198 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

*
G.R. No. 131729. May 19, 1998.

UNION BANK OF THE PHILIPPINES, petitioner, vs.

THE HONORABLE COURT OF APPEALS,
COMMISSIONER FE ELOISA C. GLORIA, ATTY.
MANOLITO SOLLER, IN THEIR CAPACITY AS
CHAIRPERSON AND MEMBER, RESPECTIVELY, OF
THE HEARING PANEL OF THE SECURITIES AND
EXCHANGE COMMISSION, EULOGIO O. YUTINGCO,
CAROLINE YUTINGCO-YAO, THERESA I. LAO, NIKON
INDUSTRIAL CORPORATION, NIKOLITE INDUSTRIAL
CORPORATION, THAMES PHILIPPINES, INC., 2000
INDUSTRIES CORPORATION, TRADE HOPE
INDUSTRIAL CORPORATION, FIRST UNI-BRANDS
FOOD CORPORATION, INTEGRAL STEEL
CORPORATION, CLARION PRINTING HOUSE, INC.,
NIKON PLAZA, INC., NIKON LAND CORPORATION,
EYCO PROPERTIES, INC., INTERIM RECEIVERS
AMELIA B. CABAL, as representative of SGV,
INOCENCIO B. DEZA, JR., as representative of PNB, and
FLORENCIO B. ORENDAIN of EYCO, respondents.

Securities and Exchange Commission; Corporation Law;

Jurisdiction; It is already a well-settled jurisprudential precept
that jurisdiction over a subject matter is conferred by law.—It is
already a well-settled jurisprudential precept that jurisdiction
over a subject matter is conferred by law. In this regard, the
pertinent provision of law conferring jurisdiction upon the SEC
over petitions for suspension of payments such as the one filed
earlier by private respondents provides: “SEC. 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. x x x x x
x x x x (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

_______________

* THIRD DIVISION.

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Union Bank of the Philippines vs. Court of Appeals

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. (As added by P.D. No.
1758).”

Same; Same; Suspension of Payments; The SEC’s jurisdiction

on matters of suspension of payments is confined only to those
initiated by corporations, partnerships or associations.—We fully
agree with petitioner in contending that the SEC’s jurisdiction on
matters of suspension of payments is confined only to those
initiated by corporations, partnerships or associations. Actually,
this is not the first time that the Court has encountered an issue
as the one at bar. It has made a similar pronouncement in the
seminal case of Chung Ka Bio v. Intermediate Appellate Court, et
al., likewise involving a petition for suspension of payments filed
by a corporate entity and an individual stockholder, where we
ruled that: “This section [referring to Section 5 (d) of P.D. No. 902-
A, as amended] clearly does not allow a mere individual to file the
petition which is limited to ‘corporations, partnerships or
associations.’ Administrative agencies like the SEC are tribunals
of limited jurisdiction and, as such, can exercise only those powers
which are specifically granted to them by their enabling statutes.
Consequently, where no authority is granted to hear petitions of
individuals for suspension of payments, such petitions are beyond
the competence of the SEC. x x x. The circumstance that Ching is
a co-signer in the corporation’s promissory notes, collateral or
guarantee or security agreements, does not make him a proper
party. Jurisdiction over the subject matter must exist as a matter
of law and cannot be fixed by agreement of the parties, acquired
through, or waived, enlarged or diminished by, any act or
omission; neither can it be conferred by acquiescence of the
tribunal. Hence, Alfredo Ching, as a mere individual, cannot be
allowed as a co-petitioner in SEC Case No. 2250.”

Same; Same; Same; Only corporations, partnerships and

associations—not private individuals can file with the SEC
petitions to be declared in a state of suspension of payments.—
Very recently, we reiterated said pronouncements in Modern
Paper Products, Inc., et al. v. Court of Appeals, et al., viz.: “The
Court of Appeals was correct in concluding that the SEC lacked or
exceeded its jurisdiction when it included the Co spouses under a
state of suspension of payments together with MPPI. x x x It is
axiomatic that jurisdiction is conferred by the Constitution or by
law. It is indubitably clear from the

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200 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

aforequoted Section 5 (d) that only corporations, partnerships and

associations—NOT private individuals—can file with the SEC
petitions to be declared in a state of suspension of payments. It
logically follows that the SEC does not have jurisdiction to
entertain petitions for suspension of payments filed by parties
other than corporations, partnerships or associations. x x x”

