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287 SCRA 232 Business Organization Corporation Law Extent of Power of the Seurities

an! Exhange Co""ission

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was

granted permission by the Securities and Echange !ommission (SE!) to sell its shares to the

public in order "or PALI to de#elop its properties.

PALI then as$ed the Philippine Stoc$ Echange (PSE) to list PALI%s stoc$s&shares to "acilitate

echange. 'he PSE oard o" o#ernors denied PALI%s application on the ground that there were

multiple claims on the assets o" PALI. Apparently, the *arcoses, +ebecco Panlilio (trustee o" the

*arcoses), and some other corporations were claiming assets i" not ownership o#er PALI.

PALI then wrote a letter to the SE! as$ing the latter to re#iew PSE%s decision. 'he SE! re#ersed

PSE%s decisions and ordered the latter to cause the listing o" PALI shares in the Echange.

ISSUE: hether or not it is within the power o" the SE! to re#erse actions done by the PSE.

HELD: -es. 'he SE! has both urisdiction and authority to loo$ into the decision o" PSE

pursuant to the +e#ised Securities Act and "or the purpose o" ensuring "air administration o" the

echange. PSE, as a corporation itsel" and as a stoc$ echange is subect to SE!%s urisdiction,

regulation, and control. In order to insure "air dealing o" securities and a "air administration o"

echanges in the PSE, the SE! has the authority to loo$ into the rulings issued by the PSE. 'he

SE! is the entity with the primary say as to whether or not securities, including shares o" stoc$

o" a corporation, may be traded or not in the stoc$ echange.

/0E1E+, in the case at bar, the Supreme !ourt emphasized that the SE! may only re#erse

decisions issued by the PSE i" such are tainted with bad "aith. In this case, there was no showingthat PSE acted with bad "aith when it denied the application o" PALI. ased on the multiple

ad#erse claims against the assets o" PALI, PSE deemed that granting PALI%s application will

only be contrary to the best interest o" the general public. It was reasonable "or the PSE to

eercise its udgment in the manner it deems appropriate "or its business identity, as long as no

rights are trampled upon, and public wel"are is sa"eguarded.

SE!023 3I1ISI02

4.+. 2o. 56789:. 0ctober 6;, 5::;

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P/ILIPPI2E S'0!= E>!/A2E, I2!.,petitioner# $s% '/E /020+ALE !0?+' 0@

APPEALS, SE!?+I'IES A23 E>!/A2E !0**ISSI02 and P?E+'0 A?L LA23,

I2!., respon!ents%

3 E ! I S I 0 2

'0++ES, B+.,&.C

'he Securities and Echange !ommission is the go#ernment agency, under the direct general

super#ision o" the 0""ice o" the President,i45< with the immense tas$ o" en"orcing the +e#ised

Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable"unctions, and one o" the most important, is the super#ision o" all corporations, partnerships or

associations, who are grantees or primary "ranchise and&or a license or permit issued by the

go#ernment to operate in the Philippines. ii46< Bust how "ar this regulatory authority etends,particularly, with regard to the Petitioner Philippine Stoc$ Echange, Inc. is the issue in the case

at bar.

In this Petition "or +e#iew o" Certiorari, petitioner assails the resolution o" the respondent !ourt

o" Appeals, dated Bune 6;, 5::9, which a""irmed the decision o" the Securities and Echange!ommission ordering the petitioner Philippine Stoc$ Echange, Inc. to allow the pri#ate

respondent Puerto Azul Land, Inc. to be listed in its stoc$ mar$et, thus pa#ing the way "or the

public o""ering o" PALIs shares.

'he "acts o" the case are undisputed, and are hereby restated in sum.

'he Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to o""er its

shares to the public in order to raise "unds allegedly to de#elop its properties and pay its loans

with se#eral ban$ing institutions. In Banuary, 5::7, PALI was issued a Permit to Sell its shares tothe public by the Securities and Echange !ommission (SE!). 'o "acilitate the trading o" itsshares among in#estors, PALI sought to course the trading o" its shares through the Philippine

Stoc$ Echange, Inc. (PSE), "or which purpose it "iled with the said stoc$ echange an

application to list its shares, with supporting documents attached.

