G.R. No. 125469 October 27, 1997PHILIPPINE STOCK EXCHANGE, INC.,petitioner,vs.THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.,respondents.TORRES, JR.,J.:The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the President,1with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the most important, is the supervision of all corporations, partnerships or associations, who are grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines.2Just how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.In this Petition for Review onCertiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of PALI's shares.The facts of the case are undisputed, and are hereby restated in sum.The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached.On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the PSE's Board of Governors the approval of PALI's listing application.On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALI's application to be deferred. PALI was requested to comment upon the said letter.PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments on the letters of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary Restraining Order 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." The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof.In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALI's application, citing the existence of serious claims, issues and circumstances surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock exchange.On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and institute such measures as are just and proper under the circumstances.On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an "inquiry" on the matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. The dispositive portion of the said order reads:WHEREFORE, premises considered, and invoking the Commissioner's authority and jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of Presidential Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investigating public.This Order shall take effect immediately.SO ORDERED.PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May 9, 1996 Order which states:WHEREFORE, premises considered, the Commission finds no compelling reason to reconsider its order dated April 24, 1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information.Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with Application for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC:I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING APPLICATION;III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION; ANDIV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION.On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE fled its Reply to Comment and Opposition to Motion to Dismiss.On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSE's Petition for Review. Hence, this Petition by the PSE.The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to Section 33of the Revised Securities Act in relation to Section 6(j) and 6(m)4of P.D. No. 902-A, and Section 38(b)5of the Revised Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondent's jurisdiction, regulation and control. Accepting the argument that the public respondent has the authority merely to supervise or regulate, would amount to serious consequences, considering that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If the securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment of stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the plenary authority over the petitioner; and the power of review necessarily comes within its authority.All in all, the court held that PALI complied with all the requirements for public listing, affirming the SEC's ruling to the effect that:. . . the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the following considerations:1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted differently on the application of PALI, as compared to the IPOs of other companies similarly situated that were allowed listing in the Exchange;3. It appears that the claims and issues on the title to PALI's properties were even less serious than the claims against the assets of the other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof;4. No action has been filed in any court of competent jurisdiction seeking to nullify PALI's ownership over the disputed properties, neither has the government instituted recovery proceedings against these properties. Yet the import of PSE's decision in denying PALI's application is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these properties before its shares can be listed.In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The point is, the PALI properties are now titled. A property losses its public character the moment it is covered by a title. As a matter of fact, the titles have long been settled by a final judgment; and the final decree having been registered, they can no longer be re-opened considering that the one year period has already passed. Lastly, the determination of what standard to apply in allowing PALI's application for listing, whether the discretion method or the system of public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it being the government agency that exercises both supervisory and regulatory authority over all corporations.On August 15, 19961 the PSE, after it was granted an extension, filed the instant Petition for Review onCertiorari, taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGG's Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGG's motion for leave to file petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On May 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. 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. Authorities are in abundance even in the United States, from which the country's security policies are patterned, to the effect of giving the Securities Commission less control over stock exchanges, which in turn are given more lee-way in making the decision whether or not to allow corporations to offer their stock to the public through 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. the said rule precludes the reversal of the decision of the PSE to deny PALI's listing application, absent a showing of bad faith on the part of the PSE. Under the listing rules 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 issuer's listing application if the PSE determines that the listing shall not serve the interests of the investing public.Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are under sequestration. A reading of Republic of thePhilippines vs.Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC). are under sequestration by the PCGG, and subject of forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the "law of the case" between the Republic and TDC and MSDC. It categorically declares that the assets of these corporations were sequestered by the PCGG on March 10, 1986 and April 4, 1988.It is, likewise, intimated that the Court of Appeals' sanction that PALI's ownership over its properties can no longer be questioned, since certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous and ignores well settled jurisprudence on land titles. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands or military reservations are non-alienable. Thus, when a title covers a forest reserve or a government reservation, such title is void.PSE, likewise, assails the SEC's and the Court of Appeals reliance on the alleged policy of "full disclosure" to uphold the listing of PALI's shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, PALI's documents supporting its application contained misrepresentations and misleading statements, and concealed material information. The matter of sequestration of PALI's properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALI's application.It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings of a corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSE's 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 necessarily. 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.Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges.6These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguard.Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC's 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 SEC's regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporation's concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state.The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange.7It is, likewise, observed that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities for the promotion of economic development.8Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the private respondent PALI. The SEC's action was affirmed by the Court of Appeals.We affirm that the 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 SEC's 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.9As the appellate court explains:Paramount policy also supports the authority of the public respondent to review petitioner's denial of the listing. Being a stock exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to government regulation.The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office.10This is not to say, however, that the PSE's management prerogatives are under the absolute control of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSE's 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 a body.11As 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.12Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's judgment is attended by bad faith. InBoard of Liquidators vs.Kalaw,13it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of fraud.In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which, in the general scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving objections to the application, the PSE heard from the representative of the late President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest of the general public. The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless ventures.14It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate business, thus:The Securities Act, often referred to as the "truth in securities" Act, was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities, but also to protect legitimate business seeking to obtain capital through honest presentation against competition from crooked promoters and to prevent fraud in the sale of securities. (Tenth Annual Report, U.S. Securities & Exchange Commission, p. 14).As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions, merely by requirement of that their details be revealed; (2) placing the market during the early stages of the offering of a security a body of information, which operating indirectly through investment services and expert investors, will tend to produce a more accurate appraisal of a security, . . . Thus, the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete or inaccurate in any material respect, and empower the Commission to issue a stop order suspending the effectiveness of any registration statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (Idem).Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. It was reasonable for the PSE, therefore, to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded.In this connection, it is proper to observe that the concept of government absolutism is a thing of the past, and should remain so.The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. At this juncture, there is the claim that the properties were owned by TDC and MSDC and were transferred in violation of sequestration orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that such properties belong to the Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the petitioner that these properties belong to naval and forest reserves, and therefore beyond private dominion. If any of these claims is established to be true, the certificates of title over the subject properties now held by PALI map be disregarded, as it is an established rule that a registration of a certificate of title does not confer ownership over the properties described therein to the person named as owner. The inscription in the registry, to be effective, must be made in good faith. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw.In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the properties' ownership and alienability exists, and this puts to question the qualification of PALI's public offering. In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporation entity, whose business judgments are respected in the absence of bad faith.The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the SEC is not for the Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In mandating the SEC to administer the Revised Securities Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and control over all corporations and over the securities market as a whole, and as such, is given ample authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it has adopted the policy of "full material disclosure" where all companies, listed or applying for listing, are required to divulge truthfully and accurately, all material information about themselves and the securities they sell, for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. In connection with this, a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities.15While the employment of this policy is recognized and sanctioned by the laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy.16Pertinently, Section 9 of the Revised Securities Act sets forth the possibleGrounds for the Rejectionof the registration of a security: The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; or(2) The issuer or registrant (i) is not solvent or not in sound financial condition;(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of the Commission;(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest and for the protection of investors, impose before the security can be registered;(iv) has been engaged or is engaged or is about to engage in fraudulent transaction;(v) is in any way dishonest or is not of good repute; or(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary to government rules and regulations.(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to be such officer, director or principal stockholder; or(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice of the public interest or as a fraud upon the purchasers or investors. (Emphasis Ours)A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the Securities and Exchange Commission. This measure was meant to protect the interests of the investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. As it is, the Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted by mere administrative issuance.In resume, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case.ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review onCertiorari. The Decisions of the Court of Appeals and the Securities and Exchange Commission dated July 27, 1996 and April 24, 1996 respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.SO ORDERED.

G.R. No. 190071 August 15, 2012UNION BANK OF THE PHILIPPINES,Petitioner,vs.MAUNLAD HOMES, INC. and all other persons or entities claiming rights under it,Respondents.VILLARAMA, JR.,*D E C I S I O NBRION,J.:Before the Court is the petition for review on certiorari1under Rule 45 of the Rules of Court filed by petitioner Union Bank of the Philippines (Union Bank), assailing the decision dated October 28, 20092of the Court of Appeals (CA) in CA-G.R. SP No. 107772.THE FACTSUnion Bank is the owner of a commercial complex located in Malolos, Bulacan, known as the Maunlad Shopping Mall.Sometime in August 2002, Union Bank, as seller, and respondent Maunlad Homes, Inc.