Same; Same; Same; Actions; Parties; In a case of misjoinder of

parties, the remedy has never been to dismiss the petition in its
entirety but to dismiss it only as against the party upon whom the
tribunal or body cannot acquire jurisdiction.—From the foregoing,
it is thus clear that in a case of misjoinder of parties—which in
this case is the co-filing of the petition for suspension of payments
by both the Yutingcos and the EYCO group—the remedy has
never been to dismiss the petition in its entirety but to dismiss it
only as against the party upon whom the tribunal or body cannot
acquire jurisdiction. The result, therefore, is that the petition with
respect to EYCO shall subsist and may be validly acted upon by
the SEC. The Yutingcos, on the other hand, shall be dropped from
the petition and be required to pursue their remedies in the
regular courts of competent jurisdiction.

Same; Same; Same; Same; Pleadings and Practice; What

determines the nature of an action, as well as which court or body
has jurisdiction over it, are the allegations of the complaint, or a
petition, and the character of the relief sought.—We are, of course,
aware of the argument advanced by petitioner that the petition
should be entirely dismissed and taken out of the SEC’s
jurisdiction on account of the alleged insolvency of private
respondents. In this regard, petitioner theorizes that private
respondents have already become insolvent when they allegedly
disposed of a substantial portion of their properties in fraud of
creditors, hence, suspension of payments with the SEC is not the
proper remedy. Such argument does not persuade us. Petitioner’s
allegations of fraudulent dispositions of private respondents’
assets and the supposed insolvency of the latter are hardly of any
consequence to the assumption of jurisdiction by the SEC over the
nature or subject matter of the petition for suspension of
payments. Aside from the fact that these allegations are
evidentiary in nature and still remains to be proved, we have
likewise consistently ruled that what determines the nature of an
action, as well as which court or body has jurisdiction over it, are
the allegations of the complaint, or a petition as in this case, and
the

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Union Bank of the Philippines vs. Court of Appeals

character of the relief sought. That the merits of the case after
due proceedings are later found to veer away from the claims
asserted by EYCO in its petition, as when it is shown later that it
is actually insolvent and may not be entitled to suspension of
payments, does not divest the SEC at all of its jurisdiction already
acquired at its inception through the allegations made in the
petition.

Same; Same; Same; Same; Statutes; Insolvency Law; Section

2 of Act No. 1956 (Insolvency Law) is deemed to have been
impliedly repealed or modified by P.D. No. 902-A, as amended;
Individuals seeking to be declared in a state of suspension of
payments are the only ones required now to file their petitions with
the regular courts.—Under Section 2 of Act No. 1956 also known
as the “Insolvency Law,” an individual person, sociedad or a
corporation may file a petition in the regular courts that he be
declared in the state of suspension of payments. This provision,
however, is deemed to have been impliedly repealed or modified
by P.D. No. 902-A, as amended, which now vests jurisdiction over
suspension of payments filed by corporations, partnerships, and
associations with the SEC. Hence, individuals seeking to be
declared in a state of suspension of payments are the only ones
required now to file their petitions with the regular courts. See
note No. 37, infra.

Same; Same; Same; Piercing the Veil of Corporate Fiction;

The doctrine of piercing the veil of corporate fiction applies only
when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.—Neither are we
convinced by petitioner’s reasoning that the Yutingcos and the
corporate entities making up the EYCO Group, on the basis of the
footnote that the former were filing the petition because they
bound themselves as surety to the corporate obligations, should be
considered as mere individuals who should file their petition for
suspension of payments with the regular courts pursuant to
Section 2 of the Insolvency Law. We do not see any legal ground
which should lead one to such conclusion. The doctrine of piercing
the veil of corporate fiction heavily relied upon by petitioner is
entirely misplaced, as said doctrine only applies when such
corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.

Administrative Law; Courts; Exhaustion of Administrative

Remedies; Basic is the rule that before a party is allowed to seek
the intervention of the court, it is a precondition that he should
have

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Union Bank of the Philippines vs. Court of Appeals

availed of all the means of administrative processes afforded him.

