452 SUPREME COURT REPORTS ANNOTATED

Lozano vs. De los Santos

*
G.R. No. 125221. June 19, 1997.

REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE

LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and
ANTONIO ANDA, respondents.

Securities and Exchange Commission; Jurisdiction; The jurisdiction of

the Securities and Exchange Commission is determined by a concurrence of
two elements: (1) the status or relationship of the parties; and (2) the nature
of the question that is the subject of their controversy.—The grant of
jurisdiction to the SEC must be viewed in the light of its nature and function
under the law. This jurisdiction is determined by a concurrence of two
elements: (1) the status or relationship of the parties; and (2) the nature of
the question that is the subject of their controversy.

Same; Same; The principal function of the Securities and Exchange

Commission is the supervision and control of corporations, partnerships
and associations with the end in view that investments in these entities may
be encouraged and protected, and their activities pursued for the promotion
of economic development.—The first element requires that the controversy
must arise out of intracorporate 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

_________________

* SECOND DIVISION.

453

VOL. 274, JUNE 19, 1997 453

Lozano vs. De los Santos

or association and the State in so far as it concerns their individual

franchises. The second element requires that the dispute among the parties
be intrinsically connected with the regulation of the corporation, partnership
or association or deal with the internal affairs of the corporation, partnership
or association. After all, the principal function of the SEC is the supervision
and control of corporations, partnerships and associations with the end in
view that investments in these entities may be encouraged and protected,
and their activities pursued for the promotion of economic development.

Same; Same; There is no intracorporate nor partnership relation

between two jeepney drivers’ and operators’ associations whose plan to
consolidate into a single common association is still a proposal—
consolidation becomes effective not upon mere agreement of the members
but only upon issuance of the certificate of consolidation by the SEC.—
There is no intracorporate nor partnership relation between petitioner and
private respondent. The controversy between them arose out of their plan to
consolidate their respective jeepney drivers’ and operators’ associations into
a single common association. This unified association was, however, still a
proposal. It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation in accordance with
Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but only upon issuance
of the certificate of consolidation by the SEC. When the SEC, upon
processing and examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the provisions of
the Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official. The new
consolidated corporation comes into existence and the constituent
corporations dissolve and cease to exist.

Same; Same; The SEC has no jurisdiction over a dispute between

members of separate and distinct associations.—The KAMAJ-DA and
SAMAJODA to which petitioner and private respondent belong are duly
registered with the SEC, but these associations are two separate entities. The
dispute between petitioner and private respondent is not within the
KAMAJDA nor the SAMAJODA. It is between members of separate and
distinct associations. Petitioner and private respondent have no
intracorporate relation much less do they have an intracorporate dispute.
The SEC therefore has no jurisdiction over the complaint.

454

454 SUPREME COURT REPORTS ANNOTATED

Lozano vs. De los Santos

Same; Same; Corporation Law; Doctrine of Corporation by Estoppel;

The doctrine of corporation by estoppel cannot override jurisdictional
requirements—jurisdiction is fixed by law and cannot be acquired through
or waived, enlarged or diminished by, any act or omission of the parties,
and neither can it be conferred by the acquiescence of the court.—The
doctrine of corporation by estoppel advanced by private respondent cannot
override jurisdictional requirements. Jurisdiction is fixed by law and is not
subject to the agreement of the parties. It cannot be acquired through or
waived, enlarged or diminished by, any act or omission of the parties,
neither can it be conferred by the acquiescence of the court.

Same; Same; Same; Same; Equity; Corporation by estoppel is founded

on principles of equity and is designed to prevent injustice and unfairness,
and where there is no third person involved and the conflict arises only
among those assuming the form of a corporation, who know that it has not
been registered, there is no corporation by estoppel.—Corporation by
estoppel is founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into business
relations with third persons. Where there is no third person involved and the
conflict arises only among those assuming the form of a corporation, who
therefore know that it has not been registered, there is no corporation by
estoppel.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.