(Maunlad Homes), as buyer, entered into a contract to sell3involving the Maunlad Shopping Mall. The contract set the purchase price atP151 million,P2.4 million of which was to be paid by Maunlad Homes as down payment payable on or before July 5, 2002, with the balance to be amortized over the succeeding 180-month period.4Under the contract, Union Bank authorized Maunlad Homes to take possession of the property and to build or introduce improvements thereon. The parties also agreed that if Maunlad Homes violates any of the provisions of the contract, all payments made will be applied as rentals for the use and possession of the property, and all improvements introduced on the land will accrue in favor of Union Bank.5In the event of rescission due to failure to pay or to comply with the terms of the contract, Maunlad Homes will be required to immediately vacate the property and must voluntarily turn possession over to Union Bank.6When Maunlad Homes failed to pay the monthly amortization, Union Bank sent the former a Notice of Rescission of Contract7dated February 5, 2003, demanding payment of the installments due within 30 days from receipt; otherwise, it shall consider the contract automatically rescinded. Maunlad Homes failed to comply. Hence, on November 19, 2003, Union Bank sent Maunlad Homes a letter demanding payment of the rentals due and requiring that the subject property be vacated and its possession turned over to the bank. When Maunlad Homes continued to refuse, Union Bank instituted an ejectment suit before the Metropolitan Trial Court (MeTC) of Makati City, Branch 64, on February 19, 2004. Maunlad Homes resisted the suit by claiming, among others, that it is the owner of the property as Union Bank did not reserve ownership of the property under the terms of the contract.8By virtue of its ownership, Maunlad Homes claimed that it has the right to possess the property.On May 18, 2005, the MeTC dismissed Union Banks ejectment complaint.9It found that Union Banks cause of action was based on a breach of contract and that both parties are claiming a better right to possess the property based on their respective claims of ownership of the property.The MeTC ruled that the appropriate action to resolve these conflicting claims was an accion reivindicatoria, over which it had no jurisdiction.On appeal, the Regional Trial Court (RTC) of Makati City, Branch 139, affirmed the MeTC in its decision dated July 17, 2008;10it agreed with the MeTC that the issues raised in the complaint extend beyond those commonly involved in an unlawful detainer suit. The RTC declared that the case involved a determination of the rights of the parties under the contract. Additionally, the RTC noted that the property is located in Malolos, Bulacan, but the ejectment suit was filed by Union Bank in Makati City, based on the contract stipulation that "the venue of all suits and actions arising out or in connection with the Contract to Sell shall be in Makati City."11The RTC ruled that the proper venue for the ejectment action is in Malolos, Bulacan, pursuant to the second paragraph of Section 1, Rule 4 of the Rules of Court, which states:Section 1.Venue of real actions.- Actions affecting title to or possession of real property, or interest therein, shall be commenced and tried in the proper court which has jurisdiction over the area wherein the real property involved, or a portion thereof, is situated.Forcible entry and detainer actions shall be commenced and tried in the municipal trial court of the municipality or city wherein the real property involved, or a portion thereof, is situated. [emphasis ours]The RTC declared that Union Bank cannot rely on the waiver of venue provision in the contract because ejectment is not an action arising out of or connected with the contract.Union Bank appealed the RTC decision to the CA through a petition for review under Rule 42 of the Rules of Court. The CA affirmed the RTC decision in its October 28, 2009 decision,12ruling that Union Banks claim of possession is based on its claim of ownership which in turn is based on its interpretation of the terms and conditions of the contract, particularly, the provision on the consequences of Maunlad Homes breach of contract. The CA determined that Union Banks cause of action is premised on the interpretation and enforcement of the contract and the determination of the validity of the rescission, both of which are matters beyond the jurisdiction of the MeTC. Therefore, it ruled that the dismissal of the ejectment suit was proper. The CA, however, made no further ruling on the issue of venue of the action.From the CAs judgment, Union Bank appealed to the Court by filing the present petition for review oncertiorariunder Rule 45 of the Rules of Court.THE PARTIES ARGUMENTSUnion Bank disagreed with the CAs finding that it is claiming ownership over the property through the ejectment action. It claimed that it never lost ownership over the property despite the execution of the contract, since only the right to possess was conceded to Maunlad Homes under the contract; Union Bank never transferred ownership of the property to Maunlad Homes. Because of Maunlad Homes failure to comply with the terms of the contract, Union Bank believes that it rightfully rescinded the sale, which rescission terminated Maunlad Homes right to possess the subject property. Since Maunlad Homes failed to turn over the possession of the subject property, Union Bank believes that it correctly instituted the ejectment suit.The Court initially denied Union Banks petition in its Resolution dated March 17, 2010.13Upon motion for reconsideration filed by Union Bank, the Court set aside its Resolution of March 17, 2010 (in a Resolution dated May 30, 201114) and required Maunlad Homes to comment on the petition.Maunlad Homes contested Union Banks arguments, invoking the rulings of the lower courts. It considered Union Banks action as based on the propriety of the rescission of the contract, which, in turn, is based on a determination of whether Maunlad Homes indeed failed to comply with the terms of the contract; the propriety of the rescission, however, is a question that is within the RTCs jurisdiction. Hence, Maunlad Homes contended that the dismissal of the ejectment action was proper.THE COURTS RULINGWe find the petition meritorious.The authority of the MeTC tointerpret contracts in an unlawfuldetainer actionIn any case involving the question of jurisdiction, the Court is guided by the settled doctrine thatthe jurisdiction of a court is determined by the nature of the action pleaded by the litigant through the allegations in his complaint.15Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds possession after the expiration or termination of his right to hold possession under any contract, express or implied. The possession of the defendant in unlawful detainer is originally legal but became illegal due to expiration or termination of the right to possess.16Under Section 1, Rule 70 of the Rules of Court, the action must be filed "within one (1) year after the unlawful deprivation or withholding of possession." Thus, to fall within the jurisdiction of the MeTC, the complaint must allege that 1. the defendant originally had lawful possession of the property, either by virtue of a contract or by tolerance of the plaintiff; 2. eventually, the defendants possession of the property becameillegal or unlawful upon notice by the plaintiff to defendant of the expiration or the termination of the defendants right of possession;3. thereafter, the defendant remained in possession of the property and deprived the plaintiff the enjoyment thereof; and4. within one year from the unlawful deprivation or withholding of possession, the plaintiff instituted the complaint for ejectment.17Contrary to the findings of the lower courts, all four requirements were alleged in Union Banks Complaint. Union Bank alleged that Maunlad Homes "maintained possession of the subject properties" pursuant to the Contract to Sell.18Maunlad Homes, however, "failed to faithfully comply with the terms of payment," prompting Union Bank to "rescind the Contract to Sell in a Notice of Rescission dated February 5, 2003."19When Maunlad Homes "refused to turn over and vacate the subject premises,"20Union Bank sent another Demand Letter on November 19, 2003 to Maunlad Homes requiring it (1) "[t]o pay the equivalent rentals-in-arrears as of October 2003 in the amount ofP15,554,777.01 and monthly thereafter until the premises are fully vacated and turned over" to Union Bank, and (2) to vacate the property peacefully and turn over possession to Union Bank.21As the demand went unheeded, Union Bank instituted an action for unlawful detainer before the MeTC on February 19, 2004, within one year from the date of the last demand. These allegations clearly demonstrate a cause of action for unlawful detainer and vested the MeTC jurisdiction over Union Banks action.Maunlad Homes denied Union Banks claim that its possession of the property had become unlawful. It argued that its failure to make payments did not terminate its right to possess the property because it already acquired ownership when Union Bank failed to reserve ownership of the property under the contract. Despite Maunlad Homes claim of ownership of the property, the Court rules that the MeTC retained its jurisdiction over the action; a