SECURITIES AND EXCHANGE COMMISSION (SEC) v.

SUBIC BAY GOLF AND

COUNTRY CLUB, INC. (SBGCCI) AND UNIVERSAL INTERNATIONAL GROUP
DEVELOPMENT CORPORATION
G.R. No. 179047, March 11, 2015

Doctrine:
Intra-corporate controversies, previously under the Securities and Exchange
Commission's jurisdiction, are now under the jurisdiction of Regional Trial Courts
designated as commercial courts. However, the transfer of jurisdiction to the trial courts
does not oust the Securities and Exchange Commission of its jurisdiction to determine if
administrative rules and regulations were violated.

Facts:

SBMA and UIG entered into a Lease and Development Agreement where SBMA agreed
to lease the Subic Bay Golf Course, also known as Binictican Valley Golf Course, to UIG
for 50 years, renewable for another 25 years. UIG agreed to "develop, manage and
maintain the golf course and other related facilities within the complex[.]" Later, Universal
International Group Development Corporation (UIGDC) succeeded to the interests of
UIG.

Subsequently, UIGDC and SBGCCI entered into a development agreement in

consideration of the payment by [SBGCCI] of its 1,530 (SBGCCI) shares of stock in
exchange of UIGDC’s development and financing of the golf course

Upon SBGCCI's application, the SEC issued an Order for the Registration of 3,000 no
par value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate of Permit
to Offer Securities for Sale to the Public and the shares were sold at P425,000.00 per
share. SBGCCI would use the proceeds of the sale of securities to pay UIGDC for the
development of the golf course.

Regina Filart (Filart) and Margarita Villareal (Villareal) - [COMPLAINANTS] wrote a

letter- complaint to the SEC and informed that they had been asking UIGDC for the
refund of their payment for their SBGCCI shares as SBGCCI and UIGDC did not
deliver on their promises ( PGA / USGA standard golf couse, executive course,
swimming pool and tennix courts, residential condo- hotel etc.). Villareal and Filart
also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised
amenities, they started to charge them monthly dues.

SBGCCI and UIGDC claimed that they had complied with their commitment to provide
the members a world-class golf and country club. They state that other developments
were not included in rights purchased by FILART and VILLAREAL.

After inspection the SEC Corp. Finance Department gave due course to Villareal and
Filart’s Complaint. SBGCCI and UIGDC were ordered to refund the purchase price
of the shares purchased by the complainants. They were also ordered to amend their
prospectus, and were fined P100,000.

SBGCCI and UIGDC filed a Petition for Review to the CA. The CA declared the refund of
the purchase price was not proper and the decision was declared null and void for lack
of jurisdiction.
The CA found that the case involved an intra-corporate controversy and held that the
SEC acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund
Villareal and Filart the amount they paid for SBGCCI shares of stock.

The authority to exercise powers necessary to carry out the objectives of the
Securities and Exchange Commission does not include the authority to refund
investments. This power has been transferred to the Regional Trial Court. The
Securities and Exchange Commission should have limited its exercise of power to
issuing an order imposing a fine, to amend the prospectus, and to suspend the
Certificate of Registration and Permit to Sell Securities to the Public.

Issue:
WON SEC or RTC had jurisdiction?

Ruling:
RTC had jurisdiction. CA Decision affirmed.

The Court held that issue of refund should be litigated in the appropriate Regional Trial
Court. This issue is both intra-corporate and civil in nature, which is under the jurisdiction
of the designated Regional Trial Courts.

Previously PD 902 stated that the SEC has jurisdiction over acts amounting to fraud
and misrepresentation by a corporation's board of directors, business associates, and
officers. It also provides that it has jurisdiction over intra-corporate disputes.

HOWEVER, Jurisdiction over intra-corporate disputes and all other cases enumerated in
Section 5 of Presidential Decree No. 902-A had already been transferred to
designated Regional Trial Courts

Actions pertaining to intra-corporate disputes should be filed directly before designated

Regional Trial Courts. Intra-corporate disputes brought before other courts or tribunals
are dismissible for lack of jurisdiction.

Relationship and Nature of Controversy Test

For a dispute to be "intra-corporate," it must satisfy the relationship and nature of
controversy tests.

The relationship test requires that the dispute be between

1. a corporation/partnership/association and the public;
2. a corporation/partnership/association and the state regarding the entity's
franchise, permit, or license to operate;
3. a corporation/partnership/association and its stockholders, partners, members, or
officers;
4. and among stockholders, partners, or associates of the entity.

The nature of the controversy test requires that the action involves the enforcement of
corporate rights and obligations.

Complaint was intra-corporate matter under RTC jurisdiction

Villareal and Filart's 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 prospectus.
Specifically, Villareal and Filart alleged in their letter-complaint that the world-class golf
course that was promised to them when they purchased shares did not materialize. This
is an intra-corporate matter that is under the designated Regional Trial Court's
jurisdiction. It involves the determination of a shareholder's rights under the
Corporation Code or other intra-corporate rules when the corporation or
association fails to fulfill its obligations.

