RAMON GIL ABAD AND CONSUELO R. ABAD, PETITIONERS, VS. COURT OF FIRST INSTANCE OF PANGASINAN, BRANCH VIII, PRESIDED OVER BY HONORABLE JUDGE MODESTO S. BASCOS, AND DIMENSIONAL CON…

Petitioners seek the review and the setting aside, on a question
of law, of the Orders of Branch 8 of the then Court of First Instance (now
Regional Trial Court) of Pangasinan in Civil Case No. D-5216^[1]
and Civil Case No. D-5408:^[2] (a)
of 25 May 1981 dismissing Civil Case No. D-5408 on the ground that the
Securities and Exchange Commission (SEC), and not the respondent court, has
original exclusive jurisdiction over the subject matter thereof; (b) of 27 May
1981 dismissing Civil Case No. D-5216 on the same ground aforestated; and (c)
of 12 October 1981 denying petitioners’ motion for reconsideration in the
aforesaid cases. They then pray that
the respondent Court be ordered to take cognizance of, hear and decide said
cases.

The undisputed facts of the controversy are simple.

Respondent corporation, hereinafter referred to as DIMCONTRAD, is
a domestic corporation duly organized and existing under and by virtue of the
laws of the Philippines with principal office in Baguio City. In response to a call for investors,
petitioner Ramon Gil Abad invested various sums with DIMCONTRAD on different
dates, as follows: (a) P21,000.00 on 15
December 1979; (b) P1,000.00 on 15 January 1980; (c) P1,000.00 on 15 March
1980; and (d) P1,000.00 on 15 May 1980, subject to the following terms and
conditions:

1) The term of each investment is six (6)
months counted from the respective dates above indicated; hence, their
respective maturities fell on 15 June 1980, 15 July 1980, 15 September 1980 and
15 November 1980;

2) The investor is guaranteed a share in the
profits for six (6) months at the rate equal to 5% of the invested amount to be
paid to him on the 15th day of each month starting on the 15th day of the month
next following the date the investment was made;

3) On maturity date, DIMCONTRAD shall return to
the investor the amount invested plus a
share in the last months’s profit.

Upon receipt of the amount for each
investment, DIMCONTRAD delivered to Ramon an official receipt, an instruction
slip and a promissory note.^[3]

Upon the other hand, Consuelo R. Abad, wife of Ramon, also
invested money in DIMCONTRAD, as follows: (a) P12,500.00 on 8 February 1980; (b) P2,700.00 on 8 March 1980; (c)
P1,000.00 on 8 April 1980; (d) P1,000.00 on 8 May 1980. The said investments, totalling P17,000.00,
were subject to the same terms and conditions as those of her husband’s. Upon receipt of every investment, DIMCONTRAD
delivered to Consuelo an official receipt, instruction slip and a promissory
note.^[4]

The promissory notes issued to Ramon and Consuelo uniformly
provide:

“That Dimensional Construction, Trade and Development
Corporation x x x hereby binds itself and promises the return of certain amount
of monetary investment in Philippine currency at the time of maturity in favor
of the investor written hereunder or in favor of any member of his family or
any third person whom he may designate to receive said amount at the time said
amount is to be returned subject to the terms and conditions set forth
hereunder.”

As for the 15 December 1979 investment of Ramon, DIMCONTRAD was
only able to pay Ramon his share in the profits for the months of January,
February, March and April 1980. For the
15 January 1980 investment, it likewise failed to pay the shares in profit for
the months of May, June and July 1980. It completely failed to pay Ramon’s shares in the profits for his March
and May 1980 investments.

Upon maturity of his P21,000.00 investment, Ramon tried to
collect the said amount together with the corresponding unpaid monthly shares
in profit but DIMCONTRAD prevailed upon him to extend the date of maturity to 5
July 1980.^[5]
He agreed thereto. When again he
attempted to collect the matured investment together with the unpaid monthly
shares in the profit as agreed upon on 5 July 1980, DIMCONTRAD refused.

On 15 July 1980, upon maturity of the 15 January investment,
Ramon tried to collect the same together with the unpaid guaranteed monthly
shares, but respondent corporation again failed and refused to repay the
investment. The latter also refused to
return the sums invested in March and May.

Subsequently, due to loss of confidence and in the exercise of
his contractual rights, Ramon tried to collect all his investments in the total
sum of P24,000.00 together with all the unpaid monthly shares in the profits
amounting to P2,850.00, but DIMCONTRAD refused to pay the same.