—Equally weak is petitioner’s challenge on the Court of Appeals’
decision dismissing its petition for certiorari for failure to exhaust
administrative remedies. Its complaint that the SEC Hearing
Panel was acting without jurisdiction in conducting proceedings
relative to private respondents’ petition and for rendering moot
and academic its Motion to Dismiss does not justify the
procedural “short-cut” it took to the appellate court. Basic is the
rule which has been consistently held by this Court in a long line
of cases that “before a party is allowed to seek the intervention of
the court, it is a pre-condition that he should have availed of all
the means of administrative processes afforded him. Hence, if a
remedy within the administrative machinery can still be resorted
to by giving the administrative officer concerned every
opportunity to decide on a matter that comes within his
jurisdiction, then such remedy should be exhausted first before
the court’s judicial power can be sought. The premature
invocation of court’s intervention is fatal to one’s cause of action.”

Same; Same; Same; The underlying principle of the rule on

exhaustion of administrative remedies rests on the presumption
that the administrative agency, if afforded a complete chance to
pass upon the matter, will decide the same correctly.—“The
underlying principle of the rule on exhaustion of administrative
remedies rests on the presumption that the administrative
agency, if afforded a complete chance to pass upon the matter,
will decide the same correctly. There are both legal and practical
reasons for the principle. The administrative process is intended
to provide less expensive and more speedy solutions to disputes.
Where the enabling statute indicates a procedure for
administrative review and provides a system of administrative
appeal or reconsideration, the courts—for reasons of law, comity
and convenience—will not entertain a case unless the available
administrative remedies have been resorted to and the
appropriate authorities have been given an opportunity to act and
correct the errors committed in the administrative forum.”

SPECIAL CIVIL ACTION in the Supreme Court.

Certiorari.

The facts are stated in the opinion of the Court.

          Fe Tengco Becina-Macalino & Associates for
petitioner.
     Alampay, Gatchalian, Mawis, Carranza & Alampay
for private respondents.
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Union Bank of the Philippines vs. Court of Appeals

     Balgos & Perez for intervenors.

ROMERO, J.:

It has been about a year since the Thai baht plummeted to

a record low and sparked the downspin of most of Asia’s
other currencies including our very own peso. The
Philippines has not suffered as much from the full impact
of the region’s worst financial turmoil when most
neighboring economies are still sluggishly inching their
way towards recovery. Tested economic initiatives often
hailed for helping save the country from losing its hard-
earned gains cannot hide the fact that some businesses are
still going downhill in light of serious liquidity problems
resulting from said crisis. Private respondents’ present
predicament is one such example and from which they now
intend to free themselves.
The road to recovery seems elusive though. Private
respondents’ bid to salvage their collapsing businesses by
seeking suspension of payments—a statutory device
allowing distressed debtors to defer payment of their debts
—now faces a major hindrance as petitioner challenges
their recourse to said remedy.
The records disclose the following antecedent facts:
On September 16, 1997, private 1
respondents EYCO
Group of Companies (“EYCO”), Eulogio O. Yutingco,
Caroline Yutingco-Yao, and Theresa T. Lao (the
“Yutingcos”), all of whom are controlling stockholders of the
aforementioned corporations, jointly filed with the SEC a
Petition for the Declaration of Suspension of Payment[s],
Formation and Appointment of Rehabilitation
Receiver/Committee, Approval of Rehabilitation Plan with
Alternative Prayer for Liquidation

_______________

1 The EYCO Group of Companies is composed of Nikon Industrial

Corporation, Nikolite Industrial Group of Corporation, 2000 Industries
Corporation, Trade Hope Industrial Corporation, First Unibrands Food
Corporation, Integral Steel Corporation, Clarion Printing House, Inc.,
Nikon Plaza, Inc., Nikon Land Corporation, EYCO Properties, Inc. and
Thames Philippines, Inc.