defendant may not divest the MeTC of its jurisdiction by merely claiming ownership of the property.22Under Section 16, Rule 70 of the Rules of Court, "when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession." Section 18, Rule 70 of the Rules of Court, however, states that "the judgment x x x shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building."The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine the issue of possession ultimately allows it to interpret and enforce the contract or agreement between the plaintiff and the defendant. To deny the MeTC jurisdiction over a complaint merely because the issue of possession requires the interpretation of a contract will effectively rule out unlawful detainer as a remedy. As stated, in an action for unlawful detainer, the defendants right to possess the property may be by virtue of a contract, express or implied; corollarily, the termination of the defendants right to possess would be governed by the terms of the same contract. Interpretation of the contract between the plaintiff and the defendant is inevitable because it is the contract that initially granted the defendant the right to possess the property; it is this same contract that the plaintiff subsequently claims was violated or extinguished, terminating the defendants right to possess. We ruled inSps. Refugia v. CA23that where the resolution of the issue of possession hinges on a determination of the validity and interpretation of the document of title or any other contract on which the claim of possession is premised, the inferior court may likewise pass upon these issues.The MeTCs ruling on the rights of the parties based on its interpretation of their contract is, of course, not conclusive, but is merely provisional and is binding only with respect to the issue of possession.Thus, despite the CAs opinion that Union Banks "case involves a determination of the rights of the parties under the Contract to Sell,"24it is not precluded from resolving this issue. Having acquired jurisdiction over Union Banks action, the MeTC can resolve the conflicting claims of the parties based on the facts presented and proved.The right to possess the property wasextinguished when the contract tosell failed to materializeMaunlad Homes acquired possession of the property based on its contract with Union Bank. While admitting that it suspended payment of the installments,25Maunlad Homes contended that the suspension of payment did not affect its right to possess the property because its contract with Union Bank was one of sale and not to sell; hence, ownership of theproperty has been transferred to it, allowing it to retain possession notwithstanding nonpayment of installments. The terms of the contract, however, do not support this conclusion.Section 11 of the contract between Union Bank and Maunlad Homes provides that "upon payment in full of the Purchase Price of the Property x x x, the SELLER shall execute and deliver a Deed of Absolute Sale conveying the Property to the BUYER."26"Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell."27The presence of this provision generally identifies the contract as being a mere contract to sell.28After reviewing the terms of the contract between Union Bank and Maunlad Homes, we find no reasonable ground to exempt the present case from the general rule; the contract between Union Bank and Maunlad Homes is a contract to sell.In a contract to sell, the full payment of the purchase price is a positive suspensive condition whose non-fulfillment is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. "The non-payment of the purchase price renders the contract to sell ineffective and without force and effect."29Maunlad Homes act of withholding the installment payments rendered the contract ineffective and without force and effect, and ultimately deprived itself of the right to continue possessing Maunlad Shopping Mall.The propriety of filing the unlawfuldetainer action in Makati Citypursuant to the venue stipulation inthe contractMaunlad Homes questioned the venue of Union Banks unlawful detainer action which was filed in Makati City while the contested property is located in Malolos, Bulacan. Citing Section 1, Rule 4 of the Rules of Court, Maunlad Homes claimed that the unlawful detainer action should have been filed with the municipal trial court of the municipality or city where the real property involved is situated. Union Bank, on the other hand, justified the filing of the complaint with the MeTC of Makati City on the venue stipulation in the contract which states that "the venue of all suits and actions arising out of or in connection with this Contract to Sell shall be at Makati City."30While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be filed in "the municipal trial court of the municipality or city wherein the real property involved x x x is situated," Section 4 of the same Rule provides that the rule shall not apply "where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof." Precisely, in this case, the parties provided for a different venue. In Villanueva v. Judge Mosqueda, etc., et al.,31the Court upheld the validity of a stipulation in a contract providing for a venue for ejectment actions other than that stated in the Rules of Court. Since the unlawful detainer action is connected with the contract, Union Bank rightfully filed the complaint with the MeTC of Makati City.WHEREFORE, we herebyGRANTthe petition andSET ASIDEthe decision dated October 28, 2009 of the Court of Appeals in CA-G.R. SP No. 107772. Respondent Maunlad Homes, Inc. isORDERED TO VACATEthe Maunlad Shopping Mall, the property subject of the case, immediately upon the finality of this Decision. Respondent Maunlad Homes, Inc. is furtherORDERED TO PAYthe rentals-in-arrears, as well as rentals accruing in the interim until it vacates the property.The case isREMANDEDto the Metropolitan Trial Court of Makati City, Branch 64, to determine the amount of rentals due. In addition to the amount determined as unpaid rent, respondent Maunlad Homes, Inc. isORDERED TO PAYlegal interest of six percent (6o/o) per annum, from November 19, 2003, when the demand to pay and to vacate was made, up to the finality of this Decision. Thereafter, an interest of twelve percent ( 12%) per annum shall be imposed on the total amount due until full payment is made.SO ORDERED.

G.R. No. 86738 November 13, 1991NESTLE PHILIPPINES, INC.,petitioner,vs.COURT OF APPEALS and SECURITIES AND EXCHANGE COMMISSION,respondents.Nepomuceno, Hofilena & Guingona for petitioner.FELICIANO,J.:pSometime in February 1983, the authorized capital stock of petitioner Nestle Philippines Inc. ("Nestle") was increased from P300 million divided into 3 million shares with a par value of P100.00 per share, to P600 million divided into 6 million shares with a par value of P100.00 per share. Nestle underwent the necessary procedures involving Board and stockholders approvals and effected the necessary filings to secure the approval of the increase of authorized capital stock by respondent Securities and Exchange Commission ("SEC"), which approval was in fact granted. Nestle also paid to the SEC the amount of P50,000.00 as filing fee in accordance with the Schedule of Fees and Charges being implemented by the SEC under the Corporation Code.1Nestle has only two (2) principal stockholders: San Miguel Corporation and Nestle S.A. The other stockholders, who are individual natural persons, own only one (1) share each, for qualifying purposes,i.e., to qualify them as members of the Board of Directors being elected thereto on the strength of the votes of one or the other principal shareholder.On 16 December 1983, the Board of Directors and stockholders of Nestle approved resolutions authorizing the issuance of 344,500 shares out of the previously authorized but unissued capital stock of Nestle, exclusively to San Miguel Corporation and to Nestle S.A. San Miguel Corporation subscribed to and completely paid up 168,800 shares, while Nestle S.A. subscribed to and paid up the balance of 175,700 shares of stock.On 28 March 1985, petitioner Nestle filed a letter signed by its Corporate Secretary, M.L. Antonio, with the SEC seeking exemption of its proposed issuance of additional shares to its existing principal shareholders, from the registration requirement of Section 4 of the Revised Securities Act and from payment of the fee