PHILIPPINE STOCK EXCHANGE, INC. vs. THE HONORABLE COURT OF APPEALS

PHILIPPINE STOCK EXCHANGE, INC. vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.

G.R. No. 125469. October 27, 1997

Facts:

1.      The Puerto Azul Land, Inc. (PALI), had sought to offer itsshares to the public in order to raise funds allegedly to develop its properties and pay its loans withseveral banking institutions.

2.      In January, 1995, PALI was issued a Permit to Sell its shares to thepublic by the SEC. To facilitate the trading of its sharesamong investors, PALI sought to course the trading of its shares through PSE, for which purpose it filed with the said stock exchange an application to listits shares, with supporting documents attached.

3.      On February 14, 1996, before it could act upon PALIs application, the Board of Governors ofPSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late PresidentMarcos was the legal and beneficial owner of certain properties forming part of the Puerto AzulBeach Hotel and Resort Complex which PALI claims to be among its assets.

4.      On February 20, 1996, the PSE wrote to PCGG requesting for comments on the letter of the PALI and the Marcoses.

5.      On March 4, 1996, the PSE was informed that the Marcoses received a TRO on the same date, enjoining the Marcoses from, among others, further impeding, obstructing, delaying or interfering in any manner by or any means with the consideration, processing and approval by the PSE of the initial public offering of PALI.

6.      On March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs application, citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange.

7.      PALI wrote a letter to the SEC bringing to the SECs attention the action taken by the PSE.

8.      The SEC rendered its Order, reversing the PSEs decision.

9.       PSE filed a motion for reconsideration of the said order, which was, however denied by the Commission.

Issue:

            Whether or not the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE

Ruling:

            Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. In connection with this, the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated, and these do not include the power to reverse the decisions of the stock exchange. This is in accord with the business judgment rule whereby the SEC and the courts are barred from intruding into business judgments of corporations, when the same are made in good faith. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public.

            The case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, PALIs documents supporting its application contained misrepresentations and misleading statements, and concealed material information. The matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application.

            It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a corporate entity, its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the country’s economy.

            Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority over the petitioner PSE even as it provides that the Commission shall have absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporations concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state.

            SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country.

            This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers.

            A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body. As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.