LUIS TIRSO RIVILLA, LOURDES COJUANGCO RIVILLA, ROSARIO AFRICA, OSCAR T. AFRICA AND ERLINDA G. GONZALES, PETITIONERS, VS. THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. FILEMON…

This is a petition for review on certiorari of the
decision of the Court of Appeals (formerly Intermediate Apellate
Court),^[1]
in CA-G.R. SP No. 08986, dated 30 October 1986, denying due course to the
petition, as well as its
resolution, dated 10 April 1987, denying the petitioners’ Motion for Reconsideration.

The antecedents are as follows:

On 9 October 1984,
private respondent Cornelio T. Rivera filed with the Regional Trial Court of Quezon City, Branch XCIV, a complaint with prayer for
preliminary attachment^[2] against the C.R. Agro Industrial Development
Corporation and herein petitioners together with Renato
M. Leuterio and Erlinda
Victoria, docketed therein as Civil
Case No. Q-43027, alleging inter alia that:

“III

“On April 29, 1981, defendants Renato
M. Leuterio and Erlinda
Victoria, who were Sr. Vice President and Assistant Vice President and
Comptroller, respectively, of defendant corporation and who were duly
authorized by the Controlling Stockholder’s [sic] and/or officers of the same,
corporation, namely:

a) Luis Tirso
Rivilla – Board Chairman

b) Lourdes
Cojuangco Rivilla –
President

c) Rosalina Vidal – Executive Vice-President and Treasurer

d) Rosario Africa – Stockholder

e) Oscar Africa – Stockholder

f) Erlinda C.
Gonzales – Stockholder

issued a “Promissory Note” in the
name of the defendant Corporation in favor of plaintiff,  bearing Serial No. 5159 with maturity value
of TWO HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED SEVENTY FIVE and 24/100 (P214,
875.24) which matured on June 30, 1981, x x x;

IV

“That after maturity of the aforesaid promissory note
plaintiff on several occasions requested defendants, verbally and in writing,
for payment of the promissory note plus the agreed interest at the rate of twenty four percent (24%) per annum;

V

“Defendants Luis Rivilla, Lourdes Rivilla, Rosalina Vidal, Renato Leuterio, Erlinda Victoria,
Rosario Africa, Oscars Africa and Erlinda Gonzales
who were the Controlling Stock- holders
and/or officers of the defendant corpo­ration clearly and actually used the said corporation as a shield to perpetuate or commit fraud and/or
evade just and valid obligations against plaintiff by issuing a promissory note
in the name of the said
corporation without prior registration thereof with the Securities and Exchange
Commission as required by the
Securities Act, which fact has been established by the Ministry of Justice in
its resolution in I.S. No. 83-00859,
dated November 25, 1983, approving the filing of the appropriate charges
against the above named defendants;

xxx                            xxx                               xxx

BASIS OF PRELIMINARY ATTACHMENT

IX

“Defendants were guilty of inceptive fraud in contracting or
incurring the obligation upon which this present action is brought, by falsely
misrepresenting that the aforesaid Promissory Note was registered with the
Securities and Exchange Commission
(SEC) as required by law, when in truth and in fact the same was issued without prior
registration from the SEC, compounded by their assurances that the same note
will be paid upon maturity, when up to the present date it remained
unpaid;”^[3]

Instead of filing their
answer, petitioners moved to dismiss^[4]
the complaint on the ground that the
Securities and Exchange Commission
(SEC) has original and exclusive jurisdiction over the subject of the
complaint, and in support thereof, they argued that the complaint charged the petitioners of being perpetrators of
devices and schemes amounting to fraud and misrepresentation.  Private respondent opposed the motion.^[5] Thereafter, on 9 May 1985, the court a quo issued an
order,^[6] denying the motion to dismiss, and required
petitioners to file their answer within five (5) days from receipt thereof.

Petitioners then filed with
the Court of Appeals (formerly Intermediate Appellate Court) a petition for certiorari with prayer for the issuance of
restraining order and/or writ of preliminary injunction,^[7] to
annul and set aside the order of 9 May 1985, claiming that the court a quo
acted with grave abuse of discretion or in excess of juris­diction in ruling
that it has jurisdiction over the case.  The
petition was docketed as CA-G.R. SP No. 08986.