referred to in Section 6(c) of the same Act. In that letter, Nestle requested confirmation of the correctness of two (2) propositions submitted by it:1. That there is no need to file a petition for exemption under Section 6(b) of the Revised Securities Act with respect to the issuance of the said 344,600 additional shares to our existing stockholders out of our unissued capital stock; and2. That the fee provided in Section 6(c) of [the Revised Securities] Act is not applicable to the said issuance of additional shares.2The principal, indeed the only, argument presented by Nestlewas that Section 6(a) (4) of the Revised Securities Act which provides as follows:Sec. 6. Exempt transactions. a)The requirement of registrationunder subsection (a) of Section four of this Actshall not apply to the sale of any security in any of the following transactions:xxx xxx xxx(4) The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus; or the issuance of securities to the security holder or other creditors of a corporation in the process of a bona fide reorganization of such corporation made in good faith and not for the purpose of avoiding the provisions of this Act, either in exchange for the securities of such security holders or claims of such creditors or partly for cash and partly in exchange for the securities or claims of such security holders or creditors;or the issuance of additional capital stock of a corporation sold or distributed by it among its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock.(Emphasis supplied)embraces "not only an increase in the authorized capital stock but also the issuance of additional shares to existing stockholders of the unissued portion of the unissued capital stock".3Nestle urged that interpretation upon the following argument.The use of the term"increased capital stock" should be interpreted to refertoadditional capital stockor equity participation of the existing stockholdersas a consequence of either an increase of the authorized capital stock or the issuance of unissued capital stock.If the intention of the pertinent legal provision [were] to limit the exemption to subscription to proposed increases in the authorized capital stock of a corporation,we see no reason why the law should not have been more specific or accurate about it. Itcertainlyshould have mentioned "increase in the authorized capital stock of the corporation" rather than merely the expression "the issuance of additional capital stock4(Emphasis supplied)Nestle expressly represented in the same letter that all the additional shares proposed to be issued would be issued only to San Miguel Corporation and Nestle S.A. and that no commission or other form of remuneration had been given, directly or indirectly, in connection with the issuance or distribution of such additional shares of stock.In respect of its claimed exemption from the fee provided for in Section 6(c) of the Revised Securities Act, Nestle contended that since Section 6 (a) (4) of the statute declares (in Nestle's view) the proposed issuance of 344,500 previously authorized but unissued shares of Nestle's capital stock to its existing shareholders as an exempt transaction, the SEC could not collect fees for "the same transaction" twice. Nestle adverted to its payment back in 21 February 1983 of the amount of P50,000.00 as filing fees to the SEC when it applied for and eventually received approval of the increase of its authorized capital stock effected by Board and shareholder action last 16 December 1983.In a letter dated 26 June 1986, the SEC through its then Chairman Julio A. Sulit, Jr. responded adversely to petitioner's requests and ruled that the proposed issuance of shares did not fall under Section 6 (a) (4) of the Revised Securities Act, since Section 6 (a) (4) is applicable only where there is an increase in the authorized capital stock of a corporation. Chairman Sulit held, however, that the proposed transaction could be considered by the Commission under the provisions of Section 6 (b) of the Revised Securities Act which reads as follows:(b) The Commission may, from time to time and subject to such terms and conditions as it may prescribe, exempt transactions other than those provided in the preceding paragraph, if it finds that the enforcement of the requirements of registration under this Act with respect to such transactions is not necessary in the public interest and for the protection of the investors by reason of the small amount involved or the limited character of the public offering.The Commission then advised petitioner to file the appropriate request for exemption and to pay the fee required under Section 6 (c) of the statute, which provides:(c) A fee equivalent to one-tenth of one per centum of the maximum aggregate price or issued value of the securities shall be collected by the Commission for granting a general or particular exemption from the registration requirements of this Act.Petitioner moved for reconsideration of the SEC ruling, without success.On 3 July 1987, petitioner sought review of the SEC ruling before this Court which, however, referred the petition to the Court of Appeals.In a decision dated 13 January 1989, the Court of Appeals sustained the ruling of the SEC.Dissatisfied with the Decision of the Court of Appeals, Nestle is now before this Court on a Petition for Review, raising the very same issues that it had raised before the SEC and the Court of Appeals.Examining the words actually used in Section 6 (a) (4) of the Revised Securities Act, and bearing in mind common corporate usage in this jurisdiction, it will be seen that the statutory phrase "issuance of additional capital stock" is indeed infected with a certain degree of ambiguity. This phrase may refer either to: a) the issuance of capital stock as part of and in the course of increasing the authorized capital stock of a corporation; or (b) issuance of already authorized but still unissued capital stock. By the same token, the phrase "increased capital stock" found at the end of Section 6 (a) (4), may refer either: 1) to newly or contemporaneously authorized capital stock issued in the course of increasing the authorized capital stock of a corporation; or 2) to previously authorized but unissued capital stock.Under Section 38 of the Corporation Code, a corporation engaged in increasing its authorized capital stock, with the required vote of its Board of Directors and of its stockholders, must file a sworn statement of the treasurer of the corporation showing that at least twenty-five percent (25%) of "such increased capital stock" has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid either in actual cash or in property transferred to the corporation. In other words, the corporation must issue at least twenty-five percent (25%) of the newly or contemporaneously authorized capital stock in the course of complying with the requirements of the Corporation Code for increasing its authorized capital stock.In contrast, after approval by the SEC of the increase of its authorized capital stock, and from time to time thereafter, the corporation, by a vote of its Board of Directors, and without need of either stockholder or SEC approval, may issue and sell shares of its already authorized but still unissued capital stock to existing shareholders or to members of the general public.5Both the SEC and the Court of Appeals resolved the ambiguity by construing Section 6 (a) (4) as referringonlyto the issuance of shares of stock as part of and in the course of increasing the authorized capital stock of Nestle. In the case at bar, since the 344,500 shares of Nestle capital stock are proposed to be issued from already authorized but still unissued capital stock and since the present authorized capital stock of 6,000,000 shares with a par value of P100.00 per share isnotproposed to be further increased, the SEC and the Court of Appeals rejected Nestle's petition.We believe and so hold that the construction thus given by the SEC and the Court of Appeals to Section 6 (a) (4) of the Revised Securities Act must be upheld.In the first place, it is a principle too well established to require extensive documentation that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great respect and should be accorded great weight by the courts, unless such construction is clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws. As long ago as 1903, this Court