to the DBP, in addition to the
mortgages executed by some of its corporate officers over their personal
assets. The proceeds of said financial
exposure of the DBP were used in the construction of a glass plant in Rosario,
Cavite,
and the operation of seven silica mining claims owned by the corporation.
It appears that through the conversion into equity of the
accumulated unpaid interests on the various loans amounting to P5.4 million as
of January 1975, and subsequently increased by another P2.2 million in 1976,
the DBP was able to gain control of the outstanding shares of common stocks of
Pioneer Glass, and to get two, later three, regular seats in the corporation’s
board of directors.
Sometime in March, 1978, when Pioneer Glass suffered serious
liquidity problems such that it could no longer meet its financial obligations
with DBP, it entered into a dacion en pago agreement with the latter, whereby all its
assets mortgaged to DBP were ceded to the latter in full satisfaction of the
corporation’s obligations in the total amount of P59,000,000.00. Part of the assets transferred to the DBP was
the glass plant in Rosario, Cavite, which DBP leased and
subsequently sold to herein petitioner Union Glass and Container Corporation,
hereinafter referred to as Union Glass.
On April 1, 1981,
Carolina Hofileña filed a complaint before the
respondent Securities and Exchange Commission against the DBP, Union Glass and
Pioneer Glass, docketed as SEC Case No. 2035.
Of the five causes of action pleaded therein, only the first cause of
action concerned petitioner Union Glass as transferee and possessor of the
glass plant. Said first cause of action
was based on the alleged illegality of the aforesaid dacion
en pago resulting from: [1] the supposed unilateral and unsupported
undervaluation of the assets of Pioneer Glass covered by the agreement; [2] the
self-dealing indulged in by DBP, having acted both as stockholder/director and
secured creditor of Pioneer Glass; and [3] the wrongful inclusion by DBP in its
statement of account of P26M as due from Pioneer Glass when the same had
already been converted into equity.
Thus, with respect to said first cause of action, respondent Hofileña prayed that the SEC issue an order:
“1. Holding that the so-called dacion en pago conveying all the
assets of Pioneer Glass and the Hofileña personal
properties to Union Glass be declared null and void on the ground that the said
conveyance was tainted with:
“A. Self-dealing on the part of DBP which was
acting both as a controlling stockholder/director and as secured creditor of
the Pioneer Glass, all to its advantage and to that of Union Glass, and to the
gross prejudice of the Pioneer Glass;
“B. That the dacion en pago is void because there was gross undervaluation of the
assets included in the so-called dacion en pago by more than 100% to the prejudice of Pioneer Glass
and to the undue advantage of DBP and Union Glass;
“C.
That the DBP unduly favored Union Glass over another buyer, San Miguel
Corporation, notwithstanding the clearly advantageous terms offered by the
latter to the prejudice of Pioneer Glass, its other creditors and so called
‘minority stockholders.’
“2. Holding that the assets of the Pioneer Glass
taken over by DBP and part of which was delivered to Union Glass particularly
the glass plant to be returned accordingly.
“3. That the DBP be ordered to accept and
recognize the appraisal conducted by the Asian Appraisal Inc. in 1975 and again
in 1978 of the asset of Pioneer Glass.”[1]
In her common prayer, Hofileña asked
that DBP be sentenced to pay Pioneer Glass actual, consequential, moral and
exemplary damages, for its alleged illegal acts and gross bad faith; and for
DBP and Union Glass to pay her a reasonable amount as attorney’s fees.[2]
On April 21, 1981,
Pioneer Glass filed its answer. On May 8, 1981, petitioners moved for
dismissal of the case on the ground that the SEC had no jurisdiction over the
subject matter or nature of the suit.
Respondent Hofileña filed her opposition to
said motion, to which herein petitioners filed a rejoinder.
On July 23, 1981,
SEC Hearing Officer Eugenio E. Reyes, to whom the
case was assigned granted the motion to dismiss for lack of jurisdiction. However, on September 25, 1981, upon motion for reconsideration filed
by respondent Hofileña, Hearing Officer Reyes
reversed his original order by upholding the SEC’s jurisdiction over the
subject matter and over the persons of petitioners. Unable to secure a reconsideration of the
Order as well as to have the same reviewed by the Commission En Banc,
petitioners filed the instant petition for certiorari and prohibition
to set aside the order of September
25, 1981, and to prevent respondent SEC from taking cognizance of
SEC Case No. 2035.
The issue raised in the petition may be propounded thus: Is it the regular court or the SEC that has
jurisdiction over the case?
