POWERS AND FUNCTIONS OF THE SEC

1. Jurisdiction and supervision over all corporations, partnerships, associations;

2. Formulate policies and recommendations on issues concerning the securities market, advise Congress and other govt agencies;

3. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

4. Regulate, investigate or supervise the activities of persons to ensure compliance;

5. Supervise, monitor, suspend or take over activities of exchanges, clearing agencies and other SROs;

6. Impose sanctions for violations of laws and the rules and regulations pursuant thereto;

7. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions;

8. Enlist the aid and support of and/or deputize any and all enforcement agencies of the govt in the implementation of its powers and functions under the code;

9. Issue cease and desist orders to prevent fraud or injury to the investing public;

10. Punish for contempt of the Commission, both direct and indirect;

11. Compel the officers of any registered corporation or association to call meetings of SH or members thereof under its supervision;

12. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission;

13. Suspend or revoke, after proper notice and hearing the franchise or cert. of registration of corp., partnerships, or assoc. upon any other grounds provided by law; and

14. Exercise such other powers as may be provided by law as well as those which may be implied from or which are necessary or incidental to the carrying out of its express powers. (DE LEON)

CLASSIFICATION OF THE POWERS OF THE SEC

1. ADMINISTRATIVE

a) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

b) Regulate, investigate or supervise the activities of persons to ensure compliance;

c) Visitorial powers to see to it that the reports submitted are indeed accurate and reflect the true conditions of the corporation.

2. QUASI JUDICIAL

a) Impose sanctions for violations of laws and the rules and regulations pursuant thereto;

b) Issue cease and desist orders to prevent fraud or injury to the investing public;

c) Punish for contempt of the Commission, both direct and indirect;

d) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission;

e) Suspend or revoke, after proper notice and hearing the franchise or cert. of registration of corp., partnerships, or assoc. upon any other grounds provided by law;

f) Impose penalties for violation of the Corporation Code.

before imposing penalties, it requires:

PROPER NOTICE AND HEARING - SEC should conduct hearings where parties are given the opportunity to defend themselves and to present evidence

After notice and hearing, the SEC may issue such orders such as:

Order of suspension or revocation of franchise or cert. of registration;

Subpoena duces tecum; and

Order to compel the attendance of witnesses.

CAPITAL STRUCTURE OF THE CORPORATION

1. Authorized Capital Stock (ACS) refers to the maximum amount of the capital as specified in the articles of incorporation

2. Subscribed Capital Stock (SCS) the amount of capital stock subscribed, whether fully paid or not

3. Paid up Capital Stock (PCS) portion of the SCS that is actually paid.

OUTSTANDING CAPITAL STOCK

The outstanding capital is the subscribed capital stock because even if it is not paid in whole, it is basically the commitment of the stockholders. The stockholders own the shares of stocks. It is called OUTstanding because it is already out, It is no longer within the corporation. No longer being within the control of the corporation, the stockholders owning them may sell, dispose or transfer it.

All outstanding shares are issued shares. If they are not issued, they would not be outstanding. All issued shares, however, are not outstanding shares because there could be shares, which were once issued by the corporation but were bought back by it, such as the treasury share.

(Senior citizens card story: Not related to Corporation Law)

JURTISDICTION OF SEC and REGULAR COURTS

HISTORY: There are presidential decrees amending the laws in the past including the Corporation Law. P.D. 902-A amended drastically the corporation law, which was intended to legitimize the mining system. Jurisdiction of the regular courts regarding corporation disputes was transferred to the regular courts. One who is not satisfied with the decision appeals to the Commission en banc, up to the Office of the President. Everything was dependent on the executive department. Normal times came back, so the jurisdiction was granted back to the regular courts.

SEC, however, decided most of the cases, correctly because they were more knowledgeable. Regular courts were of general jurisdiction and they focused more on the civil and penal codes of the Philippines. The quality of decision in so far as the Corporation Law is concerned was far from the expectation of the society. So, special courts were created to handle cases involving corporations. This was intended to provide certain degree of expertise.

What could now fall under the jurisdiction of the SEC?

