Lozano vs. De Los Santos

The SEC does not acquire jurisdiction over a dispute between members of separate associations who merely agreed to consolidate but have not yet obtained a certificate of consolidation from the SEC, because no intracorporate relationship exists until the consolidation becomes officially effective.

Petitioner Reynaldo M. Lozano and private respondent Antonio Anda were the presidents of two separate jeepney drivers' and operators' associations—KAMAJDA and SAMAJODA, respectively—both duly registered with the SEC. In August 1995, at the request of the Sangguniang Bayan of Mabalacat, Pampanga, they agreed to consolidate their associations into a single entity, the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. (UMAJODA). They further agreed to elect one set of officers who would have the sole authority to collect daily dues from members. Elections were held on October 29, 1995, wherein Lozano won the presidency. Anda protested the results, alleged fraud, refused to recognize Lozano's victory, and continued collecting dues from the members of his original association despite demands to desist.

• The Parties and Their Associations: Petitioner Reynaldo M. Lozano was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA), while private respondent Antonio Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA). Both associations were duly registered with the SEC but were separate and distinct entities.
• The Plan to Consolidate: In August 1995, the Sangguniang Bayan of Mabalacat, Pampanga, requested the two associations to consolidate. Lozano and Anda agreed to form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. (UMAJODA) and to elect one set of officers who would possess the sole authority to collect daily dues from the members.
• The Disputed Election: Elections were held on October 29, 1995. Lozano won the presidency. Anda protested the results, alleged fraud, and refused to recognize the outcome. Anda thereafter continued collecting dues from the members of his original association, SAMAJODA, despite demands to desist.
• The Complaint for Damages: Constrained by Anda's actions, Lozano filed Civil Case No. 1214 for damages before the MCTC, seeking to restrain Anda from collecting dues and to recover P25,000.00 in damages and P500.00 in attorney's fees.
• Lack of SEC Approval for Consolidation: The proposed consolidated association, UMAJODA, had not been approved by the SEC. Its officers and members had not submitted articles of consolidation in accordance with the Corporation Code, and no certificate of consolidation had been issued.

• Petitioner argued that the respondent judge acted with grave abuse of discretion amounting to lack or excess of jurisdiction in concluding that the SEC has jurisdiction over a case for damages between presidents of two associations who merely intended to consolidate their associations, but whose consolidation had not yet been approved or registered with the SEC.

• Respondent Anda countered that the MCTC lacked jurisdiction because the dispute was intracorporate in nature, thereby falling under the exclusive original jurisdiction of the SEC. Respondent further advanced the doctrine of corporation by estoppel to treat the proposed consolidated association as a de facto corporation.

• Procedural Issues: Whether the RTC committed grave abuse of discretion in ordering the dismissal of the MCTC complaint via certiorari on the ground of lack of jurisdiction.
• Substantive Issues: Whether the SEC has jurisdiction over a dispute between the presidents of two separate associations who agreed to consolidate but have not yet obtained SEC approval for the consolidation; whether the doctrine of corporation by estoppel applies to confer SEC jurisdiction.

• Procedural: The Court found that the RTC committed grave abuse of discretion in ordering the dismissal of the case. The RTC incorrectly assessed the jurisdictional facts, as the elements required to vest jurisdiction in the SEC were entirely absent.
• Substantive: The Court ruled that the SEC lacked jurisdiction over the dispute. The jurisdiction of the SEC under P.D. 902-A requires the concurrence of two elements: (1) the status or relationship of the parties, and (2) the nature of the question involved. Here, there was no intracorporate relationship between the parties. The consolidation was merely a proposal; it had not been approved by the SEC, and no articles of consolidation had been filed. Under the Corporation Code, consolidation becomes effective only upon the issuance of a certificate of consolidation by the SEC. Because the unified association had no legal existence, the dispute was not intracorporate but rather a conflict between members of separate and distinct associations. Furthermore, the doctrine of corporation by estoppel cannot override jurisdictional requirements, as jurisdiction is fixed by law and cannot be subject to the agreement of the parties. Corporation by estoppel applies only to protect third parties who deal with an unregistered corporation in good faith; it does not apply when the conflict arises solely among those assuming the corporate form, who are fully aware that the entity has not been registered.

• Jurisdiction of the SEC over Intracorporate Disputes — Determined by the concurrence of two elements: (1) the status or relationship of the parties, requiring that the controversy arise out of intracorporate or partnership relations between and among stockholders, members, or associates and the corporation; and (2) the nature of the question, requiring that the dispute be intrinsically connected with the regulation of the corporation or deal with its internal affairs. The Court applied this doctrine to hold that because the consolidation was not yet approved by the SEC, no intracorporate relationship existed between the parties, depriving the SEC of jurisdiction.
• Corporation by Estoppel — Applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons, preventing them from denying the corporate existence to evade obligations. The Court held this doctrine inapplicable because the conflict was between the assuming parties themselves, not third persons, and because jurisdiction cannot be conferred by estoppel.
• Effectivity of Consolidation — Consolidation of corporations becomes effective not upon mere agreement of the members but only upon the issuance of the certificate of consolidation by the SEC. The Court applied this to find that the unified association was still a mere proposal and did not legally exist.

• "The jurisdiction of the Securities and Exchange Commission (SEC) ... 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."
• "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."
• "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."
• "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."

• Union Glass & Container Corporation v. Securities and Exchange Commission, 126 SCRA 32 (1983) — Cited as controlling precedent to define the nature and function of the SEC's jurisdiction and to establish the two-element test for determining SEC jurisdiction.
• Macapalan v. Katalbas-Moscardon, 227 SCRA 49 (1993) — Followed to support the two-element test for SEC jurisdiction.
• Hall v. Piccio, 86 Phil. 603 (1950) — Cited to support the ruling that corporation by estoppel does not apply when the conflict arises only among those assuming the corporate form who know it has not been registered.

• Section 5, Presidential Decree No. 902-A — Defines the original and exclusive jurisdiction of the SEC over intracorporate controversies and election of directors or officers. The Court applied this provision to determine that the elements for SEC jurisdiction were absent, as no intracorporate relationship existed.
• Sections 78 and 79, Corporation Code — Govern the articles of consolidation and the procedure for consolidation of corporations. The Court applied these provisions to show that the parties failed to comply with the mandatory legal requirements for consolidation.
• Section 80, Corporation Code — Provides that upon the issuance of the certificate of consolidation by the SEC, the new consolidated corporation comes into existence and the constituent corporations dissolve. The Court applied this to emphasize that without the certificate of consolidation, no new corporation legally existed.
• Section 21, Corporation Code — Codifies the doctrine of corporation by estoppel. The Court interpreted this provision as inapplicable to the internal dispute between the parties.

Regalado, Romero, Mendoza, and Torres, Jr., JJ.