In Vesagas v. Court of Appeals, the Supreme Court addressed the critical issue of corporate existence and jurisdiction over intra-corporate disputes. The Court ruled that the Securities and Exchange Commission (SEC), at the time the complaint was filed, had jurisdiction over disputes involving the expulsion of members from a duly registered corporation. This case underscores the importance of adhering to corporate dissolution procedures and the binding nature of admissions made by parties in legal proceedings, impacting how corporations and their members navigate internal conflicts.

Dissolving Illusions: Can a Tennis Club Shed its Corporate Skin to Avoid SEC Oversight?

The case revolves around a dispute within the Luz Village Tennis Club, Inc. (LVTC). Spouses Delfino and Helenda Raniel, members of the club, claimed they were illegally expelled by petitioners Teodoro Vesagas and Wilfred Asis, who purported to be the club’s president and vice-president, respectively. The Raniels filed a complaint with the SEC, challenging their expulsion and the validity of certain amendments to the club’s by-laws. The petitioners argued that the SEC lacked jurisdiction, contending that the club was no longer a corporation and that the Raniels failed to implead the club as a party. This argument was rooted in the assertion that, despite its initial registration, LVTC had effectively dissolved its corporate structure through a board resolution, reverting to a mere social association. The Supreme Court was thus tasked to decide whether the SEC had the authority to intervene in what the respondents claim was an intra-corporate dispute.

The Supreme Court firmly rejected the petitioners’ argument that the club was not a corporation, emphasizing the SEC’s finding that LVTC was duly registered with a certificate of incorporation. The Court underscored the weight given to the Commission’s findings as the administrative agency responsible for registering and administering corporations. Additionally, the Court pointed out that the petitioners themselves had acknowledged the club’s corporate status in their pleadings, which constitutes a binding admission. This principle is enshrined in the Rules of Evidence, specifically Section 26 of Rule 130, which states: “The act, declaration or omission of a party as to relevant fact may be given in evidence against him.”

Building on this principle, the Court addressed the petitioners’ claim that the club had dissolved its corporate existence at the time the case was filed. The Court referenced Section 118 of the Corporation Code, which lays out the requirements for voluntary dissolution where no creditors are affected. This section specifies the need for a majority vote of the board, a resolution adopted by at least two-thirds of the stockholders or members, publication of notice, and the issuance of a certificate of dissolution by the SEC. The exact wording is:

“Sec. 118. Voluntary dissolution where no creditors are affected. – If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of directors or trustees and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a meeting to be held upon call of the directors or trustees after publication of the notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, after sending such notice to each stockholder or member either by registered mail or by personal delivery at least 30 days prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution.”

The Court found that the petitioners failed to demonstrate compliance with these requirements. They submitted only the minutes of a board meeting and a resolution declaring the club as a non-corporate entity, which the Court deemed insufficient to prove valid corporate dissolution. The absence of proof regarding notice and publication requirements, board member certification, and, crucially, the SEC Order of Dissolution, further undermined their claim.

The Supreme Court also tackled the issue of whether the dispute between the Raniels and the petitioners qualified as an intra-corporate controversy falling under the SEC’s jurisdiction. The Court cited established jurisprudence that dictates that for the SEC to take cognizance of a case, the controversy must arise from specific relationships. These relationships include those between the corporation and the public, between the corporation and its stockholders/members/officers, between the corporation and the state concerning its franchise, and among the stockholders/partners/associates themselves. Citing Bernardo, Sr., v. Court of Appeals, 263 SCRA 660 (1996), the Court explained that the mere fact that parties are stockholders or that the parties are the stockholders and the corporation, does not necessarily place the dispute within the jurisdiction of the SEC. It emphasized that jurisdiction hinges not only on the parties’ relationships but also on the nature of the controversy.

