SEC EB Case No. 10-22-508TORRE CIUDAD REALTY CORP., Appellant

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines Department of Finance

IN THE MATTER OF SEC En Banc Case No.10-22-508 Promulgated:22 November2022

TORRE CIUDAD REALTY CORP Company Registration No.CS200501105 Petitioner/Appellant. X

DECISION

CIUDAD REALTY CORP., (the Appellant"), praying for (a) the reversal and setting aside of the Order dated 16 September 2022 (the Assailed (CRMD), and (b) the issuance of a new order granting the Petition to Correct Articles of Incorporation. Order") issued by the Company Registration and Monitoring Department theAppeal,filed on 4 October 2022 by Petitioner-Appellant TORRE Before the Commission is the Appeal dated 29 September 2022

THE RELEVANT FACTS

Registration with Company Registration No. CS200501105 on 26 January existing under Philippine laws, having been issued a Certificate of 2005. The Appellant is a domestic corporation duly organized and

Correction of Articles of Incorporation (the "Petition"), therein praying for the issuance of an order granting the change in the Tax Identification Number of Marina L.Peralejo (Ms.Peralejo). On 14 June 2021, the Appellant filed with the CRMD a Petition for

fraudulently procured. The Appellant failed to submit a written explanation. July 2022,directing the Corporation to explain why its Certificate of Incorporation should not be revoked on the ground that the same was Acting on the Petition,the CRMD issued a Show Cause Order on 5

denying the Petition, and directing the cancellation of the Appellant's Thus,on 16 September 2022,the CRMD issued the Assailed Order

In the mat tter of Torre Ciudad Realtv C SEC En Banc Case No.10-22-508 Page 2 of 8 DECISION

series of 1999 (MC 20), in relation to Section 236(j)(5) of the National Internal Revenue Code (NIRC). of the Revised Corporation Code and SEC Memorandum Circular No.20 Certificate of Incorporation (the"Certificate") for violation of Section 16

husband in the Articles of Incorporation (AOI) was an honest mistake, following circumstances that made such an honest mistake possible i.e. increased the likelihood that she or her secretary might have mistaken her husband's TIN as that of herself. The Appellant maintained that not all entry of wrong information due to mistake is a fraud, and considering cannot be considered as fictitious that will warrant the cancellation of its and was not fraudulent. In support thereof, the Appellant proffered the Ms.Peralejo was already 79 years of age when the AOI was executed,and she was jointly filing her Income Tax return with her husband which that what Ms. Peralejo mistakenly used was her husband's TIN, the same AOI. alleged that the CRMD committed reversible error in cancelling its Certificate,arguing that the use by Marina L. Peralejo of the TIN of her On 4 October 2022,the Appellant filed the instant Appeal where it

position that the revocation of the Certificate of Appellant was proper. In is allowed only for typographical error,and not when an incorporator uses the TIN of another person as the same constitutes fraud which warrants the revocation of a corporation's charter. support thereof,the CRMD reiterated that the change of entries in the AOI On 25 October 2022, the CRMD filed its Comment reiterating its

ISSUE

Whether the use by Ms. Peralejo of the TIN of her husband in the AOI constitutes fraud as to warrant the revocation of the Certificate of Incorporation of Appellant.

RULING

We grant the Appeal.

interpretation and implementation of fraud in the procurement of the a TIN of a family member as his/her own in the AOI CRMD to include all cases where a person inadvertently/mistakenly uses certificate of registration which in the instant case, was construed by the The issue presented in the instant case involves the proper

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submitted a wrong TIN, should be revoked, regardless of the Incorporation of Appellant on the ground of fraud in its procurement.The an existing record(s).On account thereof,the CRMD ruled that the use and submission by Ms. Peralejo of the TIN of her husband was not a typographical error,but a fraudulent statement of her TIN in the AOI.The CRMD is in effect saying that the certificate of incorporation of any and typographical error. Commission, but it also proceeded to CRMD held that a change of entry in the AOI is allowed only if what is sought to be corrected are typographical errors which are visible to the eyes or obvious to the understanding and can be effected by reference to all corporations (and all existing corporations) that have,or might have circumstances and reasons as the same is not considered a mere Correction of the TIN of Ms.Peralejo which was voluntarily filed with the In the instant case, the CRMD did not only deny the Petition for cancel the Certificate of

