THIRD DIVISION

MAKATI STOCK EXCHANGE,   G.R. No. 138814

INC., MA. VIVIAN
 
YUCHENGCO, ADOLFO M.
DUARTE, MYRON C. PAPA,  
NORBERTO C. NAZARENO,
GEORGE UY-TIOCO, Present:
ANTONIO A. LOPA, RAMON
B. ARNAIZ, LUIS J.L. VIRATA,  
and ANTONIO GARCIA, JR.
 
Petitioners,
YNARES-SANTIAGO, J.,
 
Chairperson,
 
AUSTRIA-MARTINEZ,
- versus -
CHICO-NAZARIO,
 
NACHURA, and
 
PERALTA, JJ.
MIGUEL V. CAMPOS,
substituted by JULIA ORTIGAS  
VDA. DE CAMPOS,1[1]
 
Respondent.
 

Promulgated:

1 [1] Per Resolution of 24 October 2001.

  

April 16, 2009

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DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the

reversal of the Decision2[2] dated 11 February 1997 and Resolution dated 18
May 1999 of the Court of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by

respondent Miguel V. Campos, who filed with the Securities, Investigation and
Clearing Department (SICD) of the Securities and Exchange Commission
(SEC), a Petition against herein petitioners Makati Stock Exchange, Inc.
(MKSE) and MKSE directors, Ma. Vivian Yuchengco, Adolfo M. Duarte,
Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco, Antonio A, Lopa,

2 [2]Penned by Associate Justice Eubulo G. Verzola with Associate Justices Jesus M.

Elbinias and Hilarion L. Aquino, concurring; rollo, pp. 30-36.
Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in said
Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the
MKSE Board of Directors, which allegedly deprived him of his right to
participate equally in the allocation of Initial Public Offerings (IPO) of
corporations registered with MKSE; (2) the delivery of the IPO shares he was
allegedly deprived of, for which he would pay IPO prices; and (3) the payment
of P2 million as moral damages, P1 million as exemplary damages, and
P500,000.00 as attorneys fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondents

prayer for the issuance of a Temporary Restraining Order to enjoin petitioners
from implementing or enforcing the 3 June 1993 Resolution of the MKSE
Board of Directors.

The SICD subsequently issued another Order on 10 March 1994 granting

respondents application for a Writ of Preliminary Injunction, to continuously
enjoin, during the pendency of SEC Case No. 02-94-4678, the implementation
or enforcement of the MKSE Board Resolution in question. Petitioners assailed
this SICD Order dated 10 March 1994 in a Petition for Certiorari filed with the
SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents

Petition in SEC Case No. 02-94-4678, based on the following grounds: (1) the
Petition became moot due to the cancellation of the license of MKSE; (2) the
SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a
cause of action.
  

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May

1994. Petitioners again challenged the 4 May 1994 Order of SICD before the
SEC en banc through another Petition for Certiorari, docketed as SEC-EB No.
403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc
nullified the 10 March 1994 Order of SICD in SEC Case No. 02-94-4678
granting a Writ of Preliminary Injunction in favor of respondent. Likewise, in
an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc annulled
the 4 May 1994 Order of SICD in SEC Case No. 02-94-4678 denying
petitioners Motion to Dismiss, and accordingly ordered the dismissal of
respondents Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals

assailing the Orders of the SEC en banc dated 31 May 1995 and 14 August
1995 in SEC-EB No. 393 and SEC-EB No. 403, respectively. Respondents
Petition before the appellate court was docketed as CA-G.R. SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in

CA-G.R. SP No. 38455, granting respondents Petition for Certiorari, thus:

 
WHEREFORE, the petition in so far as it prays for annulment of the
Orders dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393
and 403 is GRANTED. The said orders are hereby rendered null and void and
set aside.
  
 

Petitioners filed a Motion for Reconsideration of the foregoing Decision

but it was denied by the Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.
 
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT DISMISSED THE PETITION FILED BY RESPONDENT
BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.
 
II.
 
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF
RESPONDENT WAS A MERE ACCOMMODATION GIVEN TO HIM BY
THE BOARD OF [DIRECTORS] OF THE MAKATI STOCK EXCHANGE,
INC.
 
III.
 
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN
BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT MADE AN
EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF RESPONDENTS
ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE
EVIDENCE ADDUCED DURING THE HEARING ON THE
APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE
OF ACTION.
 
IV.
 
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE
BOUGHT BY THE BROKERS FOR THEMSELVES BUT ARE TO BE
DISTRIBUTED TO THE INVESTING PUBLIC. HENCE, RESPONDENTS
 CLAIM FOR DAMAGES IS ILLUSORY AND HIS PETITION A
NUISANCE SUIT.3[3]

On 18 September 2001, counsel for respondent manifested to this Court

that his client died on 7 May 2001. In a Resolution dated 24 October 2001, the
Court directed the substitution of respondent by his surviving spouse, Julia
Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of
respondents Petition in SEC Case No. 02-94-4678 for failure to state a cause of
action. On the other hand, respondent insists on the sufficiency of his Petition
and seeks the continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party violates a right

of another.4[4] A complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the
plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these elements are
absent, the complaint becomes vulnerable to dismissal on the ground of failure
to state a cause of action.

