In the Matter of Princessa Holiday Resort, Inc.

May 6, 2013 SEC EN BANC CASE NO. 10-07-118 IN THE MATTER OF PRINCESSA HOLIDAY RESORT, INC. DECISION FACTS OF THE CASE Sometime in 2004, petitioner Princessa Holiday Resort, Inc. ("PHRI") and Golden Holidays Asia, Inc. ("GHAI") agreed to implement a vacation program for members of the resort owned by PHRI in Palawan, which necessitated the sale of membership certificates and the registration of securities and permit to sell the securities. GHAI took care of the processing of the application for registration of the membership certificates with the Commission. On 30 January 2006, the Commission promulgated an Order stating that the Commission in its meeting of 19 January 2006 resolved to render effective the Registration Statement of PHRI covering its six hundred fifty-four (654) non-proprietary membership certificates covering two million nine hundred forty-four thousand five hundred (2,944,500) PHRI credits. This is however subject to the conditions that 1) PHRI will submit the titles over fourteen (14) accommodation units in its name within ninety (90) days from the date of the order; and 2) PHRI shall submit to the Commission the title to the land, on which the resort is located and registered under the name of PHRI, within ninety (90) days from June 2011. A certificate of permit to sell securities in favor of PHRI authorizing the sale of the said securities was also issued with the order. HICSaD Problem is, PHRI failed to submit the titles over the fourteen (14) accommodation units as required by the Order. Thus, PHRI did not sell a single membership certificate contained in the order up and until this time. Considering that it failed to submit the required titles, PHRI was under the impression that the registration of its securities have not ripened. Nonetheless, on 7 November 2006, PHRI wrote the Corporation Finance Department ("CFD") of the Commission regarding its decision to discontinue the time share activity project. In the same letter, it was stated that a certain Mr. Ireneo of GHAI has been duly informed of PHRI's decision and that Mr. Ireneo will return to the Commission all official documents. GHAI will likewise arrange a meeting with the Commission to explain PHRI's decision. As PHRI did not receive any reply from CFD, PHRI presumed that it was no longer registered with respect to the time share certificates of holiday credits. PHRI also interpreted CFD's silence to mean that it is no longer required to file SEC Form 11-Q for the first quarter of 2007. Sometime in July 2007, however, PHRI was asked by the CFD to show cause why it should not be penalized for PhP65,900.00 for its failure to file SEC Form 11-Q which was due on 14 May 2007. PHRI sought for reconsideration on 16 August 2007 but the CFD, in a letter dated 11 September 2007 by CFD Director Justina F. Callangan, nonetheless directed the Company to pay the assessed penalty of PhP65,900.00. PHRI was also ordered to show cause why it should not be made liable for its non-submission of its 2nd Quarterly Report within five (5) days from receipt of the denial of its letter of reconsideration, and enjoined to file immediately its 2006 Annual Report and 2007 1st and 2nd Quarterly Reports in order to arrest the daily accrual of penalties. DETACa Aggrieved, PHRI filed the present appeal on 09 October 2007. On 11 March 2008, the CFD was required to submit its Reply-Memorandum and serve PHRI a copy within ten (10) days from the receipt of the Order, and failure to file the required pleading within the prescribed period "shall be deemed as waiver on its part to file the same." 1 The CFD did not file its Reply-Memorandum. ISSUE The sole issue in this case is whether PHRI should be made liable to pay PhP65,900.00 for its failure to file SEC Form 11-Q which was due on 14 May 2007. 2 OUR RULING In its attempt at exoneration, PHRI harps on its supposed honest belief that it was no longer required to file SEC Form 11-Q for the first quarter of 2007. PHRI buttresses its stance with the fact that on 7 November 2006, it wrote the CFD of the Commission regarding its decision not to push through with the time share activity. The same letter also informed the CFD that Mr. Ireneo of GHAI has been duly informed and will return to the Commission all official documents and that GHAI will arrange a meeting with the Commission to explain PHRI's decision. In other words, PHRI faults the CFD of not responding to its letter which it claims is "practically a major reason" for PHRI to consider that its time share holiday credits are no longer registered with the Commission and thus it is no longer subject to the reportorial requirements which are the subject of the penalties being imposed by the CFD. 3 We are not convinced, as PHRI is not without fault as it would want us to believe. Our reasons for saying so follow. aIEDAC First. On 9 November 2006, a hearing was held before the Commission where Mr. Arvin Marquez of GHAI appeared for and in behalf of PHRI. The summary minutes of hearing on that day states that Mr. Marquez manifested that GHAI had previously filed a letter informing the Commission that the Board of Directors of PHRI has decided not to pursue its time share activity project. For this purpose, Mr. Marquez also informed the Commission that PHRI will file the necessary petition to revoke its registration of securities. In view of the manifestation of Mr. Marquez, the CFD hearing officer directed PHRI 1) to submit the necessary petition for voluntary revocation of registration of securities, together with the supporting documents set forth in Rule 13 of the Implementing Rules and Regulations of the Securities Regulation Code (IRR of the SRC), including the a) Latest interim quarterly Financial Statement (FS); b) Board Resolution certifying the company decision not to pursue its time share business and to file the appropriate petition for voluntary revocation; and 2) to submit all reports due and/or settle any outstanding assessment, if any, on or before 24 November 2007. 4 PHRI, however, retorts that during the 9 November 2006 hearing, Mr. Marquez "was not even asked to submit any appropriate authorization to appear in behalf of PHRI," 5 implying that GHAI was not authorized to act for and on its behalf. DAcSIC We are not persuaded. PHRI cannot deny the fact that GHAI is its agent because PHRI itself states in its petition that GHAI " took care of the processing of the application for registration of the membership certificates ," 6 and as "[p]roof," 7 the letter dated 3 January 2006 of GHAI's incorporator-director and operation manager to PHRI's chairman was attached as Annex "A" of the petition. The first paragraph of the letter states that the letter was written " in connection with our current activity to obtain from the [Commission] to sell time shares [PHRI] ." 8 Moreover, the fourth paragraph of the letter states that "[w]e will appreciate receiving an updated Certified True Copy of the land title with the revised annotation for the lease agreement within the 30-day period given to us by the [Commission]. We believe that this is the last hurdle for getting [the Commission] approval on our time share project. We attach a copy of the SEC letter dated December 27, 2005 addressed to you which was faxed to us on January 2, 2006 ." 9 Moreover, PHRI itself admitted when it narrated in its letter of reconsideration filed with the Commission on 16 August 2006, the circumstances of its arrangement with GHAI regarding the registration of securities for the time share project. Sometime in 2004[,] [GHAI] approached [PHRI] with a proposal for a creation of a time-share activity. Upon the representation of [GHAI] that they will process before the [Commission] all the necessary requirements to obtain registration and permits to sell time share activities program, PHRI was convinced and agreed to the proposal of [GHAI]. A Memorandum of Agreement was entered between [GHAI] and [PHRI], attached as Annex A . . . . Pursuant to the agreement, PHRI did not go to the [Commission] to file and process any application for any share membership registration and permit to sell the same. It was the [GHAI] personnel (Arvin Marquez and Cesar P[.] Sotto[,] Jr.) who undertook to prepare all documents and processed the same at [the Commission]. PHRI merely signed papers prepared by [GHAI] for submission to [the Commission]. 10 aAHSEC That GHAI is PHRI's agent is also, indicated by the latter's 7 November 2006 letter to CFD, saying that "Mr. Irineo of Golden Holidays has been duly informed and will return to the SEC all official documents such as preliminary authorization. Golden Holidays will also arrange a meeting with SEC to explain the case." PHRI's admission in its petition; the letter dated 3 January 2006 by GHAI's incorporator-director and operations manager to PHRI's chairman; PHRI's letter of reconsideration filed on 16 August 2006; and PHRI's letter of 7 November 2006, indubitably indicate that PHRI and GHAI had in fact a previous understanding that GHAI is tasked to handle the processing of the application for registration of the membership certificates for the time share project before the Commission, including its suspension revocation. In other words, PHRI is the principal while GHAI is the agent as far as processing of the registration of securities for the time share project is concerned, as well as its revocation thereof. Note that the contract of agency "may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. 11 Agency may also "be oral, unless the law requires a specific form." 12 We are, of course, fully aware that Article 1878 of the Civil Code 13 provides for the instances where a special power of attorney is necessary in order for the agent to be able to bind the principal. However, the act of GHAI in appearing for and on behalf of PHRI befo re the CFD during the hearing on 9 November 2006 is not one of them. AECacT PHRI, however, claims that the hearing on 9 November 2006 was for another matter, i.e. , "due to the intention to suspend the permit to sell due to failure to submit the certified true copy of the certificates of Title which was a condition given by the Commission for the Approval of the Registration Statement." 