0n @ebruary D, 5::9, the Listing !ommittee o" the PSE, upon a perusal o" PALIs application,

recommended to the PSEs oard o" o#ernors the appro#al o" PALIs listing application.

0n @ebruary 58, 5::9, be"ore it could act upon PALIs application, the oard o" o#ernors o"

PSE recei#ed a letter "rom the heirs o" @erdinand E. *arcos, claiming that the late President

*arcos was the legal and bene"icial owner o" certain properties "orming part o" the Puerto Azuleach /otel and +esort !omple which PALI claims to be among its assets and that the 'ernate

3e#elopment !orporation, which is among the stoc$holders o" PALI, li$ewise appears to ha#e

been held and continue to be held in trust by one +ebecco Panlilio "or then President *arcos andnow, e""ecti#ely "or his estate, and reuested PALIs application to be de"erred. PALI was

reuested to comment upon the said letter.

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PALIs answer stated that the properties "orming part o" Puerto Azul each /otel and +esort

!omple were not claimed by PALI as its assets. 0n the contrary, the resort is actually owned by

@antasia @ilipina +esort, Inc. and the Puerto Azul !ountry !lub, entities distinct "rom PALI.@urthermore, the 'ernate 3e#elopment !orporation owns only 5.6FG o" PALI. 'he *arcoses

responded that their claim is not con"ined to the "acilities "orming part o" the Puerto Azul /otel

and +esort !omple, thereby implying that they are also asserting legal and bene"icial ownershipo" other properties titled under the name o" PALI.

0n @ebruary 6F, 5::9, the PSE wrote !hairman *agtanggol unigundo o" the Presidential

!ommission on ood o#ernment (P!) reuesting "or comments on the letter o" the PALI

and the *arcoses. 0n *arch 8, 5::9, the PSE was in"ormed that the *arcoses recei#ed a'emporary +estraining 0rder on the same date, enoining the *arcoses "rom, among others,

"urther impeding, obstructing, delaying or inter"ering in any manner by or any means with the

consideration, processing and appro#al by the PSE o" the initial public o""ering o" PALI. 'he'+0 was issued by Budge *artin S. 1illarama, Eecuti#e Budge o" the +'! o" Pasig !ity in

!i#il !ase 2o. 97795, pending in ranch 9: thereo".

In its regular meeting held on *arch 6;, 5::9, the oard o" o#ernors o" the PSE reached its

decision to reect PALIs application, citing the eistence o" serious claims, issues andcircumstances surrounding PALIs ownership o#er its assets that ad#ersely a""ect the suitability o"

listing PALIs shares in the stoc$ echange.

0n April 55, 5::9, PALI wrote a letter to the SE! addressed to the then Acting !hairman,

Per"ecto +. -asay, Br., bringing to the SE!s attention the action ta$en by the PSE in theapplication o" PALI "or the listing o" its shares with the PSE, and reuesting that the SE!, in the

eercise o" its super#isory and regulatory powers o#er stoc$ echanges under Section 9() o" P.3.

2o. :F6HA, re#iew the PSEs action on PALIs listing application and institute such measures as

are ust and proper and under the circumstances.

0n the same date, or on April 55, 5::9, the SE! wrote to the PSE, attaching thereto the letter o"

PALI and directing the PSE to "ile its comments thereto within "i#e days "rom its receipt and "or

its authorized representati#e to appear "or an inuiry on the matter. 0n April 66, 5::9, the PSEsubmitted a letter to the SE! containing its comments to the April 55, 5::9 letter o" PALI.

0n April 68, 5::9, the SE! rendered its 0rder, re#ersing the PSEs decision. 'he dispositi#e

portion o" the said order readsC

/E+E@0+E, premises considered, and in#o$ing the !ommissioners authority and urisdiction

under Section o" the +e#ised Securities Act, in conunction with Section , 9() and 9(m) o" thePresidential 3ecree 2o. :F6HA, the decision o" the oard o" o#ernors o" the Philippine Stoc$

Echange denying the listing o" shares o" Puerto Azul Land, Inc., is hereby set aside, and the

PSE is hereby ordered to immediately cause the listing o" the PALI shares in the Echange,without preudice to its authority to reuire PALI to disclose such other material in"ormation it

deems necessary "or the protection o" the in#esting public.

'his 0rder shall ta$e e""ect immediately.

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S0 0+3E+E3.

PSE "iled a motion "or reconsideration o" the said order on April 6:, 5::9, which was, howe#er

denied by the !ommission in its *ay :, 5::9 0rder which statesC

/E+E@0+E, premises considered, the !ommission "inds no compelling reason to consider itsorder dated April 68, 5::9, and in the light o" recent de#elopments on the ad#erse claim against

the PALI properties, PSE should reuire PALI to submit "ull disclosure o" material "acts and

in"ormation to protect the in#esting public. In this regard, PALI is hereby ordered to amend itsregistration statements "iled with the !ommission to incorporate the "ull disclosure o" these

material "acts and in"ormation.

3issatis"ied with this ruling, the PSE "iled with the !ourt o" Appeals on *ay 5;, 5::9 a Petition

"or +e#iew (with application "or rit o" Preliminary Inunction and 'emporary +estraining0rder), assailing the abo#e mentioned orders o" the SE!, submitting the "ollowing as errors o"

the SE!C

I. SE! !0**I''E3 SE+I0?S E++0+ A23 +A1E A?SE 0@ 3IS!+E'I02 I2

ISS?I2 '/E ASSAILE3 0+3E+S I'/0?' P0E+, B?+IS3I!'I02, 0+A?'/0+I'-J SE! /AS 20 P0E+ '0 0+3E+ '/E LIS'I2 A23 SALE 0@ S/A+ES

0@ PALI /0SE ASSE'S A+E SEK?ES'E+E3 A23 '0 +E1IE A23 S?S'I'?'E

3E!ISI02S 0@ PSE 02 LIS'I2 APPLI!A'I02SJ

II. SE! !0**I''E3 SE+I0?S E++0+ A23 +A1E A?SE 0@ 3IS!+E'I02 I2@I23I2 '/A' PSE A!'E3 I2 A2 A+I'+A+- A23 A?SI1E *A22E+ I2

3ISAPP+01I2 PALIS LIS'I2 APPLI!A'I02J

III. '/E ASSAILE3 0+3E+S 0@ SE! A+E ILLEAL A23 10I3 @0+ ALL0I2@?+'/E+ 3ISP0SI'I02 0@ P+0PE+'IES I2 C'S(O)*A LE+*SA23 /I!/ @0+*PA+' 0@ 2A1AL&*ILI'A+- +ESE+1A'I02J A23

I1. '/E @?LL 3IS!L0S?+E 0@ '/E SE! AS 20' P+0PE+L- P+0*?LA'E3

A23 I'S I*PLE*E2'A'I02 A23 APPLI!A'I02 I2 '/IS !ASE 1I0LA'ES'/E 3?E P+0!ESS !LA?SE 0@ '/E !02S'I'?'I02.

0n Bune 8, 5::9, PALI "iled its !omment to the Petition "or +e#iew and subseuently, a

!omment and *otion to 3ismiss. 0n Bune 5F, 5::9, PSE "iled its +eply to !omment and

0pposition to *otion to 3ismiss.

0n Bune 6;, 5::9, the !ourt o" Appeals promulgated its +esolution dismissing the PSEs Petition"or +e#iew. /ence, this Petition by the PSE.