Willie B. Rivera for petitioner.
Yabut Law Office for private respondent.
PUNO, J.:

This petition for certiorari seeks to annul and set aside the decision
of the Regional Trial Court, Branch 58, Angeles City which ordered
the Municipal Circuit Trial Court, Mabalacat and Magalang,
Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner
Reynaldo M. Lozano filed Civil Case No. 1214 for damages

455

VOL. 274, JUNE 19, 1997 455

Lozano vs. De los Santos

against respondent Antonio Anda before the Municipal Circuit Trial

Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner
alleged that he was the president of the Kapatirang Mabalacat-
Angeles Jeepney Drivers’ Association, Inc. (KAMAJDA) while
respondent Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators’ and Drivers’ Association, Inc.
(SAMAJODA); in August 1995, upon the request of the
Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private
respondent agreed to consolidate their respective associations and
form the Unified Mabalacat-Angeles Jeepney Operators’ and
Drivers’ Association, Inc. (UMAJODA); petitioner and private
respondent also agreed to elect one set of officers who shall be given
the sole authority to collect the daily dues from the members of the
consolidated association; elections were held on October 29, 1995
and both petitioner and private respondent ran for president;
petitioner won; private respondent protested and, alleging fraud,
refused to recognize the results of the election; private respondent
also refused to abide by their agreement and continued collecting the
dues from the members of his association despite several demands to
desist. Petitioner was thus constrained to file the complaint to
restrain private respondent from collecting the dues and to order him
to pay damages
1
in the amount of P25,000.00 and attorney’s fees of
P500.00.
Private respondent moved to dismiss the complaint for lack of
jurisdiction, claiming that jurisdiction was lodged with the Securities
and Exchange Commission
2
(SEC). The MCTC denied the motion 3
on
February 9, 1996. It denied reconsideration on March 8, 1996.
Private respondent filed a petition for certiorari
4
before the
Regional Trial Court, Branch 58, Angeles City. The trial court
found the dispute to be intracorporate, hence, subject to

_______________

1 Complaint, Annex “C” to the Petition, Rollo, pp. 25-28.

2 Annex “D” to the Petition, Rollo, pp. 35-37.
3 Annex “E” to the Petition, Rollo, p. 37.
4 Civil Case No. 8237.

456

456 SUPREME COURT REPORTS ANNOTATED

Lozano vs. De los Santos

the jurisdiction of the SEC, 5and ordered the MCTC to dismiss Civil
Case 6No. 1214 accordingly. It denied reconsideration on May 31,
1996.
Hence this petition. Petitioner claims that:
“THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING
THAT THE SECURITIES AND EXCHANGE COMMISSION HAS
JURISDICTION OVER A CASE OF DAMAGES BETWEEN
HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO INTENDED
TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET
[SIC] APPROVED AND REGISTERED
7
WITH THE SECURITIES AND
EXCHANGE COMMISSION.”

The jurisdiction of the Securities and Exchange Commission (SEC)

is set forth in Section 5 of Presidential Decree No. 902-A. Section 5
reads as follows:

“Section 5. x x x [T]he Securities and Exchange Commission [has] original

and exclusive jurisdiction to hear and decide cases involving:

(a) Devices or schemes employed by or any acts of the board

of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or
organizations registered with the Commission.
(b) Controversies arising out of intracorporate 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.

_______________

5 Annex “A” to the Petition, Rollo, pp. 18-21.

6 Annex “B” to the Petition, Rollo, pp. 22-24.
7 Petition, p. 6, Rollo, p. 8.

457

VOL. 274, JUNE 19, 1997 457

Lozano vs. De los Santos

(c) Controversies in the election or appointment of directors,

trustees, officers or managers of such corporations,
partnerships or associations.
(d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases
where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall
due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities,
but is under the management of a Rehabilitation Receiver
or Management Committee created pursuant to this
Decree.”

The grant of jurisdiction to the SEC8 must be viewed in the light of

its nature and function under the law. This jurisdiction is determined
by a concurrence of two elements: (1) the status or relationship of
the parties; and (2)
9
the nature of the question that is the subject of
their controversy.
 The first element requires that the controversy must arise out of
intracorporate 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 10
and the State in so far as it
concerns their individual franchises. The second element requires
that the dispute among the parties be intrinsically connected with the
regulation of the corporation, partnership or association or deal with
the internal affairs of the corporation, partnership or associa-

_______________

8 Union Glass & Container Corporation v. Securities and Exchange Commission,

126 SCRA 32, 38 [1983].
9 Macapalan v. Katalbas-Moscardon, 227 SCRA 49, 54 [1993]; Viray v. Court of
Appeals, 191 SCRA 308, 323 [1990].
10 Union Glass & Container Corporation v. Securities and Exchange Commission,
supra, at 38; Agpalo, Comments on the Corporation Code of the Philippines, pp. 447-
448 [1993].