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204 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

2
and Dissolution of Corporations alleging, among other
things, that “the present combined financial condition of
the petitioners clearly indicates that their assets are more
than enough to pay off the credits” but that due to “factors
beyond the control and anticipation of the management x x
x the inability of the EYCO Group of Companies to meet
the obligations as they fall due on the schedule agreed
3
with
the [creditors] has now become
4
a stark reality.” In a
footnote to said petition, the Yutingcos justified their
inclusion as co-petitioners before the SEC on the ground
that they had personally bound themselves to EYCO’s
creditors under a J.S.S. Clause (Joint Several Solidary
Guaranty).
 Upon finding the above petition to be sufficient in form
and substance, the SEC Hearing Panel then composed of
Manolito S. Soller, George
5
P. Palmares and Rommel G.
Oliva issued an order dated September 19, 1997 setting its
hearing on October 22, 1997. At the same time, said panel
also directed the suspension of all actions, claims and
proceedings against private respondents pending before
any court, tribunal, office, board and/or commission.
Meanwhile, some of private respondents’ creditors,
composed mainly
6
of twenty-two (22) domestic banks (the
“consortium”) including herein petitioner Union Bank of
the

_______________

2 Docketed as SEC Case No. 09-97-5764.

3 Rollo, pp. 67-68.
4 Id., p. 65. The footnote states: “Eulogio O. Yutingco, the President
CEO, Caroline Yutingco-Yao, Director and Theresa T. Lao, Director, are
included as co-petitioners in this case due to the respective personal
undertakings that they signed with the creditors under a J.S.S. Clause
(Joint Several Solidary Guaranty) that benefited the EYCO Group of Cos.,
thereby in effect discarding the Veil of Corporate Fiction on their personal
selves.”
5 Id., pp. 75-79.
6 The consortium is composed of the following: Philippine National
Bank, Far East Bank and Trust Co., Allied Bank, Traders Royal Bank,
Philippine Commercial and International Bank, Bank of Commerce,
Westmont Bank, Asiatrust Bank, Bank of the Philippine Islands, Bank of
Southeast Asia, Development Bank of the

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Union Bank of the Philippines vs. Court of Appeals

7
Philippines, also convened on September 19, 1997 for the
purpose of deciding their options in the event that private
respondents invoke the provisions of 8
Presidential Decree
No. 902-A, as amended. The minutes embodying the terms
agreed upon by the consortium in said meeting provided,
inter alia, for the following:

“. . . In response to this, the following were actions agreed upon by

all the creditor banks present:

• Hire a lawyer to advise the banks on the legal matters of

suspension of payments. Atty. Balgos was engaged to be the
 legal counsel.
• Form a management committee to represent all the creditor
banks. This will be composed of the first seven banks with the
highest exposures, namely:

Philippine National Bank

Far East Bank and Trust Co.
Traders Royal Bank
Allied Banking Corporation
Philippine Commercial and International Bank
Bank of Commerce
Westmont Bank

The other creditor Banks will be informed as often as needed.”

_______________

Philippines, Land Bank of the Philippines, Metropolitan Bank and

Trust Co., Orient Bank, Rizal Commercial Banking Corporation, Solid
Bank, Lippo Asia Investment Corporation, Dharmala Capital Investment
and Trust Co., Batangas Savings and Loan Bank, Puregold Finance, Inc.
and Prosperity Financial Resources, Inc.
7 It appears that Union Bank granted private respondent corporations
credit facilities in the principal amount of One Hundred Ten Million Pesos
(P110,000,000.00) under two Credit Line Agreements dated September 12,
1996 and July 31, 1997. At the same time, the spouses Eulogio O.
Yutingco and Bee Kuan W. Yutingco bound themselves solidarily with
said corporations by executing two Continuing Surety Agreements in
favor of the bank as security for the said credit accommodations.
8 Rollo, pp. 166-168.

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206 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

Without notifying the members of the consortium,

petitioner, however, decided to break away from the group
by suing private respondents in the regular courts. These
cases are:
Civil Case No. 97-2184 (Union Bank of the Philippines v.
Nikon Industrial Corporation, et al.) for Sum of Money with
Application for Preliminary Attachment filed before the
Regional 9Trial Court of Makati, Branch 148, on September
23, 1997;
Civil Case No. 5360-V-97 (Union Bank of the Philippines
v. Eulogio and Bee Kuan Yutingco, et al.) for Annulment,
Rescission of Titles/Injunction with Prayer for Issuance of
Preliminary Mandatory Injunction filed before the Regional
Trial 10Court of Valenzuela, Branch 172, on September 24,
1997;
Civil Case No. 66477 (Union Bank of the Philippines v.
Eulogio and Bee Kuan Yutingco, et al.) for Annulment,
Rescission of Titles/Injunction with Prayer for Issuance of
Preliminary Mandatory Injunction filed before the Regional
Trial Court of Pasig City, Branch 157, on September 26,
1997;
Civil Case No. 66479 (Union Bank of the Philippines v.
Eulogio and Bee Kuan Yutingco, et al.) for Annulment,
Rescission of Titles/Injunction with Prayer for Issuance of
Preliminary Mandatory Injunction filed before the Regional
Trial Court of Pasig City, Branch 159, on September 24,
1997; and

