SEC EB Case No. 03-22-494BABEL HOLDINGS, INC. et. al., Appellant, v. DINDO A. ESPELETA and KAREN M. ESPELETA, Appellee.

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

BABEL MANUEL MICHELLE ROMMEL M. SANTIAGO, AND PHILIPE T. ACQUINO HOLDINGS. M B. LAZARO, LAZARO, Appellants. INC.

- versus SEC En Banc Case No. 03-22-494

KAREN M. ESPELETA, DINDO M ESPELETA Appellees -. and

DECISION

Rommel M. Santiago, and Philipe T. Aquino, assailing the Order dated 10 and Monitoring Department, which revoked the Certificate of Incorporation 2022 by BABEL HOLDINGS, INC., Manuel M. Lazaro, Michelle B. Lazaro February 2022 (the Assailed Order") issued by the Company Registration of BABEL HOLDINGS, INC., on the basis of a finding that the same was fraudulently procured, the dispositive portion of which reads: Before this Commission is the Appeal Memorandum filed on 16 March

WHEREFORE, in view of the foregoing, the Certificate of Registration of BABEL HOLDINGS, INC., registered on 12 February 2016 under SEC Reg. No. CS201603004, is hereby REVOKED. Moreover, the issuance of a permanent cease-and-desist order has been rendered moot and academic.

THE PARTIES

and existing under the laws of the Republic of the Philippines, having been Bldg., 116 Valero cor. V.A. Rufino Street., Salcedo Village, Makati City. issued a Certificate of Incorporation bearing Company Registration No. CS201603004. Its principal officc address is at the 19th Floor Chatham House Philippines BABEL HOLDINGS, INC. (BHI) is a stock corporation duly organized

Santiago, and Philipe T. Aquino (the Individual Appellants"), and Appellees stockholders of BHI whose shareholdings therein, based on the latest filed General Information Sheet (2018), arc as follows: Dindo Appellants A. Espeleta Manuel M. Lazaro, Michelle B. Lazaro, Rommel M. and Karen M. Espeleta, are the incorporators and

Espeleta vs B.ABEL. Holdings, Ine SEC En ; Case No. 03-22494 Page 2 of 21 Decision

MANUEL M. LAZARO MICHELLE B. LAZARO ROMMEL M. SANTIAGO DINDO A. ESPELETA KAREN M. ESPELETA PHILIPE T. AQUINO NAME NUMBER SHARES 25.000 41,000 25.000 3.0 3.00 3.00 OF SHARES SUBSCRIBED AND PAID 25,000,000.00 41,000,000.00 25,000,000.00 3,000,000.00 3,000,000.00 3,000,000.00 AMOUNT (IN PHP) 2 25 4 T

RELEVANT FACTS

Pesos (PhP100,000,000.00), for the purpose of acquiring Mausonon Island in Karen M. Espeleta, and the Individual Appellants agreed in principle to form a corporation, and pool their money in the amount of Onc Hundred Million Palawan (thc Island"). Sometime around 15 October 2015, Appellees Dindo A. Espeleta and

and issued its Certificate of Incorporation. On 12 February 2016, the Commission approved the application of BHI

Jr., Emmanuel L. Regio, Demetrio P. Sonza, Angel L. De Leon, Jr., Esteban Agreement Account with Eastwest Bank for One Hundred Twenty-Six Million Pesos (PhP126, 000,000.00), which was paid to the Seller by Appellee V. Tajanlangit III (collectively, the Seller), where they opened an Escrow Dindo Espeleta on behalf of BHI. On 5 July 2016, BHI purchased the Island from Mariano V. Araneta,

Registration (with Application for the Issuance of Cease and Desist Order) invoking Sec. 5(i)[1] of PD 902-A3, as amended. an administrative Espeleta (CRMD) Registration On 29 September 2021, Appellees Dindo A. Espeleta and Karen M. filed with the Company Registration and Monitoring Department of this of BHI Commission a Petition for Revocation of Company action for having been allegedly obtained through fraud secking the revocation of the Certificate of

alleged that the Individual Appellants, who obtained thc registration of BHI documents that were submitted as part of BHI's application for incorporation.s Specifically, Appellees declared that Karen M. Espeleta's signature in the Treasurer's Affidavit was forged as she did not sign the said document, and from the Commission, made scrious and deliberate misrepresentations in the In support thereof, Appellees Dindo A. Espeleta and Karen M. Espeleta