3 [3] Rollo, p. 144.

4 [4] Revised Rules of Court, Rule 2, Section 2.

 If a defendant moves to dismiss the complaint on the ground of lack of
cause of action, he is regarded as having hypothetically admitted all the
averments thereof. The test of sufficiency of the facts found in a complaint as
constituting a cause of action is whether or not admitting the facts alleged, the
court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts
well pleaded in the complaint and inferences fairly deducible therefrom. Hence,
if the allegations in the complaint furnish sufficient basis by which the
complaint can be maintained, the same should not be dismissed regardless of
the defense that may be assessed by the defendant.5[5]

Given the foregoing, the issue of whether respondents Petition in SEC

Case No. 02-94-4678 sufficiently states a cause of action may be alternatively
stated as whether, hypothetically admitting to be true the allegations in
respondents Petition in SEC Case No. 02-94-4678, the SICD may render a valid
judgment in accordance with the prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-
94-4678 is, therefore, unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioners invaluable services, the general

membership of respondent corporation [MKSE] passed a resolution sometime
in 1989 amending its Articles of Incorporation, to include the following
provision therein:
 
ELEVENTH WHEREAS, Mr. Miguel Campos is the
only surviving incorporator of the Makati Stock Exchange, Inc.
who has maintained his membership;

5 [5]Fil-Estate Golf and Development, Inc. v. Court of Appeals, 333 Phil. 465, 490-491
(1996).
  
WHEREAS, he has unselfishly served the Exchange in
various capacities, as governor from 1977 to the present and as
President from 1972 to 1976 and again as President from 1988
to the present;
 
WHEREAS, such dedicated service and leadership
which has contributed to the advancement and well being not
only of the Exchange and its members but also to the Securities
industry, needs to be recognized and appreciated;
 
WHEREAS, as such, the Board of Governors in its
meeting held on February 09, 1989 has correspondingly
adopted a resolution recognizing his valuable service to the
Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body
which would make him as Chairman Emeritus for life and
install in the Exchange premises a commemorative bronze
plaque in his honor;
 
NOW, THEREFORE, for and in consideration of the
above premises, the position of the Chairman Emeritus to be
occupied by Mr. Miguel Campos during his lifetime and
irregardless of his continued membership in the Exchange with
the Privilege to attend all membership meetings as well as the
meetings of the Board of Governors of the Exchange, is hereby
created.
 
8. Hence, to this day, petitioner is not only an active member of the
respondent corporation, but its Chairman Emeritus as well.
 
9. Correspondingly, at all times material to this petition, as an active
member and Chairman Emeritus of respondent corporation, petitioner has
always enjoyed the right given to all the other members to participate equally
in the Initial Public Offerings (IPOs for brevity) of corporations.
 
10. IPOs are shares of corporations offered for sale to the public, prior
to the listing in the trading floor of the countrys two stock exchanges.
Normally, Twenty Five Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.
 
11. However, on June 3, 1993, during a meeting of the Board of
Directors of respondent-corporation, individual respondents passed a resolution
to stop giving petitioner the IPOs he is entitled to, based on the ground that
these shares were allegedly benefiting Gerardo O. Lanuza, Jr., who these
individual respondents wanted to get even with, for having filed cases before
the Securities and Exchange (SEC) for their disqualification as member of the
Board of Directors of respondent corporation.
 
 12. Hence, from June 3, 1993 up to the present time, petitioner has been
deprived of his right to subscribe to the IPOs of corporations listing in the stock
market at their offering prices.
 
13. The collective act of the individual respondents in depriving
petitioner of his right to a share in the IPOs for the aforementioned reason, is
unjust, dishonest and done in bad faith, causing petitioner substantial financial
damage.6[6]

There is no question that the Petition in SEC Case No. 02-94-4678 asserts
a right in favor of respondent, particularly, respondents alleged right to
subscribe to the IPOs of corporations listed in the stock market at their offering
prices; and stipulates the correlative obligation of petitioners to respect
respondents right, specifically, by continuing to allow respondent to subscribe
to the IPOs of corporations listed in the stock market at their offering prices.

However, the terms right and obligation in respondents Petition are not
magic words that would automatically lead to the conclusion that such Petition
sufficiently states a cause of action. Right and obligation are legal terms with
specific legal meaning. A right is a claim or title to an interest in anything
whatsoever that is enforceable by law.7[7] An obligation is defined in the Civil
Code as a juridical necessity to give, to do or not to do.8[8] For every right
enjoyed by any person, there is a corresponding obligation on the part of

6 [6] Rollo, pp. 50-52.

7 [7]Bailey v. Miller, 91 N.E. 24, 25, Ind. App. 475, cited in 37A Words and Phrases
363.