On 30, October 1986, the
appellate court promulgated a decision,^[8] denying due course to the petition and
lifted the restraining order it had
issued on 21 May 1986.  It
ruled, among others, that the trial
court did not err in assuming
jurisdiction over the case, it appearing clearly from the averments of the
complaint that the case is for a sum of money; that the jurisdiction of the SEC refers to
intra-corporate disputes and to regulation of the operations of corporations;
and that the present case may not be considered a controversy of
intra-corporate nature and, much less, one which calls for the exercise of the
regulatory functions of the SEC.

Petitioners moved for reconsideration^[9]
but the same was denied in the
resolution^[10] of
10 April 1987.  Hence, the
present petition.

The only issue to be resolved in the instant case is whether or not Civil Case
No. Q-43027 is within the juris­diction of the Regional Trial Court or that of the SEC.

Petitioners maintain that
the present case falls within the original and exclusive jurisdiction of the
SEC, specifically, under paragraph (a), Sec. 5 of PD No. 902-A because the private respondent’s complaint in
paragraphs 5 and 9 thereof clearly and unequivocally charges them of being
perpetrators of devices and schemes amounting to fraud and misrepresentation.

The jurisdiction of the
Securities and Exchange Commission is found in Sec. 5, P.D. No. 902-A, which
provides as follows:

“Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it
shall have 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 stockholder, 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
associations.”

In Union Glass
& Container Corporation, et
al. vs. The Securities and Exchange Commission, et al.,^[11] the Court held that:

“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.

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.”

Again, in Abejo vs. De la
Cruz,^[12]
the Court held that the expanded jurisdiction of the SEC is “in line with
the government’s policy of encouraging investments, both domestic and foreign,
and more active public participation in the affairs of private corporations and
enterprises through which desirable activities may be pursued for the promotion
of economic development; and to promote a wider and more meaningful
distribution of wealth.”

In other words, the jurisdiction of the SEC should be construed
in relation to its power of control and super­vision over all corporations to
encourage active public participation in the affairs of private corporations by
way of investments.

A careful review of
the record shows that the case at bar is not simply an action for the recovery
of a sum of money, as held by the Court of Appeals.  It springs from an investment made by private
respondent with the C.R. Agro Industrial Development Corporation, as evidenced
by a promissory note issued in the name of the said corporation, which has
already matured.  Private respondent now
seeks the return of his investment by the corporation, and more particularly,
by herein petitioners, its corporate officers and/or controlling
stockholders.  In his complaint, private
respondent alleged that petitioners actually used the corporation as a shield to perpetrate or commit
fraud and/or evade their just and valid obligation to him by issuing the
promissory note in the name of the corporation without prior registration
thereof with the SEC as required by the Securities Act, and by falsely
representing that it was registered with the SEC.^[13]

Evidently, the present
controversy is within the contemplation of Sec. 5 (a) of PD No. 902-A, as amended.  The issuance of the
promissory note in the name of C.R. Agro Industrial Development Corporation by the
petitioners, who are its officers and/or controlling stockholders, without
prior registration of the note with the SEC, as required by Sec. 4 of the
Revised Securities Act in order to protect the investing public,^[14] may be considered as a device or scheme amounting
to fraud and misrepresentation, because by not registering the note with the
SEC, the petitioners could later try to disclaim any liability under the said
promissory note by claiming that the corporation has a separate and distinct personality from its officers and
stockholders.  Besides, petitioners could
even divert the funds invested with the said corporation by re-investing them
in other corporations or business ventures. 
This form of manipula­tion apparently resorted to by the petitioners is
detrimen­tal to the interest of the public, and contravenes the government’s
policy of encouraging investments in private corporations and enterprises.