3 Par. 12 of the Petition cited Part I, Rule I1, Section 2-2(a)(1)(a) of the 2016 Rules of Procedure of the of certificates of incorporation on the ground of fraud in the procurement thereof. Securities and Exchange Commission, which grants the CRMD the jurisdiction over petitions for revocation Par. 7 of the Petition Pars. 15 and 16 of the Petition Par,7 of the Appeal Par. 4 of the Appeal Par. 14 of the Petition

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that the representations in BHI's Articles of Incorporation (Aol) on the Dindo A. Espeleta and Karen M. Espeleta substantiated the foregoing with the bank statement issued by BPI Alabang Prime Center where the alleged lone bank account of BHI was lodged. company's paid-up capital are false and fraudulent, because the Individual Appellants did not pay the shares that they fully subscribed to. Appellees

capital assets in various companies i.e. Copperstar Holdings, Inc., Eagle II enjoined from conducting sharcholders' meetings, which are venues where defrauding and misrepresenting to the public, by making it appear that the company had sufficient capitalization and has a stellar financial condition to transact a wide array of business." Spccifically, Appellees Dindo A. Espeleta and Karen M. Espeleta argued that BHI and Individual Appellants should be Individual Appellants transfer and reorganize their equity participation and Holdco, Inc. and Eagle I Landholdings, Inc. (CDO), Appellees Dindo A. Espeleta and Karen M. Espeleta posited that the same is warranted to prevent BHI and the Individual Appellants from further Relative to their prayer for the issuance of a Cease and Desist Order

directing BHI to immediately cease and desist from transferring, sclling. disposing. and/or conveying its properties, securities, shares of stock, and other real/personal properties, and from transacting any, and all business involving the funds in its depositary bank E Resolution dated 5 October 2021, the CRMD issued ex parte a CDO On the basis of the authority granted by the Commission Er Banc in

BHI and Individual Appellants to file their verified Answer within a period of fifteen (15) days from receipt thereof The CRMD also issued a Summons dated 6 October 2021, directing

the recall and setting side of the CDO, which was allegedly issued without basis and/or with abuse of discretion. Appellants prayed for (a) the dismissal of the Petition for its failure to show with clear and convincing evidence, the alleged falsity and/or fraud, and (b) In their Entry of Appearance with Answer, BHI and the Individual

evidence. They further argued that Appellees Dindo A. Espeleta and Karen (Aol), which provide for the full subscription and payment of the authorized notarized document, which can only be overturned by clear and convincing M. Espeleta have not denied executing the Aol, which estops them from incorporation documents of BHI, specifically its Articles of Incorporation capital stock of the corporation, cnjoy a presumption of regularity being a BHI and the Individual Appellants countered with the argument that the

Par. 19 of the Petition Par. 29 of the Petitice Pars. 17, 18 and 21of the Petition Pars. 30 and 3 I of the Petition To determine whether the issuance of a CDO is warranted based on the allegations and evidence on record 17 Pars. 15 and 18 of the; Answer

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not fully paid. Finally, BHI and the Individual Appellants maintained that the purchase by BHI of the Island belies thc allegation of Appellees that BHI executed by BHI, through Appellee Dindo Espeleta, in his capacity as stellar financial condition, because its capital stock has been fully subscribed and paid.1 claiming that the shares that were subscribed to by BHI's incorporators were was not funded. Hence, the transactions and the documents that were President and incorporator, show to the public that the corporation was in a

Certificate of Registration led to the filing of the instant Appeal The Assailed Order which imposed the penalty of revocation of BHI's

In their Appeal, BHI and the Individual Appellants maintained that the

Incorporation, on the basis of the finding that the registration documents were because Appellees did not deny signing BHI's Aol.16 BHI and the Individual having admitted that they personally signed the Aol, BHI and thc Individual the shares that they subscribed were not false.1* CRMD committed reversible improperly notarized and did not thus enjoy defect in the notarization of the registration documents does not affect the validity or enforceability of the transaction; nor can the same be used as basis in determining if there registration.T With Appellees Dindo A. Appellants argued that the declaration relating to the parties' full payment of Appellants posit that the requirement of notarization is merely formal, and a was fraud in the error in revoking Espeleta and Karen procurement of the certificate of the presumption of regularity. BHI's Certificateof M.Espeletal

