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JONGOY, KENT FRANCESCO C.

CORPORATION LAW (FRI/SAT 7-9PM)


MARCH 9, 2018

G.R. No. 165744 August 11, 2008


OSCAR C. REYES
vs.
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH INSURANCE
CORPORATION, and RODRIGO C. REYES

FACTS:

Petitioner and private respondent were siblings together with two others, namely Pedro and
Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from
which they owned shares of stocks. The Pedro and Anastacia subsequently died. The former
had his estate judicially partitioned among his heirs, but the latter had not made the same in her
shareholding in Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange
Commission (SEC) against petitioner (1) a derivative suit to obtain accounting of funds and
assets of Zenith, and (2) to determine the shares of stock of deceased Pedro and Anastacia that
were arbitrarily and fraudulently appropriated [by Oscar, and were unaccounted for]. In his
answer with counterclaim, petitioner denied the illegality of the acquisition of shares of
Anastacia and questioned the jurisdiction of SEC to entertain the complaint because it pertains
to settlement of [Anastacia’s] estate. The case was transferred to. Petitioner filed Motion to
Declare Complaint as Nuisance or Harassment Suit and must be dismissed. RTC denied the
motion. The motion was elevated to the Court of Appeals by way of petition for certiorari,
prohibition and mandamus, but was again denied.

ISSUE:

(1) Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the
shareholdings originally belonging to Anastacia.

(2) Whether or not there is an intra-corporate relationship between the parties that would
characterize the case as an intra-corporate dispute?

RULINGS:

(1) No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of
Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must prove
that there are shareholdings that will be left to him and his co-heirs, and this can be determined
only in a settlement of the decedent’s estate. No such proceeding has been commenced to
date. Second, he must register the transfer of the shares allotted to him to make it binding
against the corporation. He cannot demand that this be done unless and until he has
established his specific allotment (and prima facie ownership) of the shares. Without the
settlement of Anastacia’s estate, there can be no definite partition and distribution of the estate
to the heirs. Without the partition and distribution, there can be no registration of the transfer.
And without the registration, we cannot consider the transferee-heir a stockholder who may
invoke the existence of an intra-corporate relationship as premise for an intra-corporate
controversy within the jurisdiction of a special commercial court. The subject shares of stock
(i.e., Anastacia’s shares) are concerned – Rodrigo cannot be considered a stockholder of
Zenith.

(2) No. Court cannot declare that an intra-corporate relationship exists that would serve as
basis to bring this case within the special commercial court’s jurisdiction under Section 5(b) of
PD 902-A, as amended because Rodrigo’s complaint failed the relationship test above.

G.R. No. 164182 February 26, 2008

POWER HOMES UNLIMITED CORPORATION


vs.
SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO

FACTS:

Power Homes (P) was engaged in managing real estate properties for subdivision & allied
purposes and in the purchase, exchange, and/or sale of such through network marketing.
Manero & Munsayac requested SEC (R) to investigate P’s business since he attended a
seminar conducted by P where the latter claimed to sell properties that were inexistent and
without any broker’s license & desires to know if network marketing is legitimate. P submitted to
R copies of its marketing course module and letters of accreditation/authority or confirmation
from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation after a conference held
by R. R found P to be engaged in the sale or offer for sale or distribution of investment
contracts, which are considered securities under Sec. 3.1 (b) of R.A. No. 8799 (The Securities
Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act. R then
issued a CDO to P to enjoin the latter from engaging in the sale, offer or distribution of the
securities.

ISSUE:

Whether P’s business constitutes investment contracts which should be registered with R before
its sale or offer for sale or distribution to the public.

RULING:

Yes. The court ruled that P failed the Howey Test. It requires a transaction, contract, or scheme
whereby a person:
(1) makes an investment of money
(2) in a common enterprise
(3) with the expectation of profits
(4) to be derived solely from the efforts of others.

Any investment contract covered by the Howey Test must be registered under the Securities
Act, regardless of whether its issuer was engaged in fraudulent practices. R.A. No. 8799 defines
an Investment contract as a contract, transaction or scheme whereby a person invests his
money in a common enterprise and is led to expect profits not solely but primarily from the
efforts of others. In the case at bar, P’s business involves security contracts wherein an investor
enrolls in P’s program by paying US$234. This entitles him to recruit two (2) investors who pay
US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4)
investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal
investor to US$184 and the pyramid goes on.