Issues involving internal problems in the corporation fall within the jurisdiction of the Securities and Exchange Commission. However, issues regarding the stocks of the corporation, as well as those affecting the public or third parties, fall within the jurisdiction of the regular courts. This involves cases of like misrepresentation or fraud to the prejudice of the public.

RULE MAKING POWER OF THE SEC:

Pertains to the issuances that would require the religious compliance of the Corporation Code.

As a matter of fact, from time to time, certain corporations seek the opinion of the SEC. And in the absence of Jurisprudence on the issues, that opinion will hold. However, it does not mean that the opinion will bind the courts. The courts remain to have a sole jurisdiction in deciding disputes between parties. The courts will not be bound with the opinion, SEC being a mere administrative agency. And being a Quasi-Judicial body, their decision may be appealed. As an administrative, the opinion of the SEC does not bind the courts. And it can even be questioned.

What is binding to the court will only be decisions of the supreme court on certain issues.

But there is a tendency that you will come out with an administrative Opinion because Damned if you do, damn if you dont. If the SEC did not render an opinion, they will say, Bogo-a aning SEC kay di man murender og opinion. On the other hand, if they will also render an opinion and you are not happy with that opinion, you will disregard that opinion and test the wisdom of that opinion in the court of law.(Wa man mi namugos. Tuo mo or di, nangutana man mo, mao na among opinion.)

We should be careful in citing an opinion as against jurisprudence. The latter is binding. The former may be complied with so long as that agency will implement that opinion. But that implementation may be questioned.

CASES

PANTRANCO EMPLOYEES ASSOC. vs NLRC

FACTS

PNEI and Mariciris Relaty were owned by the Gonzales family. Later, the said family incurred financial losses and consequently the ownership over PNEI and Maricris Realty were transferred to NIDC, subsidiary of PNB. Maricris merged with another corporation and became PNB Madecor. The latter owned four valuable pieces of real estate were PNEIs properties stood especially its terminal. PNEI implemented a cost saving measure to save its existence and along with that there were several actions filed against it one of which was a labor case instituted by the PANTRANCO EMPLOYEES ASSOC. NLRC rendered a decision in favor of the said group of employees and a writ of execution commanding the sheriff to levy the assets of PNEI and the sheriff was also instructed to proceed against the PNB, PNB Madecor, and Mega Prime. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses.PNB-Madecor is being made to answer for unions labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB.Mega Prime is also included for having acquired PNBs shares over PNB-Madecor.

Levy was made on the four real properties registered under the name of PNB madecor. PNB, PNB Madecor and Mega Prime (as owner of the PNB Madecor) asked for the nullification of the writ on the grounds that they were not parties to the labor case filed against PNEI and that they have separate personalities distinct from that of PNEI.

SC :

The subject property is not owned by the judgment debtor, that is, PNEI.Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership.

The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. This is a fiction created by law for convenience and to prevent injustice, however it admits of ceratin exceptions, to wit: defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)alter egocases where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.

Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities.They must show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI but unfortunately they failed to discharge such burden.

Also, neither can we merge the personality of PNEI with PNB simply because the latter acquired the former and that fact alone is not sufficient to hold PNB liable for the debts of PNEI.

SEAOIL vs AUTOCORP

FACTS: Seaoil purchased an excavator Autocorp Group. Seaoil issued 12 checks as payment therefor; however 10 checks were not honored by the bank since Seaoil requested that payment be stopped. Autocorp filed a complaint for recovery of the excavator with the RTC.

Seaoil claims that Seaoil and Autocorp were only utilized as conduits to settle the obligation of one foreign entity named Uniline in favor of another foreign entity, Focus. The real transaction is that Uniline, through Rodriguez who is also a director of AUTOCORP, owed money to Focus. In lieu of payment, Uniline instead agreed to convey the excavator to Focus and payment shall be made by Roriguez through the issuance of the post-dated checks, however this was rejected by Atutocorp because it is in their policy that it cannot accept check duly issued by its directors. To remedy the situation, it was Yu, the director of Seaoil, who issued checks in favor of Autocorp but subject to reimbursement by Rodriguez.

Seaoil amended its complaint and impleaded Rodriguez in the case.