said inIn re Allen6that[t]he principle that the contemporaneous construction of a statute by the executive officers of the government, whose duty is to execute it, is entitled to great respect, and should ordinarily control the construction of the statute by the courts, is so firmly embedded in our jurisdiction that no authorities need be cited to support it.7The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute.8InAsturias Sugar Central, Inc. v. Commissioner of Customs9the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to contemporaneous construction because of the respect due the government agency or officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret.10In the second place, and more importantly, consideration of the underlying statutory purpose of Section 6(a) (4) compels us to sustain the view taken by the SEC and the Court of Appeals. The reading by the SEC of the scope of application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation. By limiting the class of exempt transactions contemplated by the last clause of Section 6(a) (4) to issuances of stock done in the course of and as part of the process of increasing the authorized capital stock of a corporation, the SEC is enabled to examine issuances by a corporation of previously authorized but theretofore unissued capital stock, on a case-to-case basis, under Section 6(b); and thereunder, to grant or withhold exemption from the normal registration requirements depending upon the perceived level of need for protection by the investing public in particular cases.When capital stock is issued in the course of and in compliance with the requirements of increasing its authorized capital stock under Section 38 of the Corporation Code, the SEC as a matter of course examines the financial condition of the corporation, and hence there is no real need for exercise of SEC authority under the Revised Securities Act. Thus, one of the multiple documentation requirements under the current regulations of the SEC in respect of filing a certificate of increase of authorized capital stock, is submission of"a financial statement duly certified by an independent Certified Public Accountant(CPA)as of the latest date possible or as of the date of the meeting when stockholders approved the increase/decrease in capital stockor thereabouts.11When all or part of the newly authorized capital stock is proposed to be issued as stock dividends, the SEC requirements are even more exacting; they require, in addition to the regular audited financial statements, the submission by the corporation of a "detailed or Long Form Report of the certifying Auditor." Moreover, since approval of an increase in authorized capital stock by the stockholders holding two-thirds (2/3) of the outstanding capital stock is required by Section 38 of the Corporation Code, at a stockholders meeting held for that purpose, the directors and officers of the corporation may be expected to take pains to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital sought to be raised.Upon the other hand, as already noted, issuance of previously authorized but theretofore unissued capital stock by the corporation requires only Board of Directors approval. Neither notice to nor approval by the shareholders or the SEC is required for such issuance. There would, accordingly, under the view taken by petitioner Nestle, no opportunity for the SEC to see to it that shareholders (especially the small stockholders) have a reasonable opportunity to inform themselves about the very fact of such issuance and about the condition of the corporation and the potential value of the shares of stock being offered.Under the reading urged by petitioner Nestle of the reach and scope of the third clause of Section 6(a) (4), the issuance of previously authorized but unissued capital stock wouldautomaticallyconstitute an exempt transaction,without regardto the length of time which may have intervened between the last increase in authorized capital stock and the proposed issuance during which time the condition of the corporation may have substantially changed, andwithout regardto whether the existing stockholders to whom the shares are proposed to be issued are only two giant corporations as in the instant case, or are individuals numbering in the hundreds or thousands.In contrast, under the ruling issued by the SEC, an issuance of previously authorized but still unissued capital stock may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration under the Revised Securities Act are "not necessary in the public interest and for the protection of the investors" by reason,inter alia,of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves. In fine, petitioner Nestle's proposed construction of Section 6(a) (4) would establish an inflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed.Petitioner Nestle's second claim for exemption is from payment of the fee provided for in Section 6 (c) of the Revised Securities Act, a claim based upon petitioner's contention that Section 6 (a) (4) coversbothissuance of stock in the course of complying with the statutory requirements of increase of authorized capital stock and issuance of previously authorized and unissued capital stock. Petitioner claims that to require it now to pay one-tenth of one percent (1%) of the issued value of the 344,500 shares of stock proposed to be issued, is to require it to pay a second time for the same service on the part of the SEC. Since we have above rejected petitioner's reading of Section 6 (a) (4), last clause, petitioner's claim about the additional fee of one-tenth of one percent (1%) of the issue value of the proposed issuance of stock (amounting to P34,450 plus P344.50 for other fees or a total of P37,794.50) need not detain us for long. We think it clear that the fee collected in 21 February 1983 by the SEC was assessed in connection with the examination and approval of the certificate of increase of authorized capital stock then submitted by petitioner. The fee, upon the other hand, provided for in Section 6 (c) which petitioner will be required to pay if it does file an application for exemption under Section 6 (b), is quite different; this is a fee specifically authorized by the Revised Securities Act, (not the Corporation Code) in connection with the grant of an exemption from normal registration requirements imposed by that Act. We do not find such fee either unreasonable or exorbitant.WHEREFORE, for all the foregoing, the Petition for Review on Certiorariis hereby DENIED for lack of merit and the Decision of the Court of Appeals dated 13 January 1989 in C.A.-G.R. No. SP-13522, is hereby AFFIRMED. Costs against petitioner.SO ORDERED.

G.R. No. 90707 February 1, 1993ONAPAL PHILIPPINES COMMODITIES, INC.,petitioner,vs.THE HONORABLE COURT OF APPEALS and SUSAN CHUA,respondents.Zosa & Quijano Law Offices for private respondents.CAMPOS, JR.,J.:This is an appeal by way of a Petition forCertiorariunder Rule 45 of the Rules of Court to annul and set aside the following actions of the Court of Appeals:a) Decision*in Case CA-G.R. CV No. 08924; andb) Resolution**denying a Motion for Reconsiderationon the ground of grave abuse of discretion amounting to lack or excess of jurisdiction and further ground that the decision is contrary to law and evidence. The questioned decision upheld the trial court's findings that the Trading Contract1on "futures" is a specie of gambling and therefore null and void. Accordingly, the petitioner (as defendant in lower court) was ordered to refund to the private respondent (as plaintiff) the losses incurred in the trading transactions.In support of the petition, the grounds alleged are:1) Article 2018 of the New Civil Code is inapplicable to the factual milieu of the instant case considering that in a commodity futures transaction the broker is not the direct participant and cannot be considered as winner or loser and the contract itself, from its very nature, cannot be considered as gambling.2) A commodity futures contract, being a specie of securities, is valid and enforceable as its terms are governed by special laws, notably the Revised Securities Act and the Revised Rules and Regulations on Commodity Futures Trading issued by the Securities and Exchange Commission (SEC) and approved by the Monetary Board of the Central Bank; hence, the Civil Code is not the controlling piece of legislation.From