We do not subscribe to the position of the CRMD

6(i)(1) of P.D. 902-A, fraud as a ground for the revocation of a certificate its generic and unqualified sense means that it includes not only actual of registration refers to fraud attendant in the registration, and must be contained or connected with the documents or papers presented to the Commission for purposes of registration. The use of the word "fraud" in fraud but also,by reason of public policy,includes constructive fraud.1 This Commission has consistently held that for purposes of Section

created using falsified documents/information have prejudiced the investing public and to a certain extent,the economy;and jurisprudence will attest to the fact that the Commission has not shirked from its duty of imposing upon these corporations the ultimate penalty of revocation of their corporate franchises to protect the investing public. Over the years,a considerable number of corporations that were

condominium corporation on the basis of a finding that almost all of its In one case, the revocation of the certificate of incorporation of a

Fraud can be classified as either actual or constructive. Actual or positive fraud proceeds from an fraud or injury upon other persons. Since Section 6i)(1) of PD 902-A simply speaks of fraud without public or private confidence,even though the act is not done with an actual design to commit positive limiting its use of the term, then the section must include not only actual fraud, but constructive fraud deceive is not essential. Consequently, even assuming that incorporators Evita and Solivio were in good faith does not detract from the undisputed commission of the falsity when they used fictitious Constructive fraud is construed as a fraud because of its detrimental effect upon public interest, and as well. Since the provision is not concerned with a crime or a felony, criminal intent or intent to intentional deception practiced by means of the misrepresentation or concealment of a material fact names in petitioner's Articles of incorporation.(Care Best Internationai,Inc.vs Securities and Exchange Commission,GR No.215510.October 5,2015

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Section 10 of the Corporation Code were complied with. Such act, according to the Court, tended to confuse and defeat whatever claims the against them, and thus effectively placed the authenticity of the AOI incorporators (who were required under its AOl to be unit owners) were led to the belief that they were qualified to be incorporators and manage incorporators,who subscribed to 99% of its authorized capital stock,was approval. The Commission held that the inclusion of the name of a dead other incorporators were fully aware of such fact when the application for incorporation was filed Moreover, in Care Best International, Inc.vs SEC4, the Supreme Court sustained the revocation of the certificate of incorporation of a corporation on the basis of a finding that three (3) of not impossible for the Commission to determine if the requirements of other corporate stakeholders,including the general public, may have under a"cloud of doubt" not unit owners,was sustained by the Supreme Court. Here the inclusion the corporation. In another case,the Commission revoked the certificate already dead when the incorporation documents were submitted for person in the AOI constituted fraud and misrepresentation because the its incorporators did not use their real names in the AOI,and affirmed the ratio decidendi of Court of Appeals that such act rendered it difficult,if of non-unit owners as incorporators was considered by the Supreme Court as covered by the concept of fraud in the procurement of the certificate of incorporation because it defrauded the members who were of incorporation of a realty corporation after finding that one of its

is the establishment and operation of corporations for nefarious procurement of the certificate of incorporation as a ground for the revocation of a corporation is to ensure that no fictitious, bogus or sham corporation is created and/or allowed to operate, for the protection of the investing public.The evil that the law seeks to prevent and/or curtail purposes,which is made possible and carried out through the submission of falsified documents and/or false or misleading information. the clear purpose and policy of the law in including fraud in the From the foregoing catena of cases,it can readily be deduced that

the widest participation of ownership in enterprises, enhancing the interpreting what fraud in the procurement of the certificate of democratization of wealth, promoting the development of the capital market, and protecting investors5, should always be the context in More importantly, the mandate of the Commission in encouraging

Skyworld Condominium Owners AssociationInc. vs Securities and Exchange Commission G.R. No. 4G.R. No.215510,March 16,2015 95778,July 17,1992) Esmar Posadas realty Corporation vs Dir.Ferdinand B.Sales SEC En Banc Case No.08-13-298 S See Section 2 of the Securities Regulation Code

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should not be countenanced. registration should cover, otherwise we will lose sight of, and fail to implement the intent and objective of the law. Stated otherwise, an interpretation that will foil the implementation of the said state policies

husband's TIN instead of her own in the AOI of Appellant; and the Peralejo Sr. could have probably been brought about by the circumstances alleged in the Petition. TIN of Ms. Peralejo, and sought its rectification. The Appellant presented reasons that made possible and/or contributed to the submission of the wrong TIN i.e.i.e.Ms.Peralejo was already 79 years of age when the AOI her husband;and it was the secretary that prepared the AOI which she just signed.Ms.Peralejo has her own TIN which is now being voluntarily provided by the Appellant to the Commission after it was noticed that she Commission, it makes no sense that Ms. Peralejo who has her own TIN erroneous assignment and use by Ms.Peralejo of the TIN of Mr. Cesar Appellant that voluntarily informed the Commission of the error in the was executed;as a housewife,she jointly filed her Income Tax return with was assigned the TIN of her husband in the AOI. To the mind of the will intentionally (or will even agree had she been fully informed) use his In the instant case,we take cognizance of the fact that it was the

on file with the Commission show that its financial health has continued take administrative notice of, that Appellant is a going concern and has no derogatoryrecord.Furthermore,the financial records of the Appellant to improve. We also note based on the records of the Commission which we can

Appellant's primary franchise,and We hold that in the context of the this does not constitute fraud in the procurement of the certificate contemplated under PD 902-A. Ms.Peralejo of the TIN of her husband in the AOI of the Appellant through honest mistake does not merit the ultimate penalty of revocation of the attendant circumstances, which are supported by substantial evidence decision that puts an end to the corporate life of a corporation that is fully operational and viable, in a good financial state,and, in all probability will contribute to the development of the national economy. The use by The foregoing factual circumstances heavily militate against a

the drastic remedy of dissolving a corporation or revoking a franchise must be exercised with great caution and that all remedies must be It bears emphasis that in our jurisdiction, the prevailing rule is that

6 16A Fletcher Cyc Corp [Perm Ed] sec. 8035 at p. 155

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exhausted before imposing the harsh penalty of dissolution/revocation. The foregoing rule was applied and reiterated by the Commission in the case of Marbel Institute of Technical College,et al.vs.Agapito Lubaton,et al.2,where we held that revocation will only be resorted to if all available remedies have already been exhausted, to wit:

"Finally, the Commission has consistently ruled that not every casual infraction would be a valid ground for revocation. The drastic remedy of dissolving a corporation must be exercised with great caution and not in doubtful cases.Revocation will only be resorted if all the available remedies have been exhausted. In the instant case, Petitioner's allegation and evidence does not warrant the revocation of Respondents Marbel and Marvelous' Certificate of Incorporation. xxx." (Emphasis supplied)

In another case where the Commission reiterated the rule and importance of affording the erring corporation an opportunity to correct the misdeed, if there are other remedies available, before imposing the penalty of dissolution was emphasized, to wit:

"The drastic remedy of dissolving a corporation must be exercised with great caution and not in doubtful cases. This holds true in case where an individual's interest and not of the public is involved. In any event, all remedies must be exhausted before imposing the harsh penalty of dissolution. Also, the corporation must be given an opportunity to correct any misdeed or comply with the law since a dissolution will not be decreed unless no other adequate remedy is available.s (Emphasis supplied)

voluntarily informed the Commission of such fact and took the initiative A corporation which has discovered a wrong entry in its AOI has

to have the same rectified,as what happened in the instant case,deserves a chance to have its corporate document(s) corrected, instead of being immediately revoked.We hold that this is not the intent of Section 6(i)(1) of P.D. 902-A. Relative thereto, the old case of Government of the Philippine Islands v.El Hogar Filipino is instructive and applicable,to wit

pertinacity in contempt of the law. "Upon consideration of the facts above set forth it is evident that the strict letter of the law was violated by the respondent: but it is equally obvious that its conduct has not been characterized by obduracy or

This provision clearly shows that the court has a discretion with respect to the infliction of capital punishment upon corporations

In the Matter of the Petition for Involuntary Dissolution of Starconnection, Inc. SEC Case No. 06-09 7SEC Case No.05-09-0336,October 18,2016 271, January 7, 2010. 9G.R. No. 26649, [July 13, 1927]

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and that there are certain misdemeanors and misusers of franchises which should not be recognized as requiring their the buying and holding of real property for speculative purposes in contravention of its charter and contrary to the express provisions of still interested in the properties so purchased for speculative purposes at the time the action was brought. Nevertheless, instead of making an the judgment of ouster was made conditional upon the failure of the dissolution. In Government of the Philippine Islands vs. Philippine Sugar Estates Development Co.(38 Phil.,15), it was found that the offending corporation had been largely (though indirectly) engaged in law. Moreover, in that case the offending corporation was found to be absolute and unconditional order for the dissolution of the corporation, corporation to discontinue its unlawful conduct within six months after final decision. In the case before us the respondent appears to have rid of this action. It is evident from this that the dissolution of the respondent would not be an appropriate remedy in this case. We do not of course undertake to say that a corporation might not be dissolved for had exhibited a willful obduracy and contempt of law. We content itself of the San Clemente property many months prior to the institution offenses of this nature perpetrated in the past, especially if its conduct ourselves with holding that upon the facts here before us the penalty of dissolution would be excessively severe and fraught with consequences altogether disproportionate to the offense committed." (Emphasis supplied)

Assailed Order of the CRMD departed from the existing rules and policies of the Commission. Given the attendant circumstances,the penalty of revocation which the CRMD imposed upon the Appellant is harsh and should not be sustained for being devoid of basis. It should On the basis of the foregoing, this Commission holds that the be

rectify a wrong which has not prejudiced the public, instead of being Commission should encourage and support. with the principle of full disclosure embodied in the SRC, which this emphasized that these rules and policies are in place to ensure that existing corporations that have shown to have consistently complied with applicable laws, rules,and regulations, are given an opportunity to be given an opportunity to rectify a mistake and continue contributing to the development of the economy. In the instant case, the act of the Appellant in voluntarily informing the Commission of the mistake in the TIN of Ms. Peralejo, and in requesting for its correction will in fact do good to the public who are dealing with the Appellant,as they will be apprised of the correct TIN of Ms. Peralejo. This initiative is consistent outrightly meted with the supreme penalty of revocation. If at all, it is in the best interest of the State that corporations which are going concerned

certificate of incorporation of Appellant, that the act of Ms. Peralejo in The CRMD also ratiocinated in support of its decision to cancel the

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MC 20 in relation to EO 98 series of 1999 and the NIRC. using the TIN of her husband rendered the same fictitious and violated

The Commission does not agree.

mechanism to assist in the effective collection of taxes, and that non compliance with such requirement will justify the refusal to accept any requirement although because of an honest mistake, Ms. Peralejo was This resulted in the acceptance, processing, and approval by the Commission of Appellant's application for incorporation. of applicant corporations is the provision and submission of TIN, a application. In the instant case, the Appellant fully complied with this assigned and/or used the TIN of her husband in the AOI of the Appellant. A careful reading of the MC 20 shows that what is simply required

ASIDE. The Company Registration and Monitoring Department is hereby by Torre Ciudad Realty Corp. September 2022 filed by Torre Ciudad Realty Corp.is hereby GRANTED The Order dated 16 September 2022 is hereby REVERSED AND SET DIRECTED to give due course to the Petition for Correction of TIN filed WHEREFORE,premises considered,the Appeal dated 29

SO ORDERED.

Makati City, Philippines.

Y EMILIO B.AQUINO Chairperson

JAVEY PAUL D.FRANCISCO Commissioner KELVIN LESTER K.LEE* Commissioner

KARLOS.BELLO Comnmissioner MCJILL BRYANT T.FERNANDEZ Commissioner

*On Official Business