14 Assuming arguendo that PHRI's contention is correct, still, the summary minutes of hearing on that day is crystal clear that the CFD hearing officer made the order for PHRI to file the necessary petition for voluntary revocation, together with the supporting documents, on or before 24 November 2007, after Mr. Marquez manifested that PHRI earlier wrote the Commission of the Company's decision not to pursue its time share activity. Due process was therefore complied. It is also for this reason that PHRI cannot conveniently make the excuse that it presumed that its securities for the time share project are no longer registered and thus it is no longer subject to the reportorial requirement since CFD failed to respond to its letter dated 7 November 2006 informing the CFD regarding its decision not to push through with the time share activity. It behooves PHRI of inquiring from GHAI or directly from the Commission of what actually transpired during the hearing on 9 November 2006. It has only itself to blame for not doing so. He who seeks relief must do so with clean hands. 15 PHRI miserably fails in this regard. Next, PHRI pins the blame on GHAI because allegedly, what transpired during the 9 November 2006 was never relayed to PHRI by anyone from GHAI. 16 Having been established that GHAI is PHRI's agent, PHRI is governed by the rule that a principal is bound by the acts of his agent acting within the scope of his legitimate authority; and the consequences of the dishonesty of the agent must be borne by the principal rather than by an innocent third party who has dealt with the agent in good faith, 17 in this case, the CFD. Second. A company registering its securities with the Commission, in this case PHRI, has no right to presume that the effectivity of its approved registration of securities has been revoked for whatever reason. This is so because there is no such thing as automatic revocation of registered securities. Section 13.1 of the SRC clearly provides that " the Commission may reject a registration statement and refuse registration of the security thereunder, or revoke the effectivity of a registration statement and the registration of the security thereunder after due notice and hearing by issuing an order to such effect, setting forth its findings in respect thereto . . . ." 18 TCaEIc It is thus provided that, an application for voluntary revocation of registered securities shall be effected by filing the following: "i. Verified Petition for Revocation of Registration and permit to Sell Securities to the Public; ii. Board resolution approving said revocation, certified under oath by the Corporate Secretary and attested to by the President or one performing similar function; iii. List of Stockholders indicating their respective shareholdings as of the latest date; iv. Proposed Notice of Filing of petition for Voluntary Revocation of Registration of its Securities, reciting the facts supporting the said petition and that the same is subject to the approval of the Commission; and v. Copy of Official Receipt representing payment of filing fee in the amount of Five Thousand Pesos (P5,000.00) or such amount as the Commission may determine." 19 The Commission may also impose such other requirements or conditions as it may deem necessary, which may include an Order to produce all the books and papers of the petitioner and to administer oaths to, and examine its officers or other persons connected therewith. 20 The voluntary revocation of registered securities should also comply with the following procedures: ISAaTH "i. Upon presentation of the documents required for voluntary revocation of registration of securities, the Notice of Filing of petition for Voluntary Revocation shall be immediately published by the Commission, at the expense of the petitioner, once in a newspaper of general circulation; ii. If after fifteen (15) business days from the aforesaid publication, the Commission finds that the petition together with all other papers and documents attached thereto, is on its face complete and that no party stands to suffer damage thereby, it shall prepare an Order revoking said Registration, without prejudice to the filing of claims for damages, by the courts of justice [; and] iii. The Order of Revocation shall be published once, in a newspaper of general circulation, at the expense of the company and/or uploaded at the SEC Website." 21 It is beyond cavil that the law, in prescribing the procedures, ensures both the protection of the Company registering securities and the public at large which may eventually be the buyers of the securities. The Company registering securities is protected because it is guaranteed that due process is involved before its right to issue securities is curtailed. On the other hand, the public at large is protected because it is warned that it should not deal with securities that were rejected registration or whose registration was revoked. ETIDaH We note that as stated by CFD Director Justina F. Callangan in her letter dated 11 September 2007, PHRI subsequently filed its petition for revocation of certificate of registration and permit to sell securities on 24 July 2007. Director Callangan, however, correctly observed that the petition "failed to fully comply with the requirements set out in Rule 13 (4) of the SRC, particularly, the submission of a complete and updated list of shareholders indicating their respective shareholdings duly certified under oath by the Corporate Secretary and attested to by the President." 22 Moreover, the proposed notice of filing the petition 'is not in accordance with the form prescribed by the Commission.' 23 We also reiterate Director Callangan's clarification that "mere filing of the petition for voluntary revocation does not ipso facto render the company exempt from regulations including its duty to submit periodic reports." 24 This is so because as a reporting company, "it has the continuing duty to comply with its reportorial obligations as provided in Sections 17 & 20 of the SRC and its [IRR] to any action by the Commission on its pending revocation of its securities registration." 25 There having been no revocation of the registration of its securities, PHRI was mandated, but failed to file its Quarterly Report (SEC Form 17-Q) for the first quarter of 2007, which became due on 14 May 2007. The Notification of Suspension of Duty to File Reports under Section 17 of the SRC (SEC Form 17-EX) that PHRI filed on 31 July 2007 does not absolve the company from liability, as the same was filed after the obligation to file the SEC Form 17-Q already arose. Neither could its 7 November 2006 letter to CFD take the place of SEC Form 17-EX because: (1) said letter of 7 November 2006 actually is not a notice for suspension of obligation to file reports but a notice to discontinue with the application for registration of securities 26 (which is a mistake, since the Registration Statement was already rendered effective); and (2) the same is not in accordance with the form prescribed (SEC Form 17-EX). TDEASC FALLO WHEREFORE, premises considered, the instant petition is DENIED. SO ORDERED. Mandaluyong City, May 6, 2013. (SGD.) TERESITA J. HERBOSA Chairperson on official business MA. JUANITA E. CUETO Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner on leave ELADIO M. JALA Commissioner (SGD.) ANTONIETA F. IBE Commissioner Footnotes 1. Rollo , at 59. 2. In its petition, PHRI does not question the Commission's order to show cause why it should not be made liable for its non-submission of its 2nd quarterly report within five (5) days from receipt of the denial of its letter of reconsideration, and to file immediately its 2006 annual report and 2007 1st and 2nd quarterly reports in order to arrest the daily accrual of penalties. It may be presumed, however, that this was a deliberate move, considering that if it will be ruled that PHRI is not liable to pay the PhP65,900.00 fine, then logic would dictate that it would also not have the obligation to follow the rest of the Commission's order. 3. Rollo , at 59. 4. Id., at 3 . 5. Id., at 42. 6. Id., at 7. Emphasis supplied. 7. Id., at 46. 8. Id. 9. Id. Emphasis supplied. 10. Id. Emphasis supplied. 11. Civil Code, Article 1869. 12. Id. 13. Art. 1878. Special powers of attorney are necessary in the following cases: (1) To make such payments as are not usually considered as acts of administration; (2) To effect novations which put an end to obligations already in existence at the time the agency was constituted; (3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; (4) To waive any obligation gratuitously; (5) To enter into any contract by which the ownership of an immovable is transmitted or Acquired either gratuitously or for a valuable consideration; (6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent; (7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; (8) To lease any real property to another person for more than one year; (9) To bind the principal to render some service without compensation; (10) To bind the principal in a contract of partnership; (11) To obligate the principal as a guarantor or surety; (12) To create or convey real rights over immovable property; (13) To accept or repudiate an inheritance; (14) To ratify or recognize obligations contracted before the agency; (15) Any other act of strict dominion. (n) 14. Rollo , at 54. 15. Villanueva v. Villanueva , G.R. No. 39440, 14 March 1934, 59 Phil. 664. 16. Rollo , at 42. 17. Seng v. Trinidad, G.R. No. 16671, 30 March 1931, 41 Phil. 544. 18. G.R. No. 39440, 14 March 1934, 59 Phil. 664. Emphasis supplied. 19. SRC Rule 13 (4) (A) of the IRR of the SRC. 20. SRC Rule 13 (4) (B), id. 21. SRC Rule 13 (4) (C), id. 22. Rollo , at 1. 23. Id. 24. Id. 25. Id. 26. Rollo , p. 54 and p. 45.