1 UNION GLASS v SEC 6.

On April 1981, Carolina Hofileña filed a complaint before the SEC against the
GR No. L-64013 DBP and Union Glass. Only the first cause of action concerned petitioner Union
DATE: November 28, 1983 Glass as transferee and possessor of the glass plant.
By: Shang 7. The first cause of action was based on the alleged illegality of the dacion en
pago agreement resulting from:
Topic: Jurisdiction of SEC a. The supposed unilateral and unsupported undervaluation of the
Petitioners: Union Glass & Container Corporation and Carlos Palanca Jr., in his capactiy as assets of Pioneer Glass covered by the agreement;
President of Union Glass & Container Corporation b. The self-dealing indulged in by DBP, having acted both as
Respondents: SEC and Carolina Hofileña stockholder/director and secured creditor of Pioneer Glass; and
Ponente: Escolin, J. c. The wrongful inclusion by DBP in its statement of account of P26M as
due from Pioneer Glass when the same had already been converted
DOCTRINE: In order that the SEC can take cognizance of a case, the controversy must into equity
pertain to any of the following relationships: 8. With respect to said first cause of action, respondent Hofileña prayed that the
(a) between the corporation, partnership or association and the public; SEC issue an order:
(b)between the corporation, partnership or association and its stockholders, (1) Holding that the so called dacion en pago conveying all the
partners, members, or officers; (c) between the corporation, partnership or assets of Pioneer Glass and the Hofileña personal
association and the state in so far as its franchise, permit or license to operate properties to Union Glass be declared null and void on the
is concerned; and ground that the said conveyance was tainted with.
(d) among the stockholders, partners or associates themselves. a. Self-dealing on the part of DBP which was acting
both as a controlling stockholder/director and as
secured creditor of the Pioneer Glass, all to its
FACTS:
advantage and to that of Union Glass, and to the
1. Private respondent Carolina Hofileña is a stockholder of Pioneer Glass
gross prejudice of the Pioneer Glass,
Manufacturing Corporation (Pioneer Glass), a domestic corporation engaged in
b. That the dacion en pago is void because there
the operation of silica mines and the manufacture of glassware.
was gross undervaluation of the assets included in
2. Since 1967, Pioneer Glass obtained various loan accomodations from the
the so-called dacion en pago by more than 100%
Development Bank of the Philippines (DBP), and also from other local and
to the prejudice of Pioneer Glass and to the
foreign sources which DBP guaranteed.
undue advantage of DBP and Union Glass;
3. As security for said loan accommodations, Pioneer Glass mortgaged and/or
c. That the DBP unduly favored Union Glass over
assigned its assets, real and personal, to the DBP, in addition to the mortgages
another buyer, San Miguel Corporation,
executed by some of its corporate officers over their personal assets. The
notwithstanding the clearly advantageous terms
proceeds of such were used in the construction of a glass plant in Rosario,
offered by the latter to the prejudice of Pioneer
Cavite, and the operation of seven silica mining claims owned by the
Glass, its other creditors and so-called 'Minority
corporation.
stockholders.'
4. Through the conversion into equity of the accumulated unpaid interests on the
various loans amounting to P5.4M (Jan 1975) and another P2.2M (1976), the
(2) Holding that the assets of the Pioneer Glass taken over
DBP was able to gain control of the outstanding shares of common stocks of
by DBP and part of which was delivered to Union Glass particularly
Pioneer Glass, and to get two, later three, regular seats in the corporation’s
the glass plant to be returned accordingly.
board of directors.
5. On March 1978, Pioneer Glass suffered serious liquidity problems such that it
(3) That the DBP be ordered to accept and recognize the
could no longer meet its financial obligations with DBP so it entered into a
appraisal conducted by the Asian Appraisal Inc. in 1975 and again in
dacion en pago agreement with the latter. In this agreement, all its assets
t978 of the asset of Pioneer Glass.
mortgaged to DBP were ceded to the latter in full satisfaction of the
corporation’s obligations in the total amount of P59M. Part of the assets
9. Petitioner Union Glass moved for dismissal of the case on the ground that the
transferred was the glass plant in Cavite, which DBP leased and sold to
SEC had no jurisdiction over the subject matter or nature of the suit. SEC
Petitioner Union Glass
 Hearing Officer Eugenio Reyes then granted the motion to dismiss for lack of license or permit issued by the government to operate in the Philippines ... "
jurisdiction. The principal function of the SEC is the supervision and control over
10. Upon the MR filed by respondent Hofileña, SEC HO Reyes reversed his order. corporations, partnerships and associations with the end in view that
11. Petitioners now filed this instant petition for certiorari and prohibition to investment in these entities may be encouraged and protected, and their
prevent respondent SEC from taking cognizance of said case. activities pursued for the promotion of economic development.
4. It is in aid of this office that the adjudicative power of the SEC must be
exercised. Thus the law explicitly specified and delimited its jurisdiction to
ISSUE: Whether the SEC has jurisdiction over the case? - NO matters intrinsically connected with the regulation of corporations,
partnerships and associations and those dealing with the internal affairs of such
HELD/RATIO: WHEREFORE, the instant petition is hereby granted, and the questioned corporations, partnerships or associations.
Orders of respondent SEC, dated September 25, 1981, March 25, 1982 and May 28, 1982, 5. Otherwise stated, in order that the SEC can take cognizance of a case, the
are hereby set aside. Respondent Commission is ordered to drop petitioner Union Glass controversy must pertain to any of the following relationships: [a] between the
from SEC Case No. 2035, without prejudice to the filing of a separate suit before the corporation, partnership or association and the public; [b] between the
regular court of justice. No pronouncement as to costs. corporation, partnership or association and its stockholders, partners,
1. In the ordinary course of things, petitioner Union Glass, as transferee and members, or officers; [c] between the corporation, partnership or association
possessor the glass plant covered by the dacion en pago agreement, should be and the state in so far as its franchise, permit or license to operate is
joined as party-defendant under the general rules which requires the joinder of concerned; and [d] among the stockholders, partners or associates themselves.
every party who has an interest in or lien on the property subject matter of the 6. The fact that the controversy at bar involves the rights of petitioner Union
dispute. BUT since petitioner Union Glass has no intra-corporate relation with Glass who has no intra-corporate relation either with complainant or the DBP,
either the complainant or the DBP, its joinder as party-defendant brings the places the suit beyond the jurisdiction of the respondent SEC. The case should
cause of action asserted against it outside the jurisdiction of respondent SEC. be tried and decided by the court of general jurisdiction, the Regional Trial
2. The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows: Court.
Sec. 5. In addition to the regulatory and adjudicative function of the
Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly
granted under existing laws and devices, it shall have original and
exclusive jurisdiction to hear and decide cases involving:
a. Devices and schemes employed by or any acts, of the board of
directors, business associates, its officers or partners, amounting to
fraud and misrepresentation which may be detrimental to the
interest of the public and/or the stockholders, partners, members of
associations or organizations registered with the Commission
b. Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or associates;
between any or all of them and the corporation, partnership, or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or
association and the state insofar as it concerns their individual
franchise or right to exist as such entity;
c]. Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or
associations.
3. This grant of jurisdiction must be viewed in the light of the nature and function
of the SEC under the law. Section 3 of PD No. 902-A confers upon the latter
"absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are grantees of primary franchise and/or