Securities Regulations Code Assignment

ROWELA L.
DESCALLAR
LLB-3
CORPORATION LAW (ROOM 302 , MONDAY SATURDAY)
G.R. No. 165744

August 11, 2008
OSCAR C. REYES, petitioner,
vs.
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH INSURANCE
CORPORATION, and RODRIGO C. REYES, respondents.
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 [Anastacias] 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.
ISSUES:
Mercantile Law
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?
Remedial Law
1. Whether or not the complaint is a mere nuisance or harassment suit
that should be dismissed under the Interim Rules of Procedure of IntraCorporate Controversies;
2. Whether or not the complaint is a derivative suit within the jurisdiction

of the RTC acting as a special commercial court.
RULING:
Mercantile Law
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 decedents 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 Anastacias 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., Anastacias
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 courts
jurisdiction under Section 5(b) of PD 902-A, as amended because Rodrigos
complaint failed the relationship test above.
Remedial Law
1. Yes.
The rule is that a complaint must contain a plain, concise, and direct
statement of the ultimate facts constituting the plaintiffs cause of action and
must specify the relief sought. Section 5, Rule 8 of the Revised Rules of Court
provides that in all averments of fraud or mistake, the circumstances
constituting fraud or mistake must be stated with particularity. These rules
find specific application to Section 5(a) of P.D. No. 902-A which speaks of
corporate devices or schemes that amount to fraud or misrepresentation
detrimental to the public and/or to the stockholders.
Allegations of deceit, machination, false pretenses, misrepresentation, and

threats are largely conclusions of law that, without supporting statements of
the facts to which the allegations of fraud refer, do not sufficiently state an
effective cause of action. Fraud and mistake are required to be averred with
particularity in order to enable the opposing party to controvert the particular
facts allegedly constituting such fraud or mistake. Tested against these
standards, charges of fraud against Oscar were not properly supported by the
required factual allegations. While the complaint contained allegations of
fraud purportedly committed by him, these allegations are not particular
enough to bring the controversy within the special commercial courts
jurisdiction; they are not statements of ultimate facts, but are mere
conclusions of law: how and why the alleged appropriation of shares can be
characterized as illegal and fraudulent were not explained nor elaborated
on. The case must be dismissed.
2. No.
The allegations of the present complaint do not amount to a derivative suit.
First, as already discussed above, Rodrigo is not a shareholder with respect to
the shareholdings originally belonging to Anastacia; he only stands as a
transferee-heir whose rights to the share are inchoate and unrecorded.
Second, in order that a stockholder may show a right to sue on behalf of the
corporation, he must allege with some particularity in his complaint that he
has exhausted his remedies within the corporation by making a sufficient
demand upon the directors or other officers for appropriate relief with the
expressed intent to sue if relief is denied. Lastly, Court found no injury, actual
or threatened, alleged to have been done to the corporation due to Oscars
acts. If indeed he illegally and fraudulently transferred Anastacias shares in
his own name, then the damage is not to the corporation but to his co-heirs;
the wrongful transfer did not affect the capital stock or the assets of Zenith.
In summary, whether as an individual or as a derivative suit, the RTC sitting
as special commercial court has no jurisdiction to hear Rodrigos complaint
since what is involved is the determination and distribution of successional
rights to the shareholdings of Anastacia Reyes. Rodrigos proper remedy,
under the circumstances, is to institute a special proceeding for the
settlement of the estate of the deceased Anastacia Reyes, a move that is not
foreclosed by the dismissal of his present complaint.
G.R. No. 164182

February 26, 2008
POWER HOMES UNLIMITED CORPORATION, petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO,
respondents.
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 Ps business since
he attended a seminar conducted by P where the latter claimed to sell properties
that were inexistent and without any brokers 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:
1. Whether Ps business constitutes investment contracts which should be
registered with R before its sale or offer for sale or distribution to the public.
RULING:
1. Yes.
The court ruled that P failed the Howey Test. It requires a transaction,
contract, or scheme whereby a person:
i. makes an investment of money
ii. in a common enterprise
iii. with the expectation of profits
iv. 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, Ps business involves security contracts wherein
an investor enrolls in Ps 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.
G.R. No. 171815

August 7, 2007
CEMCO HOLDINGS, INC., Petitioner,
vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.,
Respondent.
G.R. No. 135808

October 6, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S.
VILLARICA, PELAGIO RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO,
JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.

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ROWELA L.

G.R. No. 165744

2. Whether or not the complaint is a derivative suit within the jurisdiction

Allegations of deceit, machination, false pretenses, misrepresentation, and

G.R. No. 164182

G.R. No. 171815

G.R. No. 135808

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