the records, We gather the following antecedent facts and proceedings.The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized and existing corporation, was licensed as commission merchant/broker by the SEC, to engage in commodity futures trading in Cebu City under Certificate of Registration No. CEB-182. On April 27, 1983, petitioner and private respondent concluded a "Trading Contract". Like all customers of the petitioner, private respondent was furnished regularly with "Commodities Daily Quotations" showing daily movements of prices of commodity futures traded and of market reports indicating the volume of trade in different future exchanges in Hongkong, Tokyo and other centers. Every time a customer enters into a trading transaction with petitioner as broker, the trading order is communicated by telex to its principal, Frankwell Enterprises of Hongkong. If the transaction, either buying or selling commodity futures, is consummated by the principal, the petitioner issues a document known as "Confirmation of Contract and Balance Sheet" to the customer. An order of a customer of the petitioner is supposed to be transmitted from Cebu to petitioner's office in Manila. From Manila, it should be forwarded to Hongkong and from there, transmitted to the Commodity Futures Exchange in Japan.There were only two parties involved as far as the transactions covered by the Trading Contract are concerned the petitioner and the private respondents. We quote hereunder the respondent Court's detailed findings of the transactions between the parties:It appears from plaintiff's testimony that sometime in April of 1983, she was invited by defendant's Account Executive Elizabeth Diaz to invest in the commodity futures trading by depositing the amount of P500,000.00 (Exh. "A"); She was further told that the business is "profitable" and that she could withdraw her money anytime; she was furthermore instructed to go to the Onapal Office where she met the Manager, Mr. Ciam, and the Account Executive Elizabeth Diaz who told her that they would take care of how to trade business and her account. She was then made to sign the Trading Contract and other documents without making her aware/understand the risks involved; that at the time they let her sign "those papers" they were telling her that those papers were for "formality sake"; that when she was told later on that she made a profit of P20,480.00 in a span of three days in the first transaction, they told her that the business is "very profitable" (tsn, Francisco, March 14, 1985, p. 11).On June 2, 1983, plaintiff was informed by Miss Diaz that she had to deposit an additional amount of P300,000.00 "to pay the difference" in prices, otherwise she will lose her original deposit of P500,000.00; Fearing the loss of her original deposit, plaintiff was constrained to deposit an additional amount of P300,000.00 (Exh. "B"); Since she was made to understand that she could withdraw her deposit/investment anytime, she not knowing how the business is operated/managed as she was not made to understand what the business was all about, she wanted to withdraw her investment; but Elizabeth Diaz, defendant's Account Executive, told her she could not get out because there are some accounts hanging on the transactions.Plaintiff further testified that she understood the transaction of buying and selling as speculating in prices, and her paying the difference between gains and losses without actual delivery of the goods to be gambling, and she would like to withdraw from this kind of business, the risk of which she was not made aware of. Plaintiff further testified that she stopped trading in commodity futures in September, 1983 when she realized she was engaged in gambling. She was able to get only P470,000.00 out of her total deposit of P800,000.00. In order to recover the loss of P330,000.00, she filed this case and engaged the services of counsel for P40,000.00 and expects to incur expenses of litigation in the sum of P20,000.00."2A commodity futures contract is a specie of securities included in the broad definition of what constitutes securities under Section 2 of the Revised Securities Act.3Sec. 2 . . .:(a) Securities shall include bonds, . . ., commodity futures contracts, . . . .The Revised Rules and Regulations on Commodity Futures Trading issued by the SEC and approved by the Monetary Board of the Central bank defines such contracts as follows:"Commodity Futures Contract" shall refer to an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange.The petitioner is a duly licensed commodity futures broker as defined under the Revised Rules and Regulations on Commodity Futures Trading as follows:"Futures Commission Merchant/Broker" shall refer to a corporation or partnership, which must be registered and licensed as a Futures Commission Merchant/Broker and is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of the contract market and that, in connection with such solicitation or acceptance of orders, accepts any money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom.At the time private respondent entered into the transaction with the petitioner, she signed a document denominated as "Trading Contract" in printed form as prepared by the petitioner represented by its Branch Manager, Albert Chiam, incorporating the Rules for Commodity Trading. A copy of said contract was furnished to the private respondent but the contents thereof were not explained to the former, beyond what was told her by the petitioner's Account Executive Elizabeth Diaz. Private respondent was also told that the petitioner's principal was Frankwell Enterprises with offices in Hongkong but the private respondent's money which was supposed to have been transmitted to Hongkong, was kept by petitioner in a separate account in a local bank.Petitioner now contends that commodity futures trading is a legitimate business practiced in the United States, recognized by the SEC and permitted under the Civil Code, specifically Article 1462 thereof, quoted as follows:The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods".There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen.Petitioner further argues that the SEC, in the exercise of its powers, authorized the operation of commodity exchanges to supervise and regulate commodity futures trading.4The contract between the parties falls under the kind commonly called "futures". In the late 1880's, trading in futures became rampant in the purchase and sale of cotton and grain in the United States, giving rise to unregulated trading exchanges known as "bucket shops". These were common in Chicago and New York City where cotton from the South and grain from the Mid-west were constantly traded in. The name of the party to whom the seller was to make delivery when the future contract of sale was closed or from whom he was to receive delivery in case of purchase is not given the memorandum (contract). The business dealings between the parties were terminated by the closing of the transaction of purchase and sale of commodities without directions of the buyer because his margins were exhausted.5Under the rules of the trading exchanges, weekly settlements were required if there was any difference in the prices of the cotton between those obtaining at the time of the contract and at the date of delivery so that under the contract made by the purchaser, if the price of cotton had advanced, he would have received in cash from the seller each week the advance (increase) in price and if cotton prices declined, the purchaser had to make like payments to the seller. In the terminology of the exchange, these payments are called "margins".6Either the seller or the buyer may elect to make or demand delivery of the cotton agreed to be sold and bought, but in general, it seems practically a uniform custom that settlements are made by payments and receipts of difference in prices at the time of delivery from that prevailing at the time of payment of the past weekly "margins". These settlements are made by "closing out" the contracts.7Where the broker represented the buyer in buying and selling cotton for future delivery with himself extending credit margins, and some of the transactions were closed at a profit while the others at a loss, payments being made of the difference in prices arising out of their rise or fall above or below the contract price, and the facts showed that