2. SEC v.

CA Omico scheduled its annual stockholders’ meeting on

3 November 2008. It set the deadline for submission of proxies
on 23 October 2008 and the validation of proxies on 25 October
SECURITIES AND EXCHANGE COMMISSION, 2008.
Petitioner,
Astra objected to the validation of the proxies issued in
vs. favor of Tia, representing about 38% of the outstanding capital
stock of Omico. Astra also objected to the inclusion of the
THE HONORABLE COURT OF APPEALS, OMICO proxies issued in favor of Tia and/or Martin Buncio,
CORPORATION, EMILIO S. TENG AND TOMMY KIN representing about 2% of the outstanding capital stock of Omico.
HING TIA, Respondents.
Astra maintained that the proxy issuers, who were
G.R. No. 187702 October 22, 2014 brokers, did not obtain the required express written authorization
of their clients when they issued the proxies in favor of Tia. In
so doing, the issuers were allegedly in violation of SRC Rules.
Furthermore, the proxies issued in favor of Tia exceeded,
thereby giving rise to the presumption of solicitation thereof
under said rules. Tia did not also comply with the rules on proxy
PONENTE: Sereno solicitation, in violation of the SRC.

TOPIC: SRC, proxy, jurisdiction of SEC Despite the objections of Astra, Omico’s Board of
Inspectors declared that the proxies issued in favor of Tia were
valid.

FACTS: ISSUE:

Omico Corporation (Omico) is a company whose 1. Whether or not SEC has jurisdiction over controversies arising
shares of stock are listed and traded in the Philippine Stock from the validation of proxies for the election of the directors of
Exchange, Inc. Astra Securities Corporation (Astra) is one of the a corporation.
stockholders of Omico owning about 18% of the latter’s 2. Whether or not SEC may appeal a reversal of its ruling.
outstanding capital stock.
HELD:

FIRST ISSUE: None. SECURITIES AND EXCHANGE

COMMISSION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS,
The Court held that when proxies are solicited in CUALOPING SECURITIES CORPORATION AND
relation to the election of corporate directors, the resulting FIDELITY STOCK TRANSFERS, INC., respondents
controversy, even if it ostensibly raised the violation of the SEC FACTS: Cualoping Securities Corporation (CUALOPING for
rules on proxy solicitation, should be properly seen as an brevity) is a stockbroker, Fidelity Stock Transfer, Inc.
election controversy within the original and exclusive (FIDELITY for brevity), on the other hand, is the stock transfer
jurisdiction of the trial courts by virtue of Section 5.2 of the agent of Philex Mining Corporation (PHILEX for brevity).
SRC. Hence, the jurisdiction is still with the On or about the first half of 1988, certificates of stock of
Special Commercial Courts. PHILEX representing one million four hundred [thousand]
(1,400,000) shares were stolen from the premises of
An election contest covers any controversy or dispute FIDELITY. These stock certificates consisting of stock
involving the validation of proxies, in general. Thus, it can only dividends of certain PHILEX shareholders had been returned to
refer to all the beneficial purposes that validation of proxies can FIDELITY for lack of forwarding addresses of the
bring about when made in connection with a forthcoming shareholders concerned.
election of directors. Thus, there is no point in making Later, the stolen stock certificates ended in the hands of a
distinctions between who has jurisdiction before and who has certain Agustin Lopez, a messenger of New World Security
jurisdiction after the election of directors, as all controversies Inc., an entirely different stock brokerage firm. In the first half
related thereto – whether before, during or after – shall be passed of 1989, Agustin Lopez brought the stolen stock certificates to
upon by regular courts as provided by law. CUALOPING for trading and sale with the stock exchange.
When the said stocks were brought to CUALOPING, all of the
SECOND ISSUE: No. said stock certificates bore the
“apparent” indorsement (signature) in blank of the owners (the
The Court held that quasi-judicial agencies do not stockholders to whom the stocks were issued by PHILEX)
have the right to seek the review of an appellate court thereof. At the side of these indorsements (signatures), the
decision reversing any of their rulings. This is because they are words “Signature Verified” apparently of FIDELITY were
not real parties-in-interest. Thus, the Court expunged the petition stamped on each and every certificate. Further, on the words
filed by the SEC for the latter’s lack of capacity to file the suit. “Signature Verified” showed the usual initials of the officers of
FIDELITY.
Upon receipt of the said certificates from Agustin Lopez, jurisdiction. This case, it might be recalled, has started only on
CUALOPING stamped each and every certificate with the the basis of a request by FIDELITY for an opinion from the
words “Indorsement Guaranteed,” and thereafter traded the SEC. The stockholders who have been deprived of their
same with the stock exchange. certificates of stock or the persons to whom the forged
After the stock exchange awarded and confirmed the sale of the certificates have ultimately been transferred by the supposed
stocks represented by said certificates to different buyers, the indorsee thereof are yet to initiate, if minded, an appropriate
same were delivered to FIDELITY for the cancellation of the adversarial action. Neither have they been made parties to the
stocks certificates and for issuance of new certificates in the proceedings now at bench. A justiciable controversy such as
name of the new buyers. Agustin Lopez on the other hand was can occasion an exercise of SEC’s exclusive jurisdiction would
paid by CUALOPING with several checks for Four Hundred require an assertion of a right by a proper party against another
Thousand (P400,000.00) Pesos for the value of the stocks. who, in turn, contests it. 5 It is one instituted by and against
After acquiring knowledge of the pilferage, FIDELITY parties having interest in the subject matter appropriate for
conducted an investigation with assistance of the National judicial determination predicated on a given state of facts. That
Bureau of Investigation (NBI) and found that two of its controversy must be raised by the party entitled to maintain the
employees were involved and signed the certificates. action. He is the person to whom the right to seek judicial
After two (2) months from receipt of said stock certificates, redress or relief belongs which can be enforced against the
FIDELITY rejected the issuance of new certificates in favor of party correspondingly charged with having been responsible
the buyers for reasons that the signatures of the owners of the for, or to have given rise to, the cause of action. A person or
certificates were allegedly forged and thus the cancellation and entity tasked with the power to adjudicate stands neutral and
new issuance thereof cannot be effected. impartial and acts on the basis of the admissible representations
The SEC found both Cualoping and Fidelity equally negligent of the contending parties.
in the performance of their duties hereby orders them to (1) In the case at bench, the proper parties that can bring the
jointly replace the subject shares and for Fidelity to cause the controversy and can cause an exercise by the SEC of its
transfer thereof in the names of the buyers and (2) to pay a fine original and exclusive jurisdiction would be all or any of those
of P50,000,00 each for hav[ing] violated Section 29 (a) of the who are adversely affected by the transfer of the pilfered
Revised Securities Act. certificates of stock. Any peremptory judgment by the SEC,
CA reversed. without such proceedings having first been initiated, would be
ISSUE: WON both parties are negligent. precipitate. We thus see nothing erroneous in the decision of
HELD: YES. The first aspect of the SEC decision appealed to the Court of Appeals, albeit not for the reason given by it, to
the Court of Appeals, i.e., that portion which orders the two set aside the SEC’s adjudication “without prejudice” to the
stock transfer agencies to “jointly replace the subject shares right of persons injured to file the necessary proceedings for
and for FIDELITY to cause the transfer thereof in the names of appropriate relief.
the buyers” clearly calls for an exercise of SEC’s adjudicative
(on the issue of the legal propriety of the imposition by the
SEC of a P50,000 fine on each of FIDELITY and
CUALOPING)There is, to our mind, no question that both
FIDELITY and CUALOPING have been guilty of negligence
in the conduct of their affairs involving the questioned
certificates of stock. To constitute, however, a violation of
the Revised Securities Act that can warrant an imposition
of a fine under Section 29(3), in relation to Section 46 of the
Act, fraud or deceit, not mere negligence, on the part of the
offender must be established. Fraud here is akin to bad faith
which implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity; it
is unlike that of the negative idea of negligence in that
fraud or bad faith contemplates a state of mind
affirmatively operating with furtive objectives. Given the
factual circumstances found by the appellate court, neither
FIDELITY nor CUALOPING, albeit indeed remiss in the
observance of due diligence, can be held liable under the above
provisions of the Revised Securities Act. We do not imply,
however, that the negligence committed by private respondents
would not at all be actionable; upon the other hand, as we have
earlier intimated, such an action belongs not to the SEC but to
those whose rights have been injured.