As for Consuelo’s monthly shares in the profits, DIMCONTRAD was
able to pay her only for the months of March, April and May for her 8 February
1980 investment; for the months of April and May 1980 for her 8 March 1980 investment;
and for the month of May 1980 insofar as her 8 April 1980 investment is
concerned. DIMCONTRAD failed to pay any
share in profits on her 8 May 1980 investment. She then demanded the return of all her matured investments amounting to
P17,200.00. Notwithstanding repeated
demands, DIMCONTRAD failed and refused to return the same together with the
guaranteed shares in the profits amounting to P2,975.00.

Thus, on 4 September 1980, Ramon filed a complaint for “Sum
of Money and Damages” against DIMCONTRAD with the then court of First
Instance of Pangasinan, which was docketed as Civil Case No. D-5216 and which
was raffled to Branch 8 thereof at Dagupan City,^[6]
alleging the foregoing investments he had made and the failure and refusal of
DIMCONTRAD to return to him said investments pursuant to the promissory notes
with the unpaid guaranteed shares in the profits. In support of his claim for attorney’s fees and damages, he
alleges as follows:

x x x

“15. That due
to illegal, unreasonable and fraudulent actions of the defendant as alleged in
the foregoing paragraphs hereof plaintiff was constrained to file this suit for
which he contracted the services of the undersigned counsel at a contingent fee
of twenty five percent (25%) of the entire sums from defendant, and is likely
to incur other litigation expenses of approximately P5,000.00;

16. That
due to the illegal, unreasonable and fraudulent acts of the defendants as
alleged in the preceding paragraphs hereof plaintiff suffered mental torture
and anguish, serious anxiety, loss of sleep and appetite and has developed
nervousness all of which may be assessed at not less than P10,000.00;

17. That under the circumstances of this case as
alleged in the preceding paragraphs hereof it is evident that defendant employed
deception, unfair business practices, and has acted wantonly, recklessly, and
imprudently in procuring the
investments of the plaintiff which justify the award of exemplary damages
against the defendant of not less than P20,000.00 in order to give an example
to others for the public good;”

On 11 September 1980, Ramon filed in Civil Case No. D-5216 a
Motion for Preliminary Attachment praying therein that certain properties of
DIMCONTRAD be attached,^[7] which
the latter opposed.^[8]

On 6 November 1980, DIMCONTRAD filed its Answer with Counterclaim^[9]
in Civil Case No. D-5216. As Special
and Affirmative Defenses, it alleges that: (a) it had invested the amounts invested by the plaintiff in legitimate
projects and industrial concerns and had been paying the shares of its profits
for some months, but that it stopped paying it because it had to wait for the
new board of directors and (b) the complaint states no cause of action.

On 10 December 1980, respondent Court issued a writ of preliminary
attachment.^[10]

On 7 January 1981, Consuelo, assisted by her husband Ramon, also
filed a complaint^[11] for
“Sum of Money and Damages with Preliminary Attachment” against
DIMCONTRAD in the abovenamed court which docketed it as Civil Case No.
D-5408. She alleges therein the dates
when she made her investments, attaching thereto the official receipts,
instruction slips and promissory notes issued by DIMCONTRAD, and the latter’s
failure and refusal to return the investments pursuant to the promissory notes
and pay the guaranteed profits. In
support of her application for preliminary attachment, she alleges:

x x x

“10. That there
exists a prima facie evidence (sic) that defendant employed fraudulent means to
induce the plaintiff to make her investments as can be gleaned from the
following circumstances, to wit:

(a) defendant suddenly closed and abandoned its
branch offices in Dagupan City and Urdaneta, Pangasinan shortly after the
maturity of plaintiff’s first investment;

(b) defendant abandoned and closed its restaurant
and disco business in Dagupan City shortly after closing its branch offices in
Pangasinan;

(c) defendant’s principal officers can no longer
be located at its principal office in Baguio City where they ought to be found
under normal circumstances; and

(d) there are other numerous investors of
defendant whose large investments have matured, but remained outstanding and
unpaid until the present and have likewise filed their claims in court;

11. That defendant is about to dispose of its
properties, particularly the following:

x x x

with the intention of defrauding its
creditors, x x x.”

In both complaints, the petitioners pray for: (a) the return of their investments, with
legal interest thereon, (b) payment of the unpaid guaranteed monthly profits,
(c) attorney’s fees, and (d) miscellaneous litigation expenses. In Civil Case No. D-5216, petitioner Ramon
Abad further asks for moral and exemplary damages.