In upholding the SEC’s jurisdiction over the case Hearing Officer
Reyes rationalized his conclusion thus:
“As correctly pointed out by the complainant, the present
action is in the form of a derivative suit instituted by a stockholder for the
benefit of the corporation, respondent Pioneer Glass and Manufacturing
Corporation, principally against another stockholder, respondent Development
Bank of the Philippines, for alleged illegal acts and gross bad faith which
resulted in the dacion en pago arrangement now being questioned by
complainant. These alleged illegal acts
and gross bad faith came about precisely by virtue of respondent Development
Bank of the Philippine’s status as a stockholder of co-respondent Pioneer Glass
Manufacturing Corporation although its status as such stockholder, was gained
as a result of its being a creditor of the latter. The derivative nature of this instant action
can also be gleaned from the common prayer of the complainant which seeks for
an order directing respondent Development Bank of the Philippines
to pay co-respondent Pioneer Glass Manufacturing Corporation damages for the
alleged illegal acts and gross bad faith as above-mentioned.
“As far as respondent Union Glass and Container Corporation is
concerned, its inclusion as a party-respondent by virtue of its being an
indispensable party to the present action, it being in possession of the assets
subject of the dacion en pago and, therefore, situated in such a way that it
will be affected by any judgment thereon.”[3]
In the ordinary course of things, petitioner Union Glass, as
transferee and possessor of the glass plant covered by the dacion
en pago agreement, should be joined as
party-defendant under the general rule which requires the joinder
of every party who has an interest in or lien on the property subject matter of
the dispute.[4]
Such joinder of parties avoids multiplicity of suits
as well as ensures the convenient, speedy and orderly administration of
justice.
But since petitioner Union Glass has no intra-corporate relation
with either the complainant or the DBP, its joinder
as party-defendant in SEC Case No. 2035 brings the cause of action asserted
against it outside the jurisdiction of the respondent SEC.
The jurisdiction of the SEC is delineated by Section 5 of PD No.
902-A as follows:
“Sec. 5. In addition
to the regulatory and adjudicative function of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and devices, it shall have original
and exclusive jurisdiction to hear and decide cases involving:
a] Devices and 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 the stockholders, partners, members of
associations or organizations registered with the Commission;
b] Controversies arising out of intra-corporate
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
appointments of directors, trustees, officers or managers of such corporations,
partnerships or associatons.”
This grant of jurisdiction must be viewed in the light of the
nature and function of the SEC under the law.
Section 3 of PD No. 902-A confers upon the latter “absolute
jurisdiction, supervision, and control over all corporations, partnerships or
associations, who are grantees of primary franchise and/or license or permit
issued by the government to operate in the Philippines x x
x’ “. The principal function of
the SEC is the supervision and control over corporations, partnerships and
associations with the end in view that investment in these entities may be
encouraged and protected, and their activities pursued for the promotion of
economic development.[5]
It is in aid of this office that the adjudicative power of the
SEC must be exercised. Thus the law
explicitly specified and delimited its jurisdiction to matters intrinsically
connected with the regulation of corporations, partnerships and associations
and those dealing with the internal affairs of such corporations, partnerships
or associations.
Otherwise stated, in order that the SEC can take cognizance of a
case, the controversy must pertain to any of the following relationships: [a] between the corporation, partnership or
association and the public; [b] between the corporation, partnership or
association and its stockholders, partners, members, or officers; [c] between
the corporation, partnership or association and the state in so far as its
franchise, permit or license to operate is concerned; and [d] among the
stockholders, partners or associates themselves.
The fact that the controversy at bar involves the rights of
petitioner Union Glass who has no intra-corporate relation either with
complainant or the DBP, places the suit beyond the jurisdiction of the
respondent SEC. The case should be tried
and decided by the court of general jurisdiction, the Regional Trial Court. This view is in accord with the rudimentary principle
that administrative agencies, like the SEC, are tribunals of limited
jurisdiction[6]
and, as such, could wield only such powers as are specifically granted to them
by their enabling statutes.[7]
As We held in Sunset View Condominium Corp. vs. Campos,
Jr.:[8]
“Inasmuch as the private respondents are not shareholders of
the petitioner condominium corporation, the instant cases for collection
cannot be a ‘controversy arising out of intra-corporate 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’, which controversies are
under the original and exclusive jurisdiction of the Securities & Exchange
Commission, pursuant to Section 5[b] of P.D. No. 902-A. x x x“
As heretofore pointed out, petitioner Union Glass is involved
only in the first cause of action of Hofileña’s
complaint in SEC Case No. 2035. While
the Rules of Court, which applies suppletorily to
proceedings before the SEC, allows the joinder of
causes of action in one complaint, such procedure however is subject to the
rules regarding jurisdiction, venue and joinder of
parties.[9]
Since petitioner has no intra-corporate relationship with the complainant, it
cannot be joined as party-defendant in said case as to do so would violate the
rule on jurisdiction. Hofileña’s complaint against petitioner for cancellation of
the sale of the glass plant should therefore be brought separately before the
regular court. But such action, if
instituted, shall be suspended to await the final outcome of SEC Case No. 2035,
for the issue of the validity of the dacion en
pago posed in the last mentioned case is a
prejudicial question, the resolution of which is a logical antecedent of the
issue involved in the action against petitioner Union Glass. Thus, Hofileña’s
complaint against the latter can only prosper if final judgment is rendered in
SEC Case No. 2035, annulling the dacion en
pago executed in favor of the DBP.
