SEC vs. Subic Bay

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

SEC vs. Subic Bay

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