On 2 March 1981, defendant in Civil Case No. D-5408 filed an
Omnibus motion to: (1) annul all
proceedings, (2) lift and dissolve all attachments, levies or executions, and
(3) dismiss all cases. A similar motion
was filed in Civil Case No. D-5216 on 30 January 1981.^[12]
The principal ground alleged in support of the motion to dismiss is lack of jurisdiction
on the part of the trial court. DIMCONTRAD maintains that SEC has jurisdiction over the claims of
petitioners pursuant to Section 5(a) of P.D. No. 902-A, as amended.

The respondent Court thereafter promulgated two (2) orders, one
on 25 May 1981 (Civil Case No. D-5408) and the other on 27 May 1981 (Civil Case
No. D-5216) dismissing the said cases on the ground that since the plaintiffs
therein allege fraud in the acquisition of investments, the matter falls within
the jurisdiction of the SEC.^[13]

Petitioners then jointly moved for a reconsideration of the said
Orders^[14]
on 22 June 1981 which the respondent Court denied in its Order^[15]
of 12 October 1981, ruling therein that:

“x x x From the very
allegations of the complaint, the plaintiffs admit having made investments at
different times, different sums of money, with the defendant corporation at a
fixed return of investment. In his
(sic) motion and rejoinder, plaintiffs, thru counsel, alleged that plaintiffs
are collecting their investments from the defendant corporation at the agreed
rate of interest. But the plaintiffs
can not now abandon the allegations of the complaint in which they stated
several times in different paragraphs that they made investments of different
amounts at different times with the defendant which they admit is a private
corporation duly organized and existing in accordance with the laws of the
Philippines duly registered with the Securities and Exchange Commission,
further alleging in par. 10 of the complaint that ‘there exists prima facie evidence
that defendant employed fraudulent means to induce the plaintiffs to make
investments’. (p. 4, par. 10,
Complaint).

Verily, this Court believes that, as already discussed in the order
of May 27, 1981, the Securities and Exchange Commission (SEC) has the
jurisdiction in view of sub­paragraphs (a) and (b) of Section 5 of PD No. 902-A
reorganizing said commission and
giving it additional powers.”

From this dismissal, the petitioners filed the present petition
on 23 December 1981. On 18 January
1982, this Court resolved to require the respondents to comment on the
petition,^[16]
which they complied with. Petitioners
filed a Reply thereto.

In the Resolution of 1 December 1982,^[17]
this Court resolved to: (a) give due
course to the petition; (b) consider respondents’ Comment as the Answer to the
petition; (c) require the parties to file simultaneous Memoranda within twenty
(20) days from notice; and (d) require the SEC to act as amicus curiae in this case and
submit a Memorandum within twenty (20) days from notice.

The parties submitted their Memoranda. The SEC, as amicus
curiae, filed its
Memorandum on 9 April 1983;^[18] it
submits therein that it has the exclusive and original jurisdiction over Civil
Cases Nos. D-5216 and D-5408 filed in the court below and subject of the
instant petition considering that the petitioners allege as common ground for
their complaints private respondent’s purported deception, unfair business
practices, fraudulent schemes and devices as means to induce the former to make
the corresponding investments, which fall under paragraph (a) of Section 5,
P.D. No. 902-A, as amended. If further
informed this Court that private respondent was earlier investigated by the
SEC, in the process of which the latter’s officers, members of the board of
directors, agents, solicitors, representatives, employees and other persons
acting in their behalf were enjoined from selling, soliciting, as well as
offering investment contracts to the public and from receiving monetary
deposits or payments in connection therewith. Moreover, respondent corporation was directed to show cause why its
corporate franchise or certificate of registration should not be suspended or
revoked. The SEC had likewise initiated
the filing of separate criminal cases against respondent corporation in the
Court of First Instance of Pampanga.

Essential to the resolution of the present controversy is Section
5 of P.D. No. 902-A, as amended, which provides:

“SECTION 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 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 associations.

(d) Petitions of corporations, partnerships or
associations to be declared in the state of suspension of payments in cases
where the corporation, partnership or association possesses sufficient property
to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the
management of a Rehabilitation Receiver or Management Committee created
pursuant to this Decree. (As added by
P.D. 1758).”

Petitioners maintain that:

“I

CIVIL CASES NOS. D-5216 AND D-5408 INVOLVE THE COLLECTION OF SUMS
OF MONEY ARISING FROM CONTRACTUAL RELATIONSHIP (sic), AND THEREFORE, PARTAKE
THE NATURE (sic) OF ACTIONS FOR SPECIFIC PERFORMANCE WHICH FALL WITHIN THE
ORIGINAL EXCLUSIVE JURISDICTION OF THE COURT OF FIRST INSTANCE (NOW REGIONAL
TRIAL COURTS); and

II

THE PROVISIONS OF PRESIDENTIAL DECREE NO. 902-A DO NOT APPLY TO THE
CASES AT BAR.”

