SEC Adm. Case No. 11-06-91 The Metropolitan Club, Inc.

Republic of the Philippines Securities and Exchange Commission

SEC B!dg. EDSA, Greenhills, Mandaluyong City.

IN THE MATTER OF: SEC En Banc Case No. 11-06-91

THE MeTrOPOLItAN CLUB, INC.

Antonio L. Cardino, Vicente T. Verdadero, and Mario Villacorta, Jr.

Appellants.

DECISION

This is an Appeai seeking reversal of the Corporate Finance Department's ("CFD," for brevity) ietters dated 15 March 2005 and 09 October 2006.

Castillo Laman Tan Panteleon & San Jose, The Metropolitan Club, Inc.'s ("TMCI," for' brevity) counsel, sent a ietter dated 07 March 2005 seeking the CFD's confirmation on the following:

"1. That the Clubi can enter into a joint venture with a property developer whereby the Club wili contribute a 2,267 sq. m. iot, a part of a parcel of land owned by the Club, in consideration of which, it will receive as its share in the joint venture, units and parking iots in the joint venture condominium project. The proceeds of sale of which wil be used primarily to fund the improvements of the Club's facilities and for payment of obligations;

2. The approval of the members of the Club of the action of its Board to enter into the said' venture to raise funds for the Ciub's redevelopment pursuant to the primary purpose of the Club will not be necessary considering that the property to be contributed to the joint venture and/or to be soid is iess than eighteen (18%) percent of its total properties.

Referring to The Metropolitz: : Club, Iinc.

http:7/www.sec.gov.ph (632)726-09-31 to 39

IN RE: THE'ME TROPOLITAN-JB. INC Cardino, Verdadero, and Villacorta, Jr. Appellants. SEC En Banc Case No. 11-06-91: Decision Page 2 of 5

In response, the CFD issued its 15 March 2005 ietter confirming the

statements:

"We, confirm that said proposed Board Action involving said

property does not require the approval of the Club members. It is

however advised that the Club shall comply with the requirements of

SRC Rule 14 on the Amendments to its Registration Statements and

Prospectus."

Subsequently or on 29 March: 2005, without its members' approval, TMCI,

through its Chairman and President, entered into a Joint Venture Agreement ("JVA,"

for brevity) with Philippine Townships, Inc. for the deveiopment of a condominium

project.

Thus, on 23 November 2005, Appellant Cardino and other similar TMCI

members, sent a letter asking the CFD to reconsider its 15 March 2005 letter.

In reply, the :CFD issued its 09 October 2006 letter denying the

reconsideration and upholding its earlier opinion that subject Board action did not

require the mernbers' approval. The CFD ratiocinated:

"We find no cogent reason to. change our previous opinion

considering that the property involved in said JVA is only 18% of Metroclub's

total assets. Section 40 of the Corporation Code provides, in part:

'Section 40. Sale or other disposition of assets. - Subject to the

provisions of existing laws on illegal combinations and monopolies, a

corporation.may, by a majority vote of its board of directors or

trustees, sell, lease, exchange, mortgage, piedge or otherwise dispose

of all or substantially all of its property and assets, including its

goodwill, upon such terms and conditions and for such consideration,

which may be money, stocks, bonds or other instruments for the

payment of money or other property or consideration, as its board of

directors. or trustees may deem expedient, when authorized by the

vote of the stockholders representing at ieast two-thirds (2/3) of the

outstanding capital stock, or in case of non-stock corporation, by the

vote of at ieast to two-thirds (2/3) of the members, in a stockholder's

or member's meeting duly called for the purpose. xxx

A sale or other disposition shall be deemed to cover

substantially all the corporate property and assets if thereby

the_corporation_wouid be rendered_incapabie_of .continuing

the business or accomplishing the purpose for which it was

incorporated. xxx

It is clear from the afore-cited provision that to determine if the

disposition requires the authorization of 2/3 vote of the members, the test is

whether it involves a sale or other disposition of all or substantially all of the

corporate assets, the phrase being defined as such which wouid render the

IN RE: THE METROPOLI- CLUB. INC Cardinio. Verdadero, and Villacorta, Jr., Appellants. SEC En Banc Case No. 11-06-91: Decision Page 3 of 5

corporation incapable of continuing the business or accomplishing the purpose for which it was incorporated."

Hence, Appellant Cardino submitted this Appeal to the Commission En Banc on 03 November 2006. Subsequently Appellants T. Verdadero and Villacorta, Jr., who are also TMCI members, intervened in this Appeal.

The Commission has no jurisdiction over this Appeal.

The Securities Regulation Code? ('SRC," for brevity) transferred the Commission's jurisdiction over intra-corporate controversies and other cases enumerated in Section 5 of P.D. No. 902-A3 to the courts of general jurisdiction, or the appropriate regional trial court.4

An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar

3 Presidential Decree No. 902-A (issued on March 1 1, 1976), Section 5 provides: Republic Act No. 8799, effective since 08 August 2000.

and Exchange Commission over corporations, partnerships and other forms of "Section 5. In addition to the regulatory and adjudicative functions of the Securities

associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases invoiving.

a) Devices or schemes employed by or any acts, of the board of directors business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder. 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 directo ors. trustees, officers or managers of such corporations, partnerships or associatiens:

4 SRC, Section 5.2 provides:

"5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regionai Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shajl retain jurisdiction over pending cases invoiving intra-corporate disputes submitted"for final resolution which should be resoived within one (1) year from the enactment of this Code. The payments/rehabilitation cases filed as of 30 June 2000 until finafly disposed. Commission shal! retain jurisdiction over pending. suspension Of

IN RE: THE METROPOLITAN'UB. INC. Cardinio. Verdadero..and Villacorta, Jr., Appeliants SEC "En Banc Case No. 1 1-06-9 1: Decision Page 4 of 5

as the former's franchise, permit or license to operate is concerned; (3) between the

corporation, partnership or association and its stockholders, partners, members or

officers; and (4) among the stockholders, partners or associates themselves.5

In this Appeal, appellants assail the subject JVA since their membership in

TMCI means that they stand to. be benefitted or injured from the JVA's

implementation. They raise the twin issues of: (1) whether or not its charter

authorizes: TMCI to enter into the subject JVA, and (2) whether or not TMCI can

validly enter into the JVA without the approval of two thirds (2/3) of its members.

Obviously, these issues are intra-corporate in nature since they arise from the

relationships between the corporation, its officers and its members as defined by thel

corporation's charter and the Corporation Code. The resolution of these issues will

necessarily entail an adjudication on the members' rights and privileges with respect

to the corporation and its officers -- in particular, the members' right to vote on

certain corporate acts, and their right to be assured that the corporation does not

stray from the purpose for which it was organized. Hence, this case is clearly an

intra-corporate dispute, which is now within the exclusive jurisdiction of the courts.

Moreover, appellants do not attack TMCI's corporate act of entering into the

JVA for being void ab initio, that is, for being wrong in itself, or against public policy.

Rather, appellants question the subject corporate act for being an ultra vires act,

which is a corporate act that is outside the scope of the articies of incorporation, or

defective from a failure to observe in its execution a requirement of law enacted for

the benefit or protection of its members.: ultra vires acts are merely voidable,

meaning that such acts are vatid and binding unless they are annulled by a proper

action in court.7 The annuiment of contracts is a legal or judicial question that

requires.the exercise of judicial function, which is vested in the courts. The law does

not grant judicial functions to the Commission enabling it to rule on the validity or

nullity of contracts. Hence, it is the regular courts that have the exclusive jurisdiction

and power to annul the subject JVA.

Plainly, the Commission En Banc cannot take cognizance of this Appeal since

although it is purportedly an appeal seeking reversal of the CFD's issuances, it is

actually a complaint seeking the nullification of the subject JVA. Indeed, Appellants

Verdadero and Villacorta, Jr. expressiy pray that "the opinion of Dir. Callangan be

reversed and set aside and a new one entered nullifying or otherwise abrogating thel

Joint Venture Agreement and the accompanying Memorandum of Agreement. "

5 Yujuico v. Quiambao. supra note 87; Embassy Farms. Inc. v. Court of Appeals. G.R. No. 80682, 13

August 1990, 188 SCRA 492, 499; Union Glass & Container Corporation v. Securities and Exchange

Commission, 211 Phil. 222, 230-231 {1983}: Mainland Construction Co., Inc. v. Movilla, G.R. No.

118088,23 November 1995, 250 SCRA 290, 294. Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phit. 335, December 29, 1954.

Memorandum-on-Appeai-in-intervention, dated 1p November 2006, page 6. 7 Civil Code, Articie 1390

IN RE: THE ME TROPOLITLUB. INC. Cardino. Verdadero, and Villacorta, Jr., Appellants. SEC En Banc Case No. 11-06-91: Decision Page 5 of 5

Apparently, the Appellants misjudged the significance of the CFD's 15 March 2005 and 09 0ctober 2006 letters. These CFD issuances are not, in anyway whatsoever, determinative or conclusive on the validity or nullity of the subject JVA.

lack of jurisdiction. WHEREFORE, premises cOnsidered, this Appea! is hereby DISMISSED for

SO ORDERED.

Mandaluyong City, 22 April 2010.

#E B. BARIN KeA.b

Chairperson

L

Ma. JuAnita/e. cuato Commissioner RAUL J. PALABRICA Commissioner

p

MANUEL HUBERTO B. GAITE Commissioner Eladi0M Commissioner JAL