'he appellate court had ruled that the SE! had both urisdiction and authority to loo$ into the

decision o" the petitioner PSE, pursuant to Section iii4< o" the +e#ised Securities Act in relation

to Section 9() and 9(m)i#48

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and as a stoc$ echange, the petitioner is subect to public respondents urisdiction, regulation

and control. Accepting the argument that the public respondent has the authority merely to

super#ise or regulate, would amount to serious conseuences, considering that the petitioner is astoc$ echange whose business is impressed with public interest. Abuse is not remote i" the

public respondent is le"t without any system o" control. I" the securities act #ested the public

respondent with urisdiction and control o#er all corporationsJ the power to authorize theestablishment o" stoc$ echangesJ the right to super#ise and regulate the sameJ and the power to

alter and supplement rules o" the echange in the listing or delisting o" securities, then the law

certainly granted to the public respondent the plenary authority o#er the petitionerJ and the powero" re#iew necessarily comes within its authority.

All in all, the court held that PALI complied with all the reuirements "or public listing,

a""irming the SE!s ruling to the e""ect thatC

the Philippine Stoc$ Echange has acted in an arbitrary and abusi#e manner in

disappro#ing the application o" PALI "or listing o" its shares in the "ace o" the "ollowing

considerationsC

5. PALI has clearly and admittedly complied with the Listing +ules and "ull disclosure

reuirements o" the EchangeJ

6. In applying its clear and reasonable standards on the suitability "or listing o" shares, PSEhas "ailed to usti"y why it acted di""erently on the application o" PALI, as compared to the IP0s

o" other companies similarly that were allowed listing in the EchangeJ

. It appears that the claims and issues on the title to PALIs properties were e#en less

serious than the claims against the assets o" the other companies in that, the assertions o" the

*arcoses that they are owners o" the disputed properties were not substantiated enough too#ercome the strength o" a title to properties issued under the 'orrens System as e#idence o"

ownership thereo"J

8. 2o action has been "iled in any court o" competent urisdiction see$ing to nulli"y PALIsownership o#er the disputed properties, neither has the go#ernment instituted reco#ery

proceedings against these properties. -et the import o" PSEs decision in denying PALIs

application is that it would be PALI, not the *arcoses, that must go to court to pro#e the legalityo" its ownership on these properties be"ore its shares can be listed.

In addition, the argument that the PALI properties belong to the *ilitary&2a#al +eser#ation does

not inspire belie". 'he point is, the PALI properties are now titled. A property losses its publiccharacter the moment it is co#ered by a title. As a matter o" "act, the titles ha#e long been settledby a "inal udgmentJ and the "inal decree ha#ing been registered, they can no longer be reHopened

considering that the one year period has already passed. Lastly, the determination o" what

standard to apply in allowing PALIs application "or listing, whether the discretion method or thesystem o" public disclosure adhered to by the SE!, should be addressed to the Securities

!ommission, it being the go#ernment agency that eercises both super#isory and regulatory

authority o#er all corporations.

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0n August 57, 5::9, the PSE, a"ter it was granted an etension, "iled an instant Petition "or

+e#iew on Certiorari, ta$ing eception to the rulings o" the SE! and the !ourt o" Appeals.

+espondent PALI "iled its !omment to the petition on 0ctober 5;, 5::9. 0n the same date, theP! "iled a *otion "or Lea#e to "ile a Petition "or Inter#ention. 'his was "ollowed up by the

P!s Petition "or Inter#ention on 0ctober 65, 5::9. A supplemental !omment was "iled by

PALI on 0ctober 67, 5::;. 'he 0""ice o" the Solicitor eneral, representing the SE! and the!ourt o" Appeals, li$ewise "iled its !omment on 3ecember 69, 5::9. In answer to the P!s

motion "or lea#e to "ile petition "or inter#ention, PALI "iled its !omment thereto on Banuary 5;,

5::;, whereas the PSE "iled its own !omment on Banuary 6F, 5::;.

0n @ebruary 67, 5::9, the PSE "iled its !onsolidated +eply to the comments o" respondent PALI(0ctober 5;, 5::9) and the Solicitor eneral (3ecember 69, 5::9). 0n may 59, 5::;, PALI "iled

its +eoinder to the said consolidated reply o" PSE.

PSE submits that the !ourt o" Appeals erred in ruling that the SE! had authority to order the

PSE to list the shares o" PALI in the stoc$ echange. ?nder presidential decree 2o. :F6HA, the

powers o" the SE! o#er stoc$ echanges are more limited as compared to its authority o#erordinary corporations. In connection with this, the powers o" the SE! o#er stoc$ echanges

under the +e#ised Securities Act are speci"ically enumerated, and these do not include the powerto re#erse the decisions o" the stoc$ echange. Authorities are in abundance e#en in the ?nited

States, "rom which the countrys security policies are patterned, to the e""ect o" gi#ing the

Securities !ommission less control o#er stoc$ echanges, which in turn are gi#en more leeHwayin ma$ing the decision whether or not to allow corporations to o""er their stoc$ to the public

through the stoc$ echange. 'his is in accord with the business udgment rule whereby the SE!

and the courts are barred "rom intruding into business udgments o" corporations, when the same

are made in good "aith. 'he said rule precludes the re#ersal o" the decision o" the PSE to denyPALIs listing application, absent a showing a bad "aith on the part o" the PSE. ?nder the listing

rule o" the PSE, to which PALI had pre#iously agreed to comply, the PSE retains the discretionto accept or reect applications "or listing. 'hus, e#en i" an issuer has complied with the PSElisting rules and reuirements, PSE retains the discretion to accept or reect the issuers listing

application i" the PSE determines that the listing shall not ser#e the interests o" the in#esting

public.

*oreo#er, PSE argues that the SE! has no urisdiction o#er seuestered corporations, nor withcorporations whose properties are under seuestration. A reading o" +epublic o" the Philippines

#s. Sandiganbayan, .+. 2o. 5F76F7, 68F S!+A ;9, would re#eal that the properties o" PALI,

which were deri#ed "rom the 'ernate 3e#elopment !orporation ('3!) and the *onte del Sol3e#elopment !orporation (*S3!), are under seuestration by the P!, and the subect o"

"or"eiture proceedings in the Sandiganbayan. 'his ruling o" the !ourt is the law o" the case

between the +epublic and the '3! and *S3!. It categorically declares that the assets o" thesecorporations were seuestered by the P! on *arch 5F, 5:D9 and April 8, 5:DD.

It is, li$ewise, intimidated that the !ourt o" Appeals sanction that PALIs ownership o#er its

properties can no longer be uestioned, since certi"icates o" title ha#e been issued to PALI and

more than one year has since lapsed, is erroneous and ignores well settled urisprudence on landtitles. 'hat a certi"icate o" title issued under the 'orrens System is a conclusi#e e#idence o"

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ownership is not an absolute rule and admits certain eceptions. It is "undamental that "orest

lands or military reser#ations are nonHalienable. 'hus, when a title co#ers a "orest reser#e or a

go#ernment reser#ation, such title is #oid.

PSE, li$ewise, assails the SE!s and the !ourt o" Appeals reliance on the alleged policy o" "ull

disclosure to uphold the listing o" the PALIs shares with the PSE, in the absence o" a clearmandate "or the e""ecti#ity o" such policy. As it is, the case records re#eal the truth that PALI did

not comply with the listing rules and disclosure reuirements. In "act, PALIs documentssupporting its application contained misrepresentations and misleading statements, and

concealed material in"ormation. 'he matter o" seuestration o" PALIs properties and the "act that

the same "orm part o" military&na#al&"orest reser#ations were not re"lected in PALIs application.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is

clothed with the mar$ing o" a corporate entity, its "unctions as the primary channel through

which the #essels o" capital trade ply. 'he PSEs rele#ance to the continued operation and

"iltration o" the securities transactions in the country gi#es it a distinct color o" importance such

that go#ernment inter#ention in its a""airs becomes usti"ied, i" not necessary. Indeed, as the onlyoperational stoc$ echange in the country today, the PSE enoys a monopoly o" securities

transactions, and as such, it yields an immense in"luence upon the countrys economy.

3ue to this special nature o" stoc$ echanges, the countrys lawma$ers has seen it wise to gi#especial treatment to the administration and regulation o" stoc$ echanges.#i49