Baguio Skyworld Condominium Corp. vs. Skyworld Condominium Owners Association

[SEC-AC NO. 297. September 14, 1990.] BAGUIO SKYWORLD CONDOMINIUM CORP. , petitioner , vs . SKYWORLD CONDOMINIUM OWNERS ASSOCIATION, INC. , respondent . SKYWORLD CONDOMINIUM OWNERS ASSOCIATION, INC. , petitioner , vs. SKYWORLD CONDOMINIUM CORPORATION , respondent . SKYWORLD CONDOMINIUM OWNERS' ASSOCIATION, INC. O R D E R For resolution by the Commission en banc is the appeal of Skyworld Condominium Owners Association, Inc. from the Resolution of the Prosecution and Enforcement Department of the Securities and Exchange Commission dated December 12, 1989 revoking its certificate of registration upon the ground of fraud/misrepresentation in the procurement of its certificate of registration pursuant to P.D. 902-A. However, the aforementioned appeal may be treated as a motion for reconsideration for reasons to be discussed subsequently. The antecedent facts are as follows. Inter-Realty Development Corporation (IRC) was the land owner and condominium developer of the Skyworld Condominium Project. IRC then mortgaged the said condominium project in favor of China Banking Corporation (CBC) to secure a loan obtained from the latter. Upon the failure of IRC to pay its mortgage indebtedness to CBC, the latter foreclosed the condominium project. Since IRC failed to redeem the foreclosed condominium, CBC thereby consolidated its ownership over 78% of the condominium's residential units as well as all the common areas therein, as evidenced by the Sheriff's Certificate of Sale dated April 11, 1983. Thereupon, subsequent events have not been so kind when two condominium corporations were incorporated to manage the same condominium project thereby causing the present controversy. On March 21, 1985, Skyworld Condominium Owners Association, Inc. (SCOAI) was incorporated and duly registered with the Securities and Exchange Commission. On September 19, 1986, Baguio Skyworld Condominium Corporation (BSCC) was likewise issued a Certificate of Registration by the Securities and Exchange Commission. On June 20, 1988, BSCC filed a petition for the revocation of the certificate of registration of SCOAI with the Prosecution and Enforcement Department (PED), docketed as "Baguio Skyworld Condominium Corporation vs. Skyworld Condominium Owners Association, Inc." ( PED Case No. 88-0418 ). On December 16, 1988, SCOAI filed its answer to the above petition raising therein a counter-petition that the certificate of registration of BSCC be revoked. On January 13, 1989, and while the above PED case was still pending, SCOAI filed an action for the revocation of the certificate of registration of BSCC before the Securities Investigation and Clearing Department (SICD), docketed as "Skyworld Condominium Owners Association, Inc. vs. Baguio Skyworld Condominium Corporation, et al." ( SEC Case No. 3493 ). On July 5, 1989, Hearing Officer Rolando Malabonga of the SICD issued an Order endorsing said SEC Case No. 3493 to the PED, stating that the same calls for the revocation of corporate franchise which under the Rules of the Commission should have been filed with the PED. On July 25, 1989, Senior SE Specialist Norberto Ruiz of the PED issued an Order consolidating SEC Case No. 3493 with PED Case No. 88-0418 to avoid multiplicity of suits and to further prevent delay, unnecessary costs and expenses to the parties. On September 11, 1989, a hearing was conducted by Hearing Officer Norberto Ruiz before the PED wherein counsels of both BSCC and SCOAI were present. The hearing ended with an agreement by both parties to submit their respective memoranda. On December 12, 1989, the PED issued the questioned Resolution revoking the certificate of registration of SCOAI signed by Special Prosecutor Norberto Ruiz and approved by Director Elnora Adviento. On the same day, Director Adviento presented the resolution before the Commission en banc which in turn resolved to approve the same, as recommended. On January 12, 1990, SCOAI through counsel filed a motion for reconsideration with the PED which was denied on April 20, 1990. After having received the resolution denying the said motion on May 4, 1990, SCOAI filed its Notice of Appeal on May 6, 1990. The issues involved in this case are the following; to wit: 1. Whether or not Special Prosecutor Norberto Ruiz of the PED properly acted in behalf of the SEC in revoking the certificate of registration of SCOAI. 2. Whether or not SCOAI was denied due process of law. 3. Whether or not the certificate of registration of SCOAI was validly revoked pursuant to Section 6 of P.D. No. 902-A. The first issue may be resolved by an analysis of the jurisdiction of the SEC to order the revocation of certificates of registration of erring corporations upon grounds provided by law. Section 5 of P.D. 902-A provides: SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations, . . . between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; Section 6 of P.D. No. 902-A likewise provides: SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx (1) To suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: 1. Fraud in procuring its certificate of registration; xxx xxx xxx In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. xxx xxx xxx Moreover, P.D. No. 1758 likewise provides: SECTION 6. The Prosecution and Enforcement Department shall have, subject to the Commission's control and supervision the exclusive authority to investigate, on complaint or motu proprio, any act or omission of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their stockholders, officers, or partners, including any fraudulent devices, schemes or representations, in violation of any law or rules and regulations administered and enforced by the Commission; to file and prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate cases, the corresponding criminal or civil case before the Commission or the proper court or body upon prima facie finding of violation of any law or rules and regulations administered and enforced by the Commission; and to perform such other powers and functions as may be provided by law or duly delegated to it by the Commission . (Emphasis supplied) It is clear from the foregoing that the Commission has the authority to revoke the certificate of registration of erring corporations. Such an authority may validly be delegated to hearing officers of various departments of the Commission whose decisions, rulings or orders may be appealed to the Commission en banc within thirty (30) days after receipt of notice of such decision, ruling or order. Consequently, Special Prosecutor Norberto Ruiz merely exercised his delegated authority in issuing the disputed resolution revoking the certificate of registration of SCOAI. In other words, Atty. Ruiz acted in behalf of the Commission when he issued the said resolution. Although the revocation of a certificate of registration of a corporation is meting death to a juridical person such that the same cannot be taken lightly as correctly pointed out by counsel of SCOAI, such an eventuality is not without sufficient safeguards since the law allows the Commission en banc to review such decisions, rulings or orders on appeal. Furthermore, the decision, ruling or order of the Commission en banc may likewise be appealed to the Supreme Court by way of petition for review on certiorari. Although it seems that the authority of the PED under P.D. No. 1758 is limited to investigation and prosecution, it is submitted that the same must be applied in connection with the filing of the corresponding criminal or civil cases before the Commission or the proper court or body. In other words, such criminal or civil cases may be filed by the PED in the regular courts while civil cases may be filed with the SICD if the Commission has jurisdiction over the same. With respect to administrative cases such as revocation of certificates of registration, the various departments of the Commission including the PED may hear and decide the same subject of course to review by the Commission en banc on appeal. Hence, Special Prosecutor Norberto Ruiz properly acted in behalf of the SEC in revoking the certificate of registration of SCOAI. It must be noted, however, that since the Commission en banc has approved the said resolution of the PED, then the instant appeal shall be treated as a motion for reconsideration. The second issue may be resolved by the nature of administrative proceedings before the different departments of the Commission. It is a fundamental principle in Administrative Law that the atmosphere of administrative tribunals may be one of expeditiousness, expertness, or liberally conceived remedies, and whether by provision of statute, official rule, or by judicial decision, it is a general rule that they are unrestricted by the technical or formal rules of procedure which govern trials before a court. (Gonzales; Administrative Law, p. 95; citing 42 Am. Jur. pp. 445-446.) Moreover, the general rule is that administrative tribunals are not bound by the strict or technical rules of evidence governing court proceedings even though the administrative agency is acting in an adjudicatory capacity such that they are given great leeway in hearing and considering the variety of material as evidence, and the receipt and consideration of incompetent evidence is not a denial of due process. However, the exemption from strict rules of evidence does not empower an administrative agency to act arbitrarily. (Gonzales; Administrative Law, p. 99-100; citing 2 Am. Jur. 2d pp. 183-185.) At this point, it is necessary to determine whether or not Special Prosecutor Norberto Ruiz acted arbitrarily in issuing the disputed resolution. As borne by the Transcript of Stenographic Notes (TSN) covering the hearing held on September 11, 1989, it is clear that SCOAI through counsels agreed to file its memorandum and submit its documentary evidence attached thereto (TSN, p. 27). If SCOAI really intended formal hearings, it should have so manifested before the Hearing Officer before agreeing to the filing of its memorandum. Based on the TSN, SCOAI through counsels seemed eager to present its evidences through its memorandum (TSN, p. 26). Now, after receiving an adverse decision from the PED, SCOAI invokes violation of due process since no formal offer of evidence was made. In the case of Tijam vs. Sibonghanoy, et al., G.R. No. L-21450, April 15, 1968, the Supreme Court held that "after voluntarily submitting a cause and encountering an adverse decision on the merits it is too late for the loser to question the jurisdiction or power of the court . . . it is not right for a party who has affirmed and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwards deny that same jurisdiction to escape a penalty". This ruling was upheld on the basis of the doctrine of estoppel by laches in the case of Rodriguez vs. CA (L-29264, August 29, 1969). Since Special Prosecutor Ruiz did not act arbitrarily, the general rule on relaxing technical rules in administrative proceedings was properly followed in this case through the submission of the case for resolution on the basis of the memoranda filed by the parties. Indeed, due process in administrative proceedings does not necessarily require a full blown hearing but rather an opportunity to be heard. Submitting memoranda together with evidences attached thereto is sufficient compliance with administrative due process there being an opportunity to be heard. prLL As a final note, SCOAI argued that Special Prosecutor Ruiz ignored the findings of the Regional Trial Court in an injunction case involving the same matters and issues herein that SCOAI is the legitimate condominium corporation since it was registered before BSCC. This argument is without merit. The said ruling of the Regional Trial Court is not binding because the regular courts have no jurisdiction over the instant case before the SEC. Granting arguendo that the issue raised in the Regional Trial Court is properly cognizable by the said court, well-settled is the rule that findings of fact of administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. (Gokongwei, Jr. vs. Securities and Exchange Commission, G.R. No.L- 45911, April 11, 1979) On the other hand, SEC Case No. 3035 wherein BSCC was ordered to cease and desist from interfering with the management of Skyworld Condominium Project by SCOAI "until such time as this Commission may order otherwise" cannot be given great weight in the instant case. In exercising its quasi-judicial functions, the SEC can always reverse itself as shown in the above-quoted proviso. Precisely, the disputed resolution in this case which was duly approved by the Commission en banc clearly falls under the said proviso. Hence, SCOAI was not denied due process of law. The third issue may be resolved pursuant to the provisions of RA No. 4726, otherwise known as the Condominium Act. In essence, the disputed resolution revoked the certificate of registration of SCOAI upon the ground of fraud in procuring the same. The revocation was buttressed on the following findings by the PED. First, it was discovered that the incorporators of SCOAI, except Mr. Angel Bautista, were not at the time of incorporation unit owners of the Condominium Project. The said incorporators have not fully paid for their respective units as shown in the report prepared by Mr. Antonio B. Dayrit who is the trust officer of China Banking Corporation. This piece of evidence is corroborated by the findings of the Register of Deeds of Baguio that said incorporators are not registered owners of any condominium unit in the Skyworld Condominium. Under Section 10 of the Condominium Act, "when a member or a stockholder ceases to own a unit in the project in which the condominium corporation owns or holds the common areas, he shall automatically cease to be a member or stockholder of the condominium corporation". This provision has been interpreted by the Supreme Court in the case of Sunset view Condominium Corporation vs. Campos, Jr., G.R. No. 52361 April 27, 1981, to mean that ownership of a unit is an indispensable requisite for becoming a shareholder of the condominium corporation, as shown below: "The share of stock appurtenant to the unit will be transferred accordingly to the purchases of the unit only upon full payment of the purchase price at which time he will also become the owner of the unit. Consequently, even under the contract, it is only the owner of a unit who is a shareholder of the Condominium Corporation. Inasmuch as ownership is conveyed only upon full payment of the purchase price, it necessarily follows that a purchaser of unit who has not paid the full purchase price thereof is not the owner of the unit and consequently is not a shareholder of the Condominium Corporation." Under Section 5 of the Corporation Code, incorporators must be shareholders of the corporation. Since the said incorporators of SCOAI were not shareholders of the said condominium corporation by virtue of non-payment of the full purchase price of their respective units thereof, then the same may be a ground for revocation of SCOAI's certificate of registration. Second, it was argued by BSCC that SCOAI is not the condominium corporation contemplated by the master deed as it was not organized by the IRC, the original developer, or CBC, the developer's successor-in-trust. On the other hand, SCOAI argued that it was organized and registered with the prior knowledge and consent of China Banking Corporation and IRC. Under Section 8 of the Master Deed of the Skyworld Condominium Project, "the developer shall form and organize a condominium corporation pursuant to the provisions of the Condominium Act and of the Corporation Law, as amended, for the purpose of holding title to all common areas and of managing the Project." It was previously mentioned that CBC consolidated its ownership over the Skyworld Condominium Project thereby being the successor-in-trust of the developer IRC. Consequently, BSCC was properly organized by CBC since it stepped into the shoes of IRC. Even though it was established by proper documentary evidence that CBC consented to the organization of SCOAI, such consent must be consistent with the provisions of the Condominium Act and the Corporation Law as provided in the Master Deed of the Condominium Project. Since not all of the incorporators of SCOAI were shareholders of the said condominium corporation, SCOAI cannot be considered to have been validly incorporated. It follows then that SCOAI's incorporation runs contrary to the Master Deed since it was not pursuant to the provisions of the Condominium Act and the Corporation Law. Hence, SCOAI cannot be deemed as the condominium corporation formed and organized by the developer IRC or its successor-in-interest CBC. WHEREFORE, in view of the foregoing, the motion for reconsideration filed by Skyworld Condominium Owners Association, Inc. should be DENIED accordingly for lack of merit. SO ORDERED. (SGD.) ROSARIO N. LOPEZ Chairman (did not participate) (SGD.) GONZALO T. SANTOS, JR. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner Associate Commissioner (SGD.) ARMANDO Z. GONZALES (SGD.) MERLE O. MANUEL Associate Commissioner Associate Commissioner