They submit that the actions filed before the court a quo
are for specific performance because their principal purpose is to seek the
refund of the amounts that were invested, together with the unpaid earnings
thereof pursuant to the contracts entered into; petitioners aver that such
actions, incapable of pecuniary estimation, fall within the jurisdiction of the
respondent Court.

In support of their arguments, petitioners point to the
allegations in the complaints filed with the trial court which “readily
reveal that plaintiffs therein are seeking full and faithful compliance by
defendant therein with its commitments to the former, namely, the refund of the
entire investments and the payments of the outstanding and unpaid earnings
thereof as stipulated in the investment contracts.”^[19]
While conceding that the complaints allege fraud, even going as far as
specifying the paragraphs containing the said averments, petitioners stress
that these allegations do not alter the nature of the actions as the same are
mere incidents to the contracts of investment sought to be enforced. The same do not refer to the schemes or
devices used or employed by private respondent in its business in general, but
to specific acts committed by the latter against the petitioners. Moreover, such allegations were made to
substantiate petitioners’ claim for damages and bolster the prayer for
preliminary attachment.

Petitioners further claim that the dispute between the parties
does not involve an intra-corporate controversy as nowhere in the various documents
evidencing the investments of the petitioners is it provided that the latter
would automatically become stockholders of the respondent corporation upon
execution thereof. Thus, the SEC cannot
exercise jurisdiction over the case. Reliance is placed on the leading case of Sunset View Condominium
Corp. vs. Campos^[20]
wherein the jurisdiction of the regular courts was upheld in a collection case
as the same did not arise out of an intra-corporate controversy pursuant to
Section 5(b) of P.D. No. 902-A.

We find the petition to be impressed with merit. Respondent Judge committed grave abuse of
discretion in dismissing Civil Cases Nos. D-5216 and D-5408.

This is the second time that the matter of investments in the
respondent corporation of a nature similar to those involved in the two (2)
civil cases in question has been brought to this Court. We were confronted by the same issue of
jurisdiction in Bañez vs. Dimensional Construction Trade & Development
Corporation.^[21]
In the said case, this Court, in upholding the jurisdiction of the regular
court over a controversy involving promissory notes issued by the private
respondent herein and similar to those involved here, held that:

“The recitals of the complaint in Civil Case No. 3569 disclose
that plaintiff’s cause of action is merely for the collection of the various
sums of money that have already become payable to petitioners due to the
promissory notes executed by defendant corporation which have already
matured. There is no allegation nor any
mention whatsoever in plaintiff’s complaint that a device or scheme was
resorted to by private respondent corporation amounting to fraud and
misrepresentation. It is, therefore,
difficult to consider that petitioner’s case falls within the jurisdiction of
the Securities and Exchange Commission pursuant to PD 902-A. x x x

x x x

In the promissory notes issued by private respondent corporation,
it is clearly indicated therein that the sums of money received by private
respondent were in the nature of investments of the petitioners, agreed upon by the parties to be returned by
the corporation upon the maturity of said promissory notes. As the money received by private respondent
do (sic) not constitute payment of subscription of shares, the petitioners
herein did not become members of respondent Dimensional Trade and Development
Corporation. In the case of Sunset View
Condominium Corporation vs. Hon. Jose C. Campos, Jr. et
al., 104 SCRA 295, it was ruled that where the stated party-litigants ‘are not
shareholders of the 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”’.”

In the Bañez case, the DIMCONTRAD issued the questioned
promissory notes in favor of the petitioner therein at around the same time
that it issued the notes in favor of the petitioners in the instant case.

We cannot now decide differently in the case at bar. There can be no doubt that no
intra-corporate dispute is involved because petitioners herein are neither
actual nor prospective shareholders of DIMCONTRAD. They are merely its creditors. DIMCONTRAD, the respondent Judge and even the SEC, in the latter’s
Memorandum as amicus curiae, hold the view, however, that there are
allegations in the complaint which bring the cases within the ambit of
paragraph (a) of Section 5, P.D. No. 902-A, as amended. They particularly refer to paragraphs 15 and
17 of the complaint in Civil Case No. D-5216 and paragraph 10 of the complaint
in Civil Case No. 5408, earlier quoted.