Applying these principles, the Court concluded that the dispute was indeed intra-corporate. The parties involved were officers and members of the club, and the conflict stemmed from their relationships within the organization. The subject of the complaint, the legality of the Raniels’ expulsion and the validity of by-law amendments, were matters within the SEC’s purview. The Court highlighted that at the time the complaint was filed in March 1997, the SEC still possessed quasi-judicial functions over such disputes under Sec. 5 of P.D. 902-A. This law grants the SEC original and exclusive jurisdiction to hear and decide cases involving controversies arising out of intra-corporate relations. As noted in Orosa v. Court of Appeals, 193 SCRA 391 (1991), jurisdiction is determined by the laws in force at the commencement of the action.

The enactment of R.A. 8799, the Securities Regulation Code, subsequently transferred jurisdiction over intra-corporate controversies to courts of general jurisdiction. Nevertheless, the Court acknowledged this shift but noted that the case should now be referred to the appropriate Regional Trial Court in light of this legislative change. Addressing the petitioners’ argument that the Raniels failed to implead the club as a necessary party, the Court clarified that non-joinder of parties is not a ground for dismissal. Instead, the proper remedy is to implead the non-party.

Finally, the Court dismissed the petitioners’ concerns regarding subpoenas issued by the SEC Hearing Officer. Given the repeal of PD 902-A and the transfer of jurisdiction, the issue of the SEC’s contempt powers became moot. Moreover, the Court noted that the subpoenas were not directed at the petitioners, thus removing their standing to challenge their validity. These points underscore the understanding of due process in legal proceedings.

FAQs

What was the key issue in this case?	The key issue was whether the Securities and Exchange Commission (SEC) had jurisdiction over a dispute involving the expulsion of members from a tennis club and the validity of amendments to its by-laws.
What did the petitioners argue?	The petitioners argued that the SEC lacked jurisdiction because the tennis club was no longer a corporation, having dissolved its corporate structure, and that the club was not impleaded as a party.
What was the Court’s ruling on the club’s corporate status?	The Court ruled that the tennis club was indeed a corporation, as it was duly registered with the SEC, and the petitioners themselves had acknowledged its corporate status in their pleadings.
What evidence did the petitioners lack to prove dissolution?	The petitioners lacked proof of compliance with the requirements for voluntary dissolution under the Corporation Code, such as notice and publication, board member certification, and an SEC Order of Dissolution.
What makes a dispute an intra-corporate controversy?	An intra-corporate controversy arises from the relationships between the corporation and its stockholders, members, or officers, or among the stockholders/partners/associates themselves, concerning their rights and obligations within the corporation.
Why did the SEC initially have jurisdiction?	At the time the complaint was filed, the SEC had quasi-judicial functions over intra-corporate disputes under Sec. 5 of P.D. 902-A, which granted it original and exclusive jurisdiction.
What law transferred jurisdiction away from the SEC?	R.A. 8799, the Securities Regulation Code, transferred jurisdiction over intra-corporate controversies to courts of general jurisdiction or the Regional Trial Courts.
What is the remedy for non-joinder of parties?	The remedy for non-joinder of parties is not dismissal of the action, but rather to implead the non-party in the action.
What happened to the issue regarding the SEC’s contempt powers?	The issue regarding the SEC’s contempt powers became moot due to the repeal of PD 902-A and the transfer of jurisdiction, as SEC hearing officers no longer have the power to resolve disputes.

In conclusion, the Supreme Court’s decision in Vesagas v. Court of Appeals clarifies the requirements for corporate dissolution and the scope of SEC jurisdiction over intra-corporate disputes. While the specific jurisdictional landscape has since evolved with the enactment of R.A. 8799, the principles articulated in this case regarding corporate existence, binding admissions, and the necessity of adhering to dissolution procedures remain relevant for corporations and their members today.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Teodoro B. Vesagas, and Wilfred D. Asis, vs. The Honorable Court of Appeals and Delfino Raniel and Helenda Raniel, G.R. No. 142924, December 05, 2001