The trainings or seminars are merely designed to enhance P’s business of teaching its investors
the know-how of its multi-level marketing business. An investor enrolls under the scheme of P to
be entitled to recruit other investors and to receive commissions from the investments of those
directly recruited by him. Under the scheme, the accumulated amount received by the investor
comes primarily from the efforts of his recruits.

G.R. No. 171815 August 7, 2007

CEMCO HOLDINGS, INC.


vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.

FACTS:

Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders –
UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco
with17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%.
Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed the
Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to
Cemco BCI’s stocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to
29.69%.

As a consequence of this disclosure, the PSE inquired as to whether the Tender Offer Rule
under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to
the purchase by petitioner of the majority of shares of UCC. The SEC en banc had resolved that
the Cemco transaction was not covered by the tender offer rule. Feeling aggrieved by the
transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority
stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule on
mandatory tender offer. Cemco, however, refused.

Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the
SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase agreement of
Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares.

The SEC ruled in favor of the respondent by reversing and setting aside its 27 July
2004Resolution and directed petitioner Cemco to make a tender offer for UCC shares to
respondent and other holders of UCC shares similar to the class held by UCHC in accordance
with Section 9(E), Rule 19 of the Securities Regulation Code.

On petition to the Court of Appeals, the CA rendered a decision affirming the ruling of the SEC.
It ruled that the SEC has jurisdiction to render the questioned decision and, in any event,
Cemco was barred by estoppel from questioning the SEC’s jurisdiction.

It, likewise, held that the tender offer requirement under the Securities Regulation Code and its
Implementing Rules applies to Cemco’s purchase of UCHC stocks. Cemco’s motion for
reconsideration was likewise denied.
ISSUES:

1. Whether or not the SEC has jurisdiction over respondent’s complaint and to require Cemco to
make a tender offer for respondent’s UCC shares.

2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares
in a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-
listed company, through its purchase of the shares in UCHC, a non-listed company.

RULINGS:

YES. In taking cognizance of respondent’s complaint against petitioner and eventually rendering
a judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to
Rule19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation
Code, to wit:
“ 13. Violation If there shall be violation of this Rule by pursuing a purchase of equity shares of a
public company at threshold amounts without the required tender offer, the Commission, upon
complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be
without prejudice to the imposition of other sanctions under the Code.”

The foregoing rule emanates from the SEC’s power and authority to regulate, investigate or
supervise the activities of persons to ensure compliance with the Securities Regulation Code,
more specifically the provision on mandatory tender offer under Section 19thereof. Moreover,
petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out that
petitioner had participated in all the proceedings before the SEC and had prayed for affirmative
relief.

2. YES. Tender offer is a publicly announced intention by a person acting alone or in concert
with other persons to acquire equity securities of a public company.

A public company is defined as a corporation which is listed on an exchange, or a corporation


with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them
holding not less than 100 shares of such company .

Stated differently, a tender offer isan offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the terms specified in the offer.

Tender offer is in place to protect minority shareholders against any scheme that dilutes the
share value of their investments. It gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the opportunity to sell their shares at the same
price as those of the majority shareholders. The SEC and the Court of Appeals ruled that the
indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed
UCHC shares is covered by the mandatory tender offer rule. The legislative intent of Section 19
of the Code is to regulate activities relating to acquisition of control of the listed company and for
the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the
method by which control of a public company isobtained, either through the direct purchase of
its stocks or through an indirect means, mandatory tender offer applies. As appropriately held
by the Court of Appeals:
The petitioner posits that what it acquired were stocks of UCHC and not UCC. By
happenstance, as a result of the transaction, it became an indirect owner of UCC. We are
constrained, however, to construe ownership acquisition to mean both direct and indirect. What
is decisive is the determination of the power of control. The legislative intent behind the tender
offer rule makes clear that the type of activity intended to be regulated is the acquisition of
control of the listed company through the purchase of shares. Control may [be] effected through
a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a
tender offer must occur. The bottom line of the law is to give the shareholder of the listed
company the opportunity to decide whether or not to sell in connection with a transfer of control.

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