8 [8] Civil Code, Article 1156.

another person to respect such right. Thus, Justice J.B.L. Reyes offers 9[9] the
definition given by Arias Ramos as a more complete definition:

 
An obligation is a juridical relation whereby a person (called the
creditor) may demand from another (called the debtor) the observance of a
determinative conduct (the giving, doing or not doing), and in case of breach,
may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding

right granted to another, must be rooted in at least one of these five sources. The
mere assertion of a right and claim of an obligation in an initiatory pleading,
whether a Complaint or Petition, without identifying the basis or source thereof,
is merely a conclusion of fact and law. A pleading should state the ultimate
facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of fact or conclusions of law.10[10] Thus, a Complaint or

9 [9] Lawyers Journal, 31 January 1951, p. 47.

10 [10]Abad v.  Court of First Instance of Pangasinan, G.R.  Nos.  58507-08, 26

February 1992, 206 SCRA 567, 579-580.
Petition filed by a person claiming a right to the Office of the President of this
Republic, but without stating the source of his purported right, cannot be said to
have sufficiently stated a cause of action. Also, a person claiming to be the
owner of a parcel of land cannot merely state that he has a right to the
ownership thereof, but must likewise assert in the Complaint either a mode of
acquisition of ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does
allege respondents right to subscribe to the IPOs of corporations listed in the
stock market at their offering prices, and petitioners obligation to continue
respecting and observing such right, the Petition utterly failed to lay down the
source or basis of respondents right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution,

passed sometime in 1989, granting him the position of Chairman Emeritus of
MKSE for life. However, there is nothing in the said Petition from which the
Court can deduce that respondent, by virtue of his position as Chairman
Emeritus of MKSE, was granted by law, contract, or any other legal source, the
right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices.

A meticulous review of the Petition reveals that the allocation of IPO

shares was merely alleged to have been done in accord with a practice normally
observed by the members of the stock exchange, to wit:

 
 IPOs are shares of corporations offered for sale to the public, prior to their
listing in the trading floor of the countrys two stock exchanges. Normally,
Twenty-Five Percent (25%) of these shares are divided equally between
the two stock exchanges which in turn divide these equally among their
members, who pay therefor at the offering price.11[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally

demandable or enforceable right.12[12] Indeed, in labor cases, benefits which
were voluntarily given by the employer, and which have ripened into company
practice, are considered as rights that cannot be diminished by the employer.13
[13] Nevertheless, even in such cases, the source of the employees right is not
custom, but ultimately, the law, since Article 100 of the Labor Code explicitly
prohibits elimination or diminution of benefits.

There is no such law in this case that converts the practice of allocating
IPO shares to MKSE members, for subscription at their offering prices, into an
enforceable or demandable right. Thus, even if it is hypothetically admitted that
normally, twenty five percent (25%) of the IPOs are divided equally between
the two stock exchanges -- which, in turn, divide their respective allocation
equally among their members, including the Chairman Emeritus, who pay for
IPO shares at the offering price -- the Court cannot grant respondents prayer for
damages which allegedly resulted from the MKSE Board Resolution dated 3

11 [11] Rollo, pp. 51-52.

12 [12] A distinction, however, should be made between Municipal Law and Public
International Law. Custom is one of the primary sources of International Law, and is
thus a source of legal rights within such sphere.

13 Arco Metal Products Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-
[13]
NAFLU, G.R. No. 170734, 14 May 2008, 554 SCRA 110, 118.
June 1993 deviating from said practice by no longer allocating any shares to
respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC

Case No. 02-94-4678 should be dismissed for failure to state a cause of action.
It does not matter that the SEC en banc, in its Order dated 14 August 1995 in
SEC-EB No. 403, overstepped its bounds by not limiting itself to the issue of
whether respondents Petition before the SICD sufficiently stated a cause of
action. The SEC en banc may have been mistaken in considering extraneous
evidence in granting petitioners Motion to Dismiss, but its discussion thereof
are merely superfluous and obiter dictum. In the main, the SEC en banc did
correctly dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state
the basis for respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority

for his alleged right to participate equally in the IPO allocations of the
Exchange. He cited paragraph 11 of the amended articles of incorporation of
the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim. The provision
merely created the position of chairman emeritus of the Exchange but it
mentioned nothing about conferring upon the occupant thereof the right to
receive IPO allocations.14[14]

With the dismissal of respondents Petition in SEC Case No. 02-94-4678,

there is no more need for this Court to resolve the propriety of the issuance by
SCID of a writ of preliminary injunction in said case.

14[14] Rollo, p. 95.

  

WHEREFORE, the Petition is GRANTED. The Decision of the Court

of Appeals dated 11 February 1997 and its Resolution dated 18 May 1999 in
CA-G.R. SP No. 38455 are REVERSED and SET ASIDE. The Orders dated
31 May 1995 and 14 August 1995 of the Securities and Exchange Commission
en banc in SEC-EB Case No. 393 and No. 403, respectively, are hereby
reinstated. No pronouncement as to costs.

SO ORDERED.

  MINITA V. CHICO-NAZARIO

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson
  

MA. ALICIA AUSTRIA-

MARTINEZ ANTONIO
EDUARDO B. NACHURA

Associate Justice Associate Justice

DIOSDADO M. PERALTA

Associate
Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice