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1) Boracay Beach Club Hotel Inc. (BBCHI) borrowed P8 million from John Harrigan for resort construction. When BBCHI failed to pay upon demand, Harrigan filed a collection case. BBCHI argued the Securities and Exchange Commission (SEC) had jurisdiction since the complaint alleged fraud.
2) The Supreme Court ruled that regular courts had jurisdiction because the main issue was whether Harrigan was entitled to collect the loan, not whether he was defrauded. A mere mention of "fraud of creditors" does not give the SEC jurisdiction.
3) In a separate case, Mel Velarde borrowed P10 million from Lopez, Inc. and defaulted. When Lopez filed collection
1) Boracay Beach Club Hotel Inc. (BBCHI) borrowed P8 million from John Harrigan for resort construction. When BBCHI failed to pay upon demand, Harrigan filed a collection case. BBCHI argued the Securities and Exchange Commission (SEC) had jurisdiction since the complaint alleged fraud.
2) The Supreme Court ruled that regular courts had jurisdiction because the main issue was whether Harrigan was entitled to collect the loan, not whether he was defrauded. A mere mention of "fraud of creditors" does not give the SEC jurisdiction.
3) In a separate case, Mel Velarde borrowed P10 million from Lopez, Inc. and defaulted. When Lopez filed collection
1) Boracay Beach Club Hotel Inc. (BBCHI) borrowed P8 million from John Harrigan for resort construction. When BBCHI failed to pay upon demand, Harrigan filed a collection case. BBCHI argued the Securities and Exchange Commission (SEC) had jurisdiction since the complaint alleged fraud.
2) The Supreme Court ruled that regular courts had jurisdiction because the main issue was whether Harrigan was entitled to collect the loan, not whether he was defrauded. A mere mention of "fraud of creditors" does not give the SEC jurisdiction.
3) In a separate case, Mel Velarde borrowed P10 million from Lopez, Inc. and defaulted. When Lopez filed collection
MILA YAP SUMNDAD vs. JOHN WILLIAM HARRIGAN FACTS: Boracay Beach Club Hotel Inc. (BBCHI), represented by Petitioner Sumndad, borrowed a loan of at least P 8,000.00 from Respondent Harrigan for the construction of a resort in Boracay. Upon demand, BBCHI failed to pay. On March 6, 1995, Harrigan filed an amended complaint impleading the management committee of BBCHI. The lower courts ruled in favor of Harrigan ordering BBCHI to settle their loan. However, Sumndad insists that it is the SEC that has jurisdiction by virtue of PD No. 902-A (Reorganization of the Securities and Exchange Commission with Additional Powers) because the complaint alludes to fraud committed by BBCHI, and the Harrigan is a stockholder of the respondent corporation. Harrigan, on the other hand, maintains that jurisdiction is lodged with the regular courts, it being a simple collection case. ISSUE: Sinetch ang may jurisdiction over the case? Is it the SEC or the regular courts? HELD: It would be the REGULAR COURTS. Harrigan seeks to collect from BBCHI his advances or loans in the amount of at least P8 million, which are demandable in character. The cause of action of the suit is, clearly, for the collection of a sum of money. However, petitioner interprets said collection complaint as one involving mainly the issue of fraud committed by respondent corporation, which makes the controversy fall under the ambit of PD 902-A. But according to the SC, the main issue of the totality of the complaint filed by Harrigan is whether or not he is entitled to collect the loan and not whether or not he was defrauded by BBCHI. The mere use of the phrase "in fraud of creditors" does not, ipso facto, throw the case within SECs jurisdiction. The law on jurisdiction of the SEC, Section 5 of PD 902-A, states that in addition to the regulatory and adjudicative functions of the SEC over corporations, partnerships and other forms of associations registered with it as expressly granted under the existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving devises or schemes employed by or any acts of the Board of Directors, business associates, its officers and partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or to the stockholders, partners, members of associations or organizations registered with the Commission.
MEL VELARDE vs. LOPEZ, INC G.R. No. 153886 January 14, 2004
FACTS: On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation, a subsidiary of respondent, as BORROWER, forged a notarized loan agreement covering the amount of P10,000,000.00. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default which would give the lender the right to declare the loan together with accrued interest immediately due and payable. As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the latter and gives his written instructions to it. Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed unliquidated advances from Sky Vision had already been properly liquidated. On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the RTC of Pasig City against petitioner because of failure to comply with the loan agreement and refusal to pay upon demand. Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to hold respondent liable for his counterclaims. RTC of Pasig denied respondents motion to dismiss the counterclaim and ruled that there is identity of interest between respondent and Sky Vision to merit the piercing of the veil of corporate fiction. Respondents motion for reconsideration having been denied, it filed a Petition for Certiorari at the CA which held that respondent is not the real party-in-interest on the counterclaim and that there was failure to show the presence of any of the circumstances to justify the application of the principle of "piercing the veil of corporate fiction." Motion for Reconsideration was likewise denied. Hence this Petition for Review on Certiorari. ISSUE: Whether or not the veil of corporate fiction must be pierced to hold respondent liable. RULING: In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know the legal and binding effects of loan agreements. As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is untenable. In the letter sent to petitioner it was mentioned that, to effect a set-off, it is a condition sine qua non that the approval thereof by "Sky/Central" must be obtained, and that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky Vision as to make the latter its mere instrumentality, agency or adjunct.