From said paragraphs, they conclude that the complaints involve
or relate to alleged devices or schemes employed by DIMCONTRAD, its board of
directors or officers amounting to fraud and misrepresentation. We have carefully read and scrutinized the
complaints and We find nothing therein to sustain such a conclusion. Petitioners do not even allege therein that
the call for investments, the instruction slips and the promissory notes were
nothing but part of a scheme to defraud the investing public. The paragraphs preceding the aforementioned
paragraphs 15, 17 and 10 do not allege any fraudulent scheme. They merely allege the investments made, the
issuance by DIMCONTRAD of the official receipts, instruction slips and
promissory notes, the months it failed to pay the guaranteed shares in profits
and its failure to pay the promissory notes upon maturity. Paragraphs 15 and 17 are nothing but
conclusions of law to support the claims for moral and exemplary damages and attorney’s
fees. Paragraph 10 is intended to lay
the basis for the issuance of a writ of preliminary attachment and relates to
acts allegedly committed after the investments were made.

It is axiomatic that the averments of the complaint determine the
nature of the action, and consequently, the jurisdiction of the courts.^[22]
This is because the complaint must contain a concise statement of the ultimate
facts constituting the plaintiff’s cause of action and must specify the relief
sought.^[23]
No rule is better established than that which requires the complaint to contain
a statement of all the facts constituting the plaintiff’s cause of action.^[24]
Additionally, Section 5, Rule 8 of the Rules of Court provides that in all
averments of fraud or mistake, the circumstances constituting fraud or mistake
must be stated with particularity. In
the case at bar, while there are allegations of fraud in the above quoted
complaints, the same are not particular enough to bring the controversy within
the SEC’s jurisdiction. The said
allegations are not statements of ultimate facts but are mere conclusions of
law.

A pleading should state the ultimate facts essential to the
rights of action or defense asserted, as distinguished from mere conclusions of
fact, or conclusions of law.^[25] General
allegations that a contract is valid or legal, or is just, fair and reasonable, are mere conclusions of
law. Likewise, allegations that a
contract is void, voidable, invalid, illegal, ultra vires, or against public policy, without stating
facts showing its invalidity, are mere conclusions of law.^[26]

Clearly, therefore, the
allegations in the complaint do not bring the cases within the jurisdiction of
the SEC. Shorn of unnecessary details,
it is evident that the actions are simple money claims.

In Union
Glass & Container Corporation vs. Securities and Exchange Commission,^[27] We held that:

“This grant of jurisdiction (under Section 5 of PD 902-A) 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. (Vide,
Whereas Clauses of P.D. 902-A).

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.”

WHEREFORE, the instant petition is GRANTED. The questioned ORDERS of the respondent
Court dated 25 May 1981, 27 May 1981 and 12 October 1981 are hereby REVERSED
and SET ASIDE. The respondent Court is
hereby directed to take cognizance of and hear and decide Civil Cases Nos.
D-5216 and D-5408.

IT IS SO ORDERED.

Gutierrez, Jr., (Chairman), Feliciano, Bidin, and Romero, JJ., concur.

^[1]
Entitled Ramon Gil Abad vs. Dimensional Construction, Trade and
Development Corporation (DIMCONTRAD).

^[2]
Entitled Consuelo R. Abad and Ramon Gil Abad vs. Dimensional
Construction, Trade and Development Corporation (DIMCONTRAD).

^[3]
Rollo, 31-34.

^[4]
Id., 62-68.

^[5]
Annex “K” of Complaint.

^[6]
Rollo, 24-30.

^[7]
Rollo, 35.

^[8]
Id., 42.

^[9]
Id., 45-47.

^[10]
Rollo, 52.

^[11]
Id., 55-61.

^[12]
Rollo, 70-75.

^[13]
Annexes “A” and “B” of Petition.

^[14]
Annex “O”, Id.

^[15]
Annex “C”, Id.

^[16]
Rollo, 215.

^[17]
Id.

^[18]
Id., 263.

^[19]
Memorandum for the Petitioners, 14.

^[20]
104 SCRA 295.

^[21]
140 SCRA 249 (22 November 1985).

^[22]
Calo vs. Roldan, et al., 76 Phil. 445; Serrano vs. Muñoz Motors, Inc., 21 SCRA 1085; Union Obrera de
Tabaco, Inc. vs. Quicho, 40 SCRA 589; Vargas vs. Akai
Philippines, 156 SCRA 531; see also Eugenio, Sr. vs. Velez, 185 SCRA
425.

^[23]
Section 3, Rule 6, Rules of Court.

^[24]
Pascua vs. Court of Appeals, 183 SCRA 262.

^[25]
Remitere vs. Vda. de Yulo, 16 SCRA 251.

^[26]
Id., citing 71 C.J.S., 44-45; see also Bacolod-Murcia Milling Co., Inc. vs.
First Farmers Milling Co., Inc., etc., 103 SCRA 436, and Alzua and Arnalot vs.
Johnson, 21 Phil. 308.

^[27]
126 SCRA 31.