SC: Rodriguez is a person separate and independent from Autocorp. Whatever obligations Rodriguez contracted cannot be attributed to Autocorp and vice versa. Rodriguez, as stockholder and director of Uniline, cannot be held personally liable for the debts of the corporation, which has a separate legal personality of its own. While Section 31 of the Corporation Code lays down the exceptions to the rule, the same does not apply in this case. Section 31 makes a director personally liable for corporate debts if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation.Section 31 also makes a director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the corporation. The bad faith or wrongdoing of the director must be established clearly and convincingly. Bad faith is never presumed. The burden of proving bad faith or wrongdoing on the part of Rodriguez was, on petitioner, a burden which it failed to discharge. Thus, it was proper for the trial court to have dismissed the third-party complaint against Rodriguez on the ground that he was not a party to the sale of the excavator.

It is settled that a corporation has a personality separate and distinct from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.The corporation may not be held liable for the obligations of the persons composing it, and neither can its stockholders be held liable for its obligation unless it is being used to defeat public convenience, justify wrong, protect fraud, or defend crime.

In fact, the obligation that Seaoil proffers as its defense under the Lease Purchase Agreement was not even incurred by Rodriguez or by Autocorp but by Uniline. The transaction under consideration is separate and distinct from that under the Lease Purchase Agreement.In the former, it is Seaoil that owes Autocorp, while in the latter, Uniline incurred obligations to Focus.

CHINA BANKING CORPORATION vs DYNE-SEM ELECTRONICS CORPORATION

FACTS:

The parties to this case are petitioners China Bank and respondents Dyne-Sem.

What happened in this case was there was this corporation Dynetics, and a certain Mr. Lim who borrowed money from Chinabank evidenced by a promisorry note. What happened was that they failed to pay so Chinabank executed an action for collection of sum of money against Mr. Lim and Dynetics. However, the case was amended impleading Dyne-Sem because according to Chinabank, Dyne-Sem is merely an alter ego of Dynetics. Among the facts alleged were that they shared the same office, same directors, closely related business and some of the equipment of Dyne-Sem was actually acquired from Dynetics.

SC:

The general rule is that acorporation has a personality separate and distinct from that of its stockholders and othercorporations to which it may be connected.[14]This is a fiction created by law for convenience and to prevent injustice.

(1) Inter-locking directors, closely related business and other indicators that they are one and the samethese alone are not enough to show that there is intention to defraud/ should not be enough to pierce the veil of corporate entity. The degree or intention to defraud must clearly and convincingly proven.

(2) Acquisition of propertiesthe fact that a related corporation acquired the assets of the other corporation and the latter corporation was the debtor of a third party; the fact that there was transfer of assets does not enough to establish that there is fraud. Fraud is bot presumed, it must be clearly established.

No merger but only sale of assetsthe obligation of one does not automatically becomes the obligation of the other.

Piercing of the veil of corporate fiction was not justified.

PASRICHA vs DON LUIS DISON REALTY, INC.

FACTS:

There were 2 lease contract between petitioner Pasricha (lessee) and respondent Don Luis Dison Realty Inc. (lessor). For 3 years rents were religiously paid but it stopped due to the confusion (internal squabble) as to who is authorized to receive the payments (rents)the former General Manager, Pacheco, was replaced by Bautista. Since Pasricha refuse to pay its obligation despite repeated demands, Don Luis filed an ejectment suit against the former thru Ms. Bautista on December 15, 1993.. SEC suspended and eventually revoked the certificate of registration of repondents on February 16, 1995.

Petitioner move to dismiss the ejectment suit because Ms. Bautista lack authority to represent the corporation absent any board resolution to the effect.

SC:

(1) The subsequent and substantial compliance may call for the relaxation of the rules of procedure in the interest of justice. Ms. Bautistas lack of authority was cured after subsequent board resolution issued to her favor.

(2) The SEC suspension or subsequent revocation of respondents certificate of registration is not material for what is important is that at the time of filling (ejectment suit) the corporation still exists. Even if under suspension the corporation cannot be prevented to exercise its right to sue (corporate powers).