Securities and Exchange
Commission vs. Subic Bay Gold and
Country Club, Inc and Universal
International Group Development
Corporation
GR no, 179047, March 11, 2015 |
Second Division, Leonon J.
Intra-corporate controversies,
previously under the SECs jurisdiction,
are now under the jurisdiction of the
RTC designated as commercial courts.
However, the transfer of jurisdiction to
the trial courts does not oust the SEC
of its jurisdiction to determine if
administrative rules and regulations
were violated.
FACTS:
On April 25 1996, Subic Bay Golf and
Country Club, Inc (SBGCCI) and
Universal International Group
Development Corporation (UIGDC)
entered into a Development
Agreement. UIGDC agreed to finance,
construct and develop the golf course,
for an in consideration of the payment
by SBGCCI of its 1,530 shares of
stock.
Upon, SBGCCIs application, SEC
issued an order for the registration of
3,000 no par value shares of SBGCCI
on July 8, 1996. SBGCCI was also
issued a certificate of permit to offer
securities for sale to the Public of its 1,
530 no par value proprietary shares on
August 9, 1996. The shares are sold at
P425, 000 per share and the same were
used to pay UIGDC for the
development of the golf course.
Complainants Filart and Villareal
informed SEC that they had been
asking UIGDC for the refund of their
payment for their SGGBCCI shares.
UIGDC did not act on their requests.
They alleged that they purchased
shares in the promise of SBGCCI and
UIGDC to deliver the ff: 1) swimming
pool and tennis court; 2) 18 hole golf
course; 3) 9 hole executive course and
etc. However, these promises were not
delivered. And despite the undelivered
promises, they started to charged
monthly dues. They were even
threated that their shares would be
auctioned off if their back dues would
remain unpaid.
SBGCCI and UIGDC averred that they
had already substantially complied with
their commitment. SEC conducted an
inspection and found that SBGCCI and
UIGDC failed to substantially comply
with their commitment to complete the
project. They found out that Filart and
Villareal invested because of SBGCCI
and UIGDCs representation of a 27-
hole world class golf course being
developed. Hence, the Corporate
Finance Dept of SEC ordered the return
of purchase price of the shares.
SBGCCI and UIGDC in a petition for
review questioned the order and
jurisdiction of the Corporation Finance
Departments order before the SEC
since the same involved an intra-
corporate dispute. SEC ruled that the
proceedings were administrative in
nature. It was only conducted to
determining if SECs rules and
regulations were violated. SEC has
power to investigate possible violations
and impose appropriate administrative
sanctions. CA, however, declared SECs
decision as null and void since it found
the case as an intra-corporate
controversy not under SECs
jurisdiction.
ISSUE:
Who between the SEC and the RTC
has jurisdiction over this case?
HELD:
RTC has the jurisdiction over the
case.
We also have to determine whether
SEC has the authority to order the
return of purchase price of securities
upon finding that there were fraudulent
representation in the prospectus.
The Court rules for SBGCCI and UIGDC.
Under PD No. 902-A, SEC has
jurisdiction over acts amounting to
fraud and misrepresentation by a
corporations board of directors,
business association and officers, even
intra-corporate disputes. However,
jurisdiction over intra-corporate
disputes and all other cases
enumerated in Sec 5 had already been
transferred to designated RTC under
RA no. 8799. For a dispute to be
intra-corporate, it must satisfy the
relationship and nature of controversy
tests.
Relationship test requires
that the dispute be between a:
o corporation/partnership/a
ssociation and the public;
o a
corporation/partnership/a
ssociation and the state
regarding the entitys
franchise, permit or
license to operate;
o a
corporation/partnership/a
ssociation and its
stockholders, partners,
members or officers; and
o among stockholders,
partners or associates of
the entity
Nature of the Controversy
Test requires that the action
involves the enforcement of
corporate rights and obligations.
In Medical Plaza Makati Condominium
Corporation vs. Cullen: The
controversy must not only be rooted in
the existence of an intra-corporate
relationship, but must as well pertain to
the enforcement of parties correlative
rights and obligations under the
Corporation Code and the internal and
intra-corporate regulatory rules of the
corporation.
This case is an intra-corporate dispute,
over which the RTC has jurisdiction. It
involves a dispute between the
corporation, SBGCCI and its
shareholders, Villareal and Filart. Their
right to a refund of the value of their
shares was based on SBGCCI and
UIGDC's alleged failure to abide by
their representations in their of refund is an intra- corporate dispute
prospectus. It involves the that requires the court to determine
determination of a shareholder's rights and adjudicate the parties' rights based
under the Corporation Code or other on law or contract. Injuries, rights, and
intra-corporate rules when the obligations involved in intra-corporate
corporation or association fails to fulfill disputes are specific to the parties
its obligations. involved. They do not affect the
Securities and Exchange Commission
HOWEVER, even though it is intra- or the public directly.
corporate in nature, it does not
necessarily oust the Commission of its Hence, the issue of refund should be
regulatory and administrative litigated in the appropriate Regional
jurisdiction to determine and act if Trial Court. This issue is both intra-
there were administrative violations corporate and civil in nature, which is
committed. In relation to securities, the under the jurisdiction of the designated
Securities and Exchange Commission's Regional Trial Courts.
regulatory power pertains to the
approval and rejection, and suspension
or revocation, of applications for
registration of securities for, among
others, violations of the law, fraud, and
misrepresentations. (CF: Sec 13 and
15)

To ensure compliance with the law and

the rules, SEC is empowered to impose
fines and penalties. It may also
investigate motu proprio to see
whether corporations are compliant.
Any fraud or misrepresentation in the
issuance of securities injures the
public. However, the Securities and
Exchange Commission's regulatory
power does not include the authority to
order the refund of the purchase price
of Villareal's and Filart's shares in the
golf club. The issue of refund is intra-
corporate or civil in nature. Similar to
issues such as the existence or
inexistence of appraisal rights, pre-
emptive rights, and the right to inspect
books and corporate records, the issue