_______________

9 In an order dated September 24, 1997, the trial court through Judge
Oscar B. Pimentel of Branch 148, Regional Trial Court-Makati granted
the prayer for preliminary attachment after Union Bank shall have posted
a bond in the amount of Seventy Five Million Pesos (P75,000,000.00),
Annex “M” of Amended Petition, id., pp. 597-598. A writ of preliminary
injunction was issued a day after.
10 The trial court through Judge Floro P. Alejo likewise granted Union
Bank’s prayer for preliminary injunction in an order dated October 7,
1997 after the bank shall have posted a bond in the sum of Five Million
Pesos (P5,000,000.00). After Union Bank posted the requisite bond, the
trial court issued a writ of preliminary injunction on October 15, 1997,
Annex “N” of Amended Petition, id., pp. 599-601.

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Union Bank of the Philippines vs. Court of Appeals

Civil Case No. 66478 (Union Bank of the Philippines v.

Eulogio and Bee Kuan Yutingco and Enrique Yao)for
Annulment, Rescission of Titles/Injunction with Prayer for
Issuance of Preliminary Mandatory Injunction filed before
the Regional Trial Court of Pasig City, Branch 158, on
September 25, 1997. 11
In the meantime, the SEC issued an order on October
3, 1997, appointing (a) Amelia B. Cabal of SGV & Co., as
common representative; (b) Inocencio Deza, Jr., of the
Philippine National Bank as representative of the creditor-
banks; and (c) Atty. Florencio B. Orendain as
representative of the EYCO Group and the Yutingcos, to
act collectively as interim receivers of the distressed
corporations.
Aside from commencing suits in the regular courts,
petitioner also vehemently opposed private respondents’
petition for suspension of payments in 12 the SEC by filing a
Motion to Dismiss on October 22, 1997. It contended that
the SEC was bereft of jurisdiction over such petition on the
ground that the inclusion of the Yutingcos in the petition
“cannot be allowed since the authority and power of the
Commission under the (sic) virtue of [the] law applies only
to corporations, partnership[s] and other forms of
associations, and not to individual petitioners who are not
clearly covered by P.D. 902-A as amended.” According to
petitioner, what should have been applied instead was the
provision on suspension of payments under Act No. 1956,
otherwise known as the “Insolvency Law,” which mandated
the filing of the petition in the Regional Trial Court and not
in the SEC. Finally, petitioner disputed private
respondents’ recourse to suspension of payments alleging
that the latter prejudiced their creditors by fraudulently
disposing of corporate properties within the 30-day period
prior to the filing of such petition.
Subsequently, a creditors’ meeting was again convened
pursuant to SEC’s earlier order dated September 19, 1997,

_______________

11 A copy of this order does not appear in the records but merely
referred to by the interim receivers themselves in their Comment filed
before this Court on January 30, 1998.
12 Annex “P,” Amended Petition, id., pp. 678-700.

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Union Bank of the Philippines vs. Court of Appeals

wherein the matter of creating a management committee

(the “Mancom”) was submitted for resolution. Apparently,
only petitioner opposed the creation of said Mancom as it
filed earlier with the SEC its Motion to Dismiss.
The SEC Hearing Panel composed of Hon. Fe Eloisa C.
Gloria and Manolito
13
S. Soller subsequently issued an
Omnibus Order on October 27, 1997, directing this time
the creation of the Mancom consisting of seven (7)
members; four (4) of whom shall come from the creditor
banks, one (1) from the non-bank creditors, one (1) from the
petitioners and one (1) to be appointed by the SEC.
Moreover, the panel likewise granted an earlier Urgent
Motion for Reconsideration filed by creditor banks which
sought to annotate the September 19, 1997 suspension
order on the titles of the properties of the private
respondent corporations. In issuing said order, the panel
resolved that the interest of private respondents and their
creditors could be best served if such Mancom is created. It
is noteworthy, however, that this directive expressly stated
that the same was without prejudice to the resolution of
petitioner’s Motion to Dismiss whose scheