PSE vs CA (281 SCRA 232)

Philippine Stock Exchange Inc. vs Court of Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]

Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. 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. (PSEi), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached pending the approval of the PALI’s listing application, a letter was received by PSE from the heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial owner of some of the properties forming part of PALI’s assets. As a result, PSE denied PALI’s application which caused the latter to file a complaint before the SEC. The SEC issued an order to PSE to grant listing application of PALI on the ground that PALI have certificate of title over its assets and properties and that PALI have complied with all the requirements to enlist with PSE.

Issue: Whether or not the denial of PALI’s application is proper.

Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are barred from intruding into business judgements of corporations, when the same are made in good faith. The same rule precludes the reversal of the decision of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept of reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the issuer’s listing application if the PSE determines that the listing shall not serve the interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the markings of a corporate entity, it functions as the primary channel through which the vessels of capital trade ply. The PSEi’s relevance to the continued operation and filtration of the securities transaction in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock exchange in the country today, the PSE enjoys  monopoly of securities transactions, and as such it yields a monopoly of securities transactions, and as such, it yields an immerse influence upon the country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. It is likewise, observed that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected and their activities for the promotion of economic development.

A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and requisites appropriate to such a body as to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgements for the judgement of the board of directors. The board is the business manager of the corporation and so long as it acts in good faith, its orders are not reviewable by the courts.

In matters of application for listing in the market the SEC may exercise such power only if the PSE’s judgement is attended by bad faith.

The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest of the general public.