Philippine Stock Exchange v. Securities and Exchange Commission

Philippine Stock Exchange

v.

SEC.

G.R.No.125469

FACTS OF THE CASE

1. The Puerto Azul Land, Inc. (PALI) had sought to offer its shares to the public in order to raise funds.  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.

2.On February 14, 1996, before it could act upon PALI’s application, the Board of Governors of 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.

3. 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.

4. On April 24, 1996, the SEC rendered its Order, reversing the PSE’s decision.

ISSUE

Whether the SEC has over-stepped its power and authority in ordering the PSE to list PALI’s shares in the stock exchange.

RULING

Yes. 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.  In board of Liquidators vs. Kalaw, it 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.