WHEREFORE, the instant petition is hereby granted, and the
questioned Orders of respondent SEC, dated September 25, 1981, March 25, 1982 and May
28, 1982, are hereby set aside.
Respondent Commission is ordered to drop petitioner Union Glass from SEC
Case No. 2035, without prejudice to the filing of a separate suit before the
regular court of justice. No
pronouncement as to costs.
SO ORDERED.
Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera,
Plana, Relova, and Gutierrez, Jr., JJ., concur.
Fernando, C.J., and Makasiar, JJ., joins J.,
Aquino in his
dissent.
Teehankee, J., files a brief concurrence.
Aquino, J., see dissent.
[1]
p. 38, Rollo.
[2]
p. 40, Rollo.
[3]
p. 24, Rollo.
[4]
59 Am. Jur. 2d 530.
[5]
Vide, Whereas Clauses of P.D. 902-A.
[6] 2
Am. Jur. 2d. 150.
[7] 2
Am. Jur. 2d. 21.
[8]
104 SCRA 295.
[9]
Section 5, Rule 2 of the Rules of Court.
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DISSENTING OPINION
AQUINO, J.:
I dissent with due deference to Justice Escolin’s opinion. What are belatedly assailed in this certiorari
and prohibition case filed on May 17, 1983 are the order of September
25, 1981 of Eugenio E. Reyes, a SEC hearing officer, and the orders of March 25
and May 28, 1982 of Antonio R. Manabat, another SEC hearing officer.
Although a jurisdictional issue is raised and jurisdiction over
the subject matter may be raised at any stage of the case, nevertheless, the
petitioners are guilty of laches and nonexhaustion of the remedy of appeal with
the Securities and Exchange Commission en banc.
The petitioners resorted to the special civil actions of certiorari
and prohibition because they assail the orders of mere SEC hearing
officers. This is not a review of the
order, decision or ruling of the SEC sitting en banc which, according to
section 6 of Presidential Decree No. 902-A (1976), may be made by this Court
“in accordance with the pertinent provisions of the Rules of Court”.
Rule 43 of the Rules of Court used to allow review by this Court
of the SEC order, ruling or decision. Republic Act 5434 (1968) substituted the Court of Appeals for this
Court in line with the policy of lightening our heavy jurisdictional
burden. But this Court seems to
have been restored as the reviewing authority by Presidential Decree No. 902-A.
However, section 9 of the Judiciary Reorganization Law returned
to the Intermediate Appellate Court the exclusive jurisdiction to review
the ruling, order or decision of the SEC as a quasi-judicial agency. The same section 9 granted to the Appellate
Court jurisdiction in certiorari and prohibition cases over the SEC
although not exclusive.
In this case, the SEC seems to have adopted the orders of the two
hearing officers as its own orders as shown by the stand taken by the Solicitor
General in defending the SEC. If that
were so, that is, if the orders of the hearing officers should be treated as
the orders of the SEC itself en banc, this Court would have no
jurisdiction over this case. It
should be the Appellate Court that should exercise the power of review.
Carolina Hofileña has been a stockholder since 1958 of the
Pioneer Glass Manufacturing Corporation. Her personal assets valued at P6,804,810 were apparently or supposedly
mortgaged to the DBP to secure the obligations of Pioneer Glass (p. 32, Rollo).
Pioneer Glass became indebted to the Development Bank of the
Philippines in the total sum of P59,000,000. Part of the loan was used by Pioneer Glass to establish its glass plant
in Rosario, Cavite. The unpaid interest
on the loan amounting to around seven million pesos became the DBP’s equity
in Pioneer Glass. The DBP became a
substantial stockholder of Pioneer Glass. Three members of the Pioneer Glass’ board of directors were from the
DBP.
The glass plant commenced operations in 1977. At that time, Pioneer Glass was heavily
indebted to the DBP. Instead of
foreclosing its mortgage, DBP maneuvered to have the mortgaged assets of
Pioneer Glass, including the glass plant, transferred to the DBP by way of dacion
en pago. This transaction was
alleged to be an “auto contract” or a case of the DBP contracting
with itself since the DBP had a dominant position in Pioneer Glass.
Hofileña alleged that although the debt to the DBP of Pioneer
Glass amounted to P59,000,000, the glass plant in 1977 had a “sound
value” of P77,329,000 and a “reproduction cost” of
P90,403,000. She further alleged that
San Miguel Corporation was willing to buy the glass plant for P40,000,000
cash, whereas it was actually sold to Union Glass & Container
Corporation for the same amount under a 25-year term of payment (pp.
32-34, Rollo).
On March 31, 1981, Carmen Hofileña filed with the SEC a
complaint against the DBP, Union Glass, Pioneer Glass and Rafael Sison as
chairman of the DBP and Pioneer Glass boards of directors. Union Glass filed a motion to dismiss on the
ground that jurisdiction over the case is lodged in the Court of First
Instance. Hofileña opposed the
motion. Hearing Officer Reyes in his
order of July 23, 1981 dismissed the complaint on the ground that the case is
beyond the jurisdiction of the SEC.
Hofileña filed a motion for reconsideration which was opposed by
Union Glass. Hearing Officer Reyes in
his order of September 25, 1981 reconsidered his dismissal order and
ruled that Union Glass is an indispensable party because it is the transferee
of the controverted assets given by way of dacion en pago to the
DBP. He ruled that the SEC has
jurisdiction over the case.
Union Glass filed a motion far reconsideration. Hearing Officer Antonio R. Manabat denied
the motion on the ground “that the present action is an intra-corporate
dispute involving stockholders of the same corporation (p. 26, Rollo).
Union Glass filed a second motion for reconsideration with
the prayer that the SEC should decide the motion en banc. The hearing officer ruled that the remedy of
Union Glass was to file a timely appeal. Hence, its second motion for reconsideration was denied by the hearing
officer. (This ruling is a technicality
which hinders substantial justice.)
It is clear that Union Glass has no cause of action for certiorari
and prohibition. Its recourse was to
appeal to the SEC en banc the denial of its first motion for
reconsideration.
There is no question that the SEC has jurisdiction over the
intra-corporate dispute between Hofileña and the DBP, both stockholders of
Pioneer Glass, over the dacion en pago.
Now, does the SEC lose jurisdiction because of the joinder of
Union Glass which has privity with the DBP since it was the transferee of the
assets involved in the dacion en pago?
Certainly, the joinder of Union Glass does not divest the SEC
of jurisdiction over the case. The
joinder of Union Glass is necessary because the DBP, its transferor, is being
sued regarding the dacion en pago. The defenses of Union Glass are tied up with
the defenses of the DBP in ‘the intra-corporate dispute. Hofileña’s cause of action should not be
split.
It would not be judicious and expedient to require Hofileña to
sue the DBP and Union Glass in the Regional Trial Court. The SEC is more competent than the said
court to decide the intra-corporate dispute.
The SEC, as the agency enforcing Presidential Decree No. 902-A, is
in the best position to know the extent of its jurisdiction. Its determination that it has jurisdiction
in this case has persuasive weight.
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CONCURRING OPINION
TEEHANKEE, J.:
I concur in the Court’s judgment penned by Mr. Justice Escolin
setting aside the questioned orders of respondent SEC and ordering that
petitioner Union Glass be dropped from SEC Case No. 2035 for lack of SEC
jurisdiction over it as a third party purchaser of the glass plant acquired by
the DBP by dacion en pago from Pioneer Glass, without
prejudice to Hofileña filing a separate suit in the regular courts of justice
against Union Glass for recovery and cancellation of the said sale of the glass
plant in favor of Union Glass.
I concur also with the statement in the Court’s opinion that the
final outcome of SEC Case No. 2035 with regard to the validity of the dacion
en pago is a prejudicial case. If Hofileña’s complaint against said dacion en pago
fails in the SEC, then it clearly has no cause of action against Union Glass
for cancellation of DBP’s sale of the plant to Union Glass.
The purpose of this brief concurrence is with reference to the
statement in the Court’s opinion that “Thus, Hofileña’s complaint against
the latter can only prosper if final judgment is rendered in SEC Case No. 2035,
annulling the dacion en pago executed in favor of the
DBP,” to erase any impression that a favorable judgment secured by
Hofileña in SEC Case No. 2035 against the DBP and Pioneer Glass would
necessarily mean that its action against Union Glass in the regular courts of
justice for recovery and cancellation of the DBP sale of the glass plant to
Union Glass would necessarily prosper. It must be borne in mind that as already indicated, the SEC has no
jurisdiction over Union Glass as an outsider. The suit in the regular courts of justice that Hofileña might bring
against Union Glass is of course subject to all defenses as to the validity of
the sale of the glass plant in its favor as a buyer in good faith and should it
successfully substantiate such defenses, then Hofileña’s action against it for
cancellation of the sale might fail as a consequence.