registered under its name. Hence, they argued that CRMD's reliance on the up capital was only Five Million Pesos (PhP5,000,000.00) is questionable, as submitted by BHI and the Individual Appellants. Moreover, BHI and the in the RCC that require a corporation to deposit cash in a bank account it disregarded the documentary evidence showing the contrary which was Individual Appellants also emphasized that the transactions which BHI entered into, through Appellee Dindo Espeleta, during the span of five (5) years from its incorporation in 2016, show that BHI was fully capitalized and Treasurer's Affidavit, there is nothing in the previous Corporation Code and bank certificate submitted by Appellees as conclusive proof that BHI's paid was validly incorporated.2 BHI and the Individual Appellants also pointed out that other than the

that Appellants Dindo A. Espeleta and Karen M. Espeleta should not be Finally, BHI and the Individual Appellants reiterated their argument

I Par. 10 of the Appeai I Pars. 15 and 16 of the Appeal Par. 16 of the Answer 1s Par. 31 of the Answer s Pars. 20, 35, 36, and 39 of the Appeal 2 Pars. 30, 33 and 34 of the Appeal I Par. 33 of the Answer i Pars. 27, 29 of the Appeal

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allowed to benefit from their own wrongdoing based on the doctrine of unclean hands.

filed their On 8 April 2022, Appellees Dindo A. Espeleta and Karen M. Espeleta Comment/Opposition praying for thef full affirmation of the

acknowledgment.2 Individual Appellants in having the Aol and the Treasurer's Affidavit of BHI notarized, despite the physical absence of the former, will never amount to substantial compliance with the requirements under Sections 14 and 15 of the Assailed Order, and the dismissal of the Appeal. They argued that the act of Corporation Code, because the same constitutes a false statement in the

Certificate of Incorporation.23 The Commission is not estopped from revoking that the forgery of the signature of the latter in the Treasurer's Affidavit was BHI's Certificate of Incorporation which was fraudulently procured, because proven there is a positive law which sanctions such revocation. Appcllees Dindo A. Espcleta and Karen M. Espeleta further maintained by substantial evidence, which merits the revocation of BHI's

Corporation were false24, and that the incorporation of BHI was fraudulently and Karen M. Espeleta maintained that the same only stood at Five Million not Onc Hundred Million Pesos (PhP100,000,000.00) as stated in BHI's AoI. Pesos (PhP 5,000,000.00), based on the documentary records submitted, and This shows that the statements in the Aol and Treasurer's Affidavit of the made. In relation to the paid-up capital of BHI, Appellees Dindo A. Espeleta

Commission, through the Office of the General Counsel, BHI and the Individual Appellants filed their Position Paper on 28 April 2022, while Appellees Dindo A. Espeleta and Karen M. Espeleta filed their Position Paper on 22 April 2022. Thc Parties basically reiterated their respective arguments embodied in their earlier pleadings In compliance with the Order dated 7 April 2022 issued by the

ISSUE

Certificate of Incorporation of BHI on the ground of fraud in its procurement The sole issue presented to this Commission is whether the revocation of the was correct based on the records and evidence.

RULING

The Appcal is impressed with merit.

2 Pars. 28 and 29 of the Comment/Oppositiom > Pars. 33, 39, 4$ of the Comment/Opposition 2 Pars. 7 and 10 of the Comment/Opposition 2 Par. 32 of the Comment/Opposition

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practically in all jurisdictions as the preferred vehicle in conducting. other business media. distinct from the stockholders/members composing it, is recognized maintaining, developing, and growing a business enterprise, because of the legal, operational and practical advantages that accompany it, compared to The corporate medium, being cndowed with a personality separate and

Under Batas Pambansa Blg. 78 or the Corporation Code of thc Philippines25, thc law in effect when BHI was incorporated, a corporation has, its Articles of Incorporation (Aol), and/or incident to its existence. This was explained by the Supreme Court in University of Mindanao, Inc. vs Bangko among others, a right of succession2 which facilitates its continued existence independently of its shareholders, and the powers expressly granted by law27, Sentral ng Pilipinas$, to wit:

persons dealing with corporations to determine their competence as creation by thcir incorporators in accordance with law. Unlike natural expressly defined by the law and their articles of incorporation. "Corporations are artificial entities granted legal personalities upon their persons, they have no inherent powers. corporations cannot assume that corporations have powers. lt is up to those Third persons dcaling with

articles of incorporation or those "committed outside the object for which a A corporation may exercise its powers only within those definitions. Corporate acts that are outside those cxpress definitions under the law or corporation is created" are ultra vires.

carry out a corporation's purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's articles of incorporation. This exception is specifically included in the general powers The only exception to this rule is when acts are necessary and incidental to of a corporation under Section 36 of the Corporation Code.

Code which the State, as the creator of corporations, has prescribed. Stated on the applicant's full compliance with the requirements of the Corporation otherwise, incorporation is not a right that persons can demand from the State. but a mere privilege granted to those that are able to show, to the satisfaction of the Commission, which administers and implements the Corporation Code, that all the statutory/regulatory requirements have been complied with It is in this context that the grant of corporate existence is conditioned

that all applicants for incorporation must comply. It is the Commission's duty Sections 10 to 14 of the Corporation Code29, embody the requirements

29 Section 10, Vmber and quafficorions of incorporators Any number of natural persons not less than 23 C.R. No. 194964-65, January 11, 2016 corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation 25 Repealed by Republic Act No. 11232 or the Revised Corporation Code (see Section 187) > Section 2 of the Corporation Code 27 Sections 36 to 44 of the Corporation Code five (5) but not more than fifteen (15),all of legal age and a majority of whom are residents of the Philippines. may form a private corporation for any lawful purpose or purposes. Each of the incorporators of s stock

Fspeleta vs B.ABFL. Holdings, Inc SEC Ex &onc Case No. 03-22-494 Page 7 of 21 Decision

to verify and ensure, that all the requirements and information prescribed other supporting documents) submitted to it. therein, are provided/contained in the Articles of Incorporation (as well as the

regulatory functions Relative thereto, it is settled in jurisprudence that in the exercise of its the Commission S mandated to determine if the statutory requirements have been complied requirement prescribed corporation that falls short in complying with the requirements prescribed under the Constitution and/or the laws, to wit. even be compelled by considcring that the Court affirmed the authority Commission has therefore same mandamus to act by Iaw does not involve the exercise of discretion. The of the Commission to disapprove the Aol of any O Thus, in ( authority on a matter presented/filed with it Gamboa tO with, and the Commission may waive VS compliance Teves r, the withany Supreme

"This Court has held that the SEC "has both regulatory and adjudicative functions. Under its regulatory functions, the SEC can be compelled by perform the same. Under its adjudicative or quasi-judicial functions, the to investigate such violation. mandamus to perform its statutory duty when it unlawfully neglects to SEC can be also be compelled by mandarmus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law

function to reject or cisapprove_ the Articles of Incomoration of any to be owned by citizens of the Philippines has not been complied with as Under Scction 17(4) of the Corporation Code, the SEC has the regulatory corporation where the reguired gercentage of ownership of the capital stock required_by_existing laws_or_the Constitution." Thus, the SEC is_the

in accordance with the standards laid down by the law itsclf in enforcing and adiministering the same lax. Section 11. Corporite ferm. A corporation shall exist for a period not exceeding fifty (50) years from the Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities this Code shall not be required to have any minimvam authorized capital stock except as otherwise specifically Section 13. 4mount of capiral stock to be suhseribed and pxaid for the purposes of ineorporation. At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without nced of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos. quasi-judicial or administrative adjudicatory power. The first is the power to make rules and regulations that results in delegated legislation that is within the confines of thc granting statute and the doctrine of non- delegability and separability of powers. The issuance of the assailed A.O. No. 00-05, Resolution. No. 03-211 and the other issuances by the PCSD was in the exercise of the agencys quasi-legislative powers. The second is the #ower to hear and determinc questions of fact to which the Iegislative polisy is to areply and to decide is essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. (77he Chairman amd Erecurfve Direcfor, Patawan Coumeil for Sastaimable Devefopment vs E/ercito Lim, G.R. No. date of incorporation unless sooner dissolved or uniess ssid period is exiended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in acoordance with this Code; provided for by special iaw, and subject to the provisions of the following section. s Administrative agencies possess two kinds of powers, the qussi-legislative or rulemaking power, and the The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act that 183173,August 24, 2016) " G.R. No. 176579, Junc 28, 2011 and Exchange Commission. Section 12. Mimimim capita/ sfock regasred of srock corporations: Stock corporations incorporated under