no actual delivery of cotton was contemplated, such contracts are of the kind commonly called "futures".8Making contracts for the purchase and sale of commodities for future delivery, the parties not intending an actual delivery, or contracts of the kind commonly called futures, are unenforceable.9The term "futures" has grown out of those purely speculative transactions in which there are nominal contracts to sell for future delivery, but where in fact no delivery is intended or executed. The nominal seller does not have or expect to have a stock of merchandise he purports to sell nor does the nominal buyer expect to receive it or to pay for the price. Instead of that, a percentage or margin is paid, which is increased or diminished as the market rates go up and down, and accounted for to the buyer. This is simple speculation, gambling or wagering on prices within a given time; it is not buying and selling and is illegal as against public policy.10The facts as disclosed by the evidence on record show that private respondent made arrangements with Elizabeth Diaz, Account Executive of petitioner for her to see Mr. Albert Chiam, petitioner's Branch Manager. The contract signed by private respondent purports to be for the delivery of goods with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner. We quote with approval the following findings of the trial court as cited in the Court of Appeals decision:The evidence of the plaintiff tend to show that in her transactions with the defendant, the parties never intended to make or accept delivery of any particular commodity but the parties merely made a speculation on the rise or fall in the market of the contract price of the commodity, subject of the transaction, on the pretended date of delivery so that if the forecast was correct, one party would make a profit, but if the forecast was wrong, one party would lose money. Under this scheme, plaintiff was only able to recover P470,000.00 out of her original and "additional" deposit of P800,000.00 with the defendant.The defendant admits that in all the transactions that it had with the plaintiff, there was (sic) no actual deliveries and that it has made no arrangement with the Central Bank for the remittance of its customer's money abroad but defendant contends in its defense that the mere fact that there were no actual deliveries made in the transactions which plaintiff had with the defendant, did not mean that no such actual deliveries were intended by the parties since paragraph 10 of the rules for commodity trading, attached to the trading contract which plaintiff signed before she traded with the defendant, amply provides for actual delivery of the commodity subject of the transaction.The court has, therefore, to find out from all the facts and circumstances of this case, whether the parties really intended to make or accept deliveries of the commodities traded or whether the defendant merely placed a provision for delivery in its rules for commodity futures trading so as to escape from being called a bucket shop, . . .xxx xxx xxx. . . the court is convinced that the parties never really intended to make or accept delivery of any commodity being trade as, in fact, the unrebutted testimony of Mr. Go is to the effect that all the defendant's customers were mere speculators who merely forecast the rise or fall in the market of the commodity, subject of the transaction, below or above the contract price on the pretended date of delivery and, in fact, the defendant even discourages its customers from taking or accepting delivery of any commodity by making it hard, if not impossible, for them to make or accept delivery of any commodity. Proof of this is paragraph 10(d) of defendant's rules for commodity trading which provides that the customer shall apply for the necessary licenses and documents with the proper government agency for the importation and exportation of any particular commodity.11The trading contract signed by private respondent and Albert Chiam, representing petitioner, is a contract for the sale of products for future delivery, in which either seller or buyer may elect to make or demand delivery of goods agreed to be bought and sold, but where no such delivery is actually made. By delivery is meant the act by which theresor subject is placed in the actual or constructive possession or control of another. It may be actual as when physical possession is given to the vendee or his representative; or constructive which takes place without actual transfer of goods, but includes symbolic delivery or substituted delivery as when the evidence of title to the goods, the key to the warehouse or bill of lading/warehouse receipt is delivered.12As a contract in printed form, prepared by petitioner and served on private respondent, for the latter's signature, the trading contract bears all the indicia of a valid trading contract because it complies with the Rules and Regulations on Commodity Futures Trading as prescribed by the SEC. But when the transaction which was carried out to implement the written contract deviates from the true import of the agreement as when no such delivery, actual or constructive, of the commodity or goods is made, and final settlement is made by payment and receipt of only the difference in prices at the time of delivery from that prevailing at the time the sale is made, the dealings in futures become mere speculative contracts in which the parties merely gamble on the rise or fall in prices. A contract for the sale or purchase of goods/commodity to be delivered at future time, if entered into without the intention of having any goods/commodity pass from one party to another, but with an understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices, is a transaction which the law will not sanction, for being illegal.13The written trading contract in question is not illegal but the transaction between the petitioner and the private respondent purportedly to implement the contract is in the nature of a gambling agreement and falls within the ambit of Article 2018 of the New Civil Code, which is quoted hereunder:If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void. The loser may recover what he has paid.The facts clearly establish that the petitioner is a direct participant in the transaction, acting through its authorized agents. It received the customer's orders and private respondent's money. As per terms of the trading contract, customer's orders shall be directly transmitted by the petitioner as broker to its principal, Frankwell Enterprises Ltd. of Hongkong, being a registered member of the International Commodity Clearing House, which in turn must place the customer's orders with the Tokyo Exchange. There is no evidence that the orders and money were transmitted to its principal Frankwell Enterprises Ltd. in Hongkong nor were the orders forwarded to the Tokyo Exchange. We draw the conclusion that no actual delivery of goods and commodity was intended and ever made by the parties. In the realities of the transaction, the parties merely speculated on the rise and fall in the price of the goods/commodity subject matter of the transaction. If private respondent's speculation was correct, she would be the winner and the petitioner, the loser, so petitioner would have to pay private respondent the "margin". But if private respondent was wrong in her speculation then she would emerge as the loser and the petitioner, the winner. The petitioner would keep the money or collect the difference from the private respondent. This is clearly a form of gambling provided for with unmistakeable certainty under Article 2018 abovestated. It would thus be governed by the New Civil Code and not by the Revised Securities Act nor the Rules and Regulations on Commodity Futures Trading laid down by the SEC.Article 1462 of the New Civil Code does not govern this case because the said provision contemplates a contract of sale of specific goods where one of the contracting parties binds himself to transfer the ownership of and deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent.14The said article requires that there be delivery of goods, actual or constructive, to be applicable. In the transaction in question, there was no such delivery; neither was there any intention to deliver a determinate thing.The transaction is not what the parties call it but what the law defines it to be