While Complaint is Intra-Corporate, SEC not necessarily ousted of regulatory and

admin jurisdiction
However, even though the Complaint filed before the Securities and Exchange
Commission contains allegations that are intra-corporate in nature, it does not
necessarily oust the Securities and Exchange Commission of its regulatory and
administrative jurisdiction to determine and act if there were administrative violations
committed.

In relation to securities, the Securities and Exchange Commission's regulatory power

pertains to the approval and rejection, and suspension or revocation, of applications for
registration of securities. the Securities and Exchange Commission is also given the
power to impose fines and penalties. It may also investigate motu proprio whether
corporations comply with the Corporation Code, Securities Regulation Code, and rules
implemented by the Securities and Exchange Commission
8. POWER HOMES UNLIMITED CORPORATION (Power Homes) vs. SECURITIES
AND EXCHANGE COMMISSION (SEC) AND NOEL MANERO

Doctrine:
Investment Contract
An investment contract is defined in the Amended Implementing Rules and Regulations
of R.A. No. 8799 as a “contract, transaction or scheme (collectively ‘contract’) whereby a
person invests his money in a common enterprise and is led to expect profits primarily
from the efforts of others.”

An investment contract that is a security under R.A. No. 8799 must be registered with
the Securities and Exchange Commission before its sale or offer for sale or distribution
to the public

Howey Test
Known as the Howey Test, it requires a transaction, contract, or scheme whereby a
person (1) makes an investment of money, (2) in a common enterprise, (3) with the
expectation of profits, (4) to be derived solely from the efforts of others.

Although the proponents must establish all four elements, the US Supreme Court
stressed that the Howey Test “embodies a flexible rather than a static principle, one that
is capable of adaptation to meet the countless and variable schemes devised by those
who seek the use of the money of others on the promise of profits.”

Facts:
Power Homes is a domestic corporation duly registered with public respondent SEC.
They are a marketing company that promotes and facilitates sales of real properties and
other related products of real estate developers through effective leverage marketing.

Power Homes’ business scheme is as follows:

An investor enrolls in petitioner’s 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.

Noel Manero (Noel) requested the SEC to investigate Petitioner’s business. He claimed
that he attended a seminar conducted by petitioner where the latter claimed to sell
properties that were inexistent and without any broker’s license. Romulo Munsayac also
inquired with SEC as to whether Power Homes business involved legitimate network
marketing.

Subsequently, the SEC found Power Homes 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 Republic Act (R.A.) No. 8799 (The Securities Regulation Code) but failed to
register them in violation of Sec. 8.1 of the same Act.

Hence, public respondent SEC issued a Cease and Desist Order (CDO) enjoining Power
Homes Unlimited Corporation’s (petitioner) officers, directors, agents, representatives
and any and all persons claiming and acting under their authority, from further engaging
in the sale, offer for sale or distribution of securities
CA affirmed the CDO issued by the SEC. MR was also denied.

Issue:
WON petitioner’s business constitutes an investment contract?

Ruling:
YES.

An investment contract is defined in the Amended Implementing Rules and Regulations

of R.A. No. 8799 as a “contract, transaction or scheme (collectively ‘contract’) whereby a
person invests his money in a common enterprise and is led to expect profits primarily
from the efforts of others.”

Howey Test
The Howey Test is used to determine whether a scheme is an investment contract,
which falls under the SRC:

Known as the Howey Test, it requires a transaction, contract, or scheme

whereby a person (1) makes an investment of money, (2) in a common
enterprise, (3) with the expectation of profits, (4) to be derived solely from the
efforts of others.

Another case held that a literal reading of the requirement “solely” would lead to
unrealistic results. It reasoned out that its flexible reading is in accord with the statutory
policy of affording broad protection to the public.

Our R.A. No. 8799 appears to follow this flexible concept for it defines an investment
contract as a contract, transaction or scheme (collectively “contract”) 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. Thus, to be a security subject to regulation by
the SEC, an investment contract in our jurisdiction must be proved to be: (1) an
investment of money, (2) in a common enterprise, (3) with expectation of profits,
(4) primarily from efforts of others.

Clearly, the trainings or seminars designed to enhance petitioner’s business of teaching

its investors the know-how of its multi-level marketing business. An investor enrolls
under the scheme of petitioner to be entitled to recruit other investors and to receive
commissions from the investments of those directly recruited by him. Under the
scheme, the accumulated amount received by the investor comes primarily from
the efforts of his recruits.

Hence, the business operation or the scheme of petitioner constitutes an investment

contract that is a security under R.A. No. 8799. Thus, it must be registered with public
respondent SEC before its sale or offer for sale or distribution to the public. As petitioner
failed to register the same, its offering to the public was rightfully enjoined by public
respondent SEC.