458

458 SUPREME COURT REPORTS ANNOTATED

Lozano vs. De los Santos
11
tion. After all, the principal function of the SEC is the supervision
and control of corporations, partnerships and associations with the
end in view that investments in these entities may be encouraged
and protected, and their 12
activities pursued for the promotion of
economic development.
There is no intracorporate nor partnership relation between
petitioner and private respondent. The controversy between them
arose out of their plan to consolidate their respective jeepney
drivers’ and operators’ associations into a single common
association. This unified association was, however, still a proposal.
It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation in accordance with
Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but13 only upon
issuance of the certificate of consolidation by the SEC. When the
SEC, upon processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not inconsistent
with the provisions of the Corporation Code and existing laws, it
issues a14certificate of consolidation which makes the reorganization
official. The new consolidated corporation comes into existence15
and the constituent corporations dissolve and cease to exist.
The KAMAJDA and SAMAJODA to which petitioner and
private respondent belong are duly registered with the SEC, but
these associations are two separate entities. The dispute

_______________

11 Dee v. Securities and Exchange Commission, 199 SCRA 238, 250 [1991];
Union Glass & Container Corporation v. Securities and Exchange Commission,
supra, at 38.
12 Union Glass & Container Corporation v. Securities and Exchange Commission,
supra, at 38, citing Whereas Clauses of P.D. 902-A.
13 Section 79, Corporation Code; Campos, The Corporation Code, Comments
Notes and Selected Cases, vol. 2, p. 447 [1990].
14 Lopez, The Corporation Code of the Philippines Annotated, vol. 2, p. 940
[1994].
 15 Section 80, Corporation Code.

459

VOL. 274, JUNE 19, 1997 459

Lozano vs. De los Santos

between petitioner and private respondent is not within the

KAMAJDA nor the SAMAJODA. It is between members of
separate and distinct associations. Petitioner and private respondent
have no intracorporate relation much less do they have an
intracorporate dispute. The SEC therefore has no jurisdiction over
the complaint. 16
The doctrine of corporation by estoppel advanced by private
respondent cannot override jurisdictional requirements. Jurisdiction17
is fixed by law and is not subject to the agreement of the parties. It
cannot be acquired through or waived, enlarged or diminished by,
any act or omission of the 18parties, neither can it be conferred by the
acquiescence of the court. Corporation by estoppel is founded on
principles 19of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a corporation
and exercise corporate functions and enter into business relations
with third persons. Where there is no third person involved and the
conflict arises only among those assuming the form of a corporation,
who therefore know that 20
it has not been registered, there is no
corporation by estoppel.
IN VIEW WHEREOF, the petition is granted and the decision
dated April 18, 1996 and the order dated May 31, 1996 of the
Regional Trial Court, Branch 58, Angeles City are set aside. The
Municipal Circuit Trial Court of Mabalacat and Magalang,
Pampanga is ordered to proceed with dispatch in resolving Civil
Case No. 1214. No costs.

_______________

16 Section 21, Corporation Code.

17 De Leon v. Court of Appeals, 245 SCRA 166, 176 [1995]; Lozon v. National
Labor Relations Commission, 240 SCRA 1, 11 [1995].
18 Lozon v. National Labor Relations Commission, supra, at 11 [1995]; De Jesus v.
Garcia, 19 SCRA 554, 558 [1967]; Calimlim v. Ramirez, 118 SCRA 399, 406 [1982].
19 Lopez, supra, vol. 1, pp. 340-341 [1994].
20 Hall v. Piccio, 86 Phil. 603, 605 [1950]; also cited in Agpalo, supra, at 85.

460

460 SUPREME COURT REPORTS ANNOTATED

Lozano vs. De los Santos

SO ORDERED.

Regalado (Chairman), Romero, Mendoza and Torres, Jr.,

JJ., concur.

Petition granted, judgment and order set aside.

Notes.—An otherwise ordinary action for recovery of certain

properties and sum of money with damages is transposed into an
intracorporate controversy calling for the adjudicative powers of the
SEC when the complaint alleges that an officer employed devices or
schemes tantamount to fraud and misrepresentation in order to divert
corporate funds and assets for his personal use. (Alleje vs. Court of
Appeals, 240 SCRA 495 [1995])
 In order that the SEC take cognizance of a case, the controversy
must pertain to any of the following relationships: (a) between
corporation, partnership or association and the public; (b) between
the corporation, partnership or association and its stockholders,
partners, members or officers; (c) between the corporation,
partnership or association and the State insofar as its franchise,
permit or license to operate is concerned; and (d) among
stockholders, partners or associates themselves. (Bernardo, Sr. vs.
Court of Appeals, 263 SCRA 660 [1996])

——o0o——

461

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