In the same case of Abejo vs. De la Cruz,^[15] the issue involved was which entity –
between the Regional Trial Court and the Securities and Exchange Commissions
(SEC) – had original and exclusive jurisdiction over the dispute between principal stockholders of the corporation Pocket
Bell Philippines, Inc., namely,
the spouses Jose Abejo and Aurora Abejo
and the purchaser, Telectronics Systems, Inc. of
their 133,000 minority shareholdings and of 63,000 shares registered in the name
of Virginia Braga
and covered by five stock cer­tificates endorsed in blank by her, and the
spouses Agapito Braga
and Virginia Braga, erstwhile majority
stockholders.  With the said purchases, Telectronics would become the majority stockholder, holding
56% of the outstanding stock and voting power of the corporation Pocket
Bell.  With the said purchases in 1982, Telectronics requested the corporate secretary of the
corporation, Norberto Braga, to register and transfer
to its name, and those of its nominees the total 196,000 Pocket Bell shares in
the corporation’s transfer book, cancel the surrendered certificates of stock
and issue the corresponding new certificates of stock in its name and those of
its nominees.  The corporate secretary
refused.  Thereafter, the Bragas filed with the Regional Trial Court of Pasig, Civil Case No. 48746 for rescission and
annulment of the sale of the shares of stock in Pocket Bell made by the Abejo in favor of Telectronics
and declaration of nullity of any transfer, assignment or endorsement of
Virginia Braga’s stock certificates for 63,000 shares
in Pocket Bell to Telectronics.  The Abejos moved to
dismiss the complaint on the ground that the SEC has original and
exclusive juris­diction over the case, which Judge Gregorio Pineda
granted.  However, on motion of the Bragas, Judge Rafael dela Cruz
rescinded the order, and thereafter denied the Abejos‘
motion for reconsideration.  Hence, the Abejos filed with this Court a petition for certiorari.  In deciding the case for jurisdiction by the SEC, the Court held, among others, that:

“The dispute therefore clearly falls within the general
classification of cases within the SEC’s original and exclusive jurisdiction to
hear and decide, under the aforequoted governing
section 5 of the law.  Insofar as the Bragas and their corporate secretary’s refusal on behalf of
the corporation Pocket Bell to record the trans­fer of the 56% majority shares
to Telectronics may be deemed a device or scheme
amounting to fraud and misrepresentation employed by them to keep themselves in
control of the corporation to the detriment of Telectronics
(as buyer and subs­tantial investor in the corporate stock) and the Abejos (as substantial stockholders-sellers), the case fall
under paragraph (a).  x x x.”^[16]

If, indeed, the corporate secretary’s refusals in the Abejo case to record the transfer of the 56% majority shares to Telectronics
may be deemed a device or scheme amounting
to fraud and misrepresentation, with equal if not more reason may the corporate
officers’ manipulation in the case at bar be likewise so considered.

Accordingly, the Court holds that the RTC of Quezon
City, Branch XCVI, has no jurisdiction to hear and decide Civil Case No.
Q-43027 and that the said case is within the original and exclusive
jurisdiction of the SEC under Sec. 5(a) of PD No. 902-A, as amended.

WHEREFORE, the petition is GRANTED and the questioned
decision, dated 30 October 1986, and resolution, dated 10 April 1987, of the Court of
Appeals are hereby SET ASIDE, and a new
one is hereby entered DISMISSING
the complaint in Civil Case No.
Q-43027, without prejudice to its re-filing with the Securities and Exchange Commission.

SO ORDERED.

Melencio-Herrera (Chairman), Paras, Sarmiento, and Regalado, JJ., concur.

^[1]
Fourth Division, penned by Justice Fidel P. Purisima
and concurred in by Justices Lorna S. Lombos-De La Fuente and Pedro A. Ramirez.

^[2]
Rollo, p. 61

^[3]
Rollo, pp. 62-66

^[4]
Id., p. 84

^[5]
Id., p. 93

^[6]
Id., p. 95

^[7]
Id., p. 120

^[8]
Id., p. 19

^[9]
Id., p. 108

^[10]
Id., p. 24

^[11]
126 SCRA 38

^[12]
149 SCRA 654, 662

^[13]
Complaint, Pars.
5 and 9, SUPRA

^[14]
See Agbayani,
Commercial Laws of the Philippines,
Vol. 3, 1984 Ed., p. 674

^[15]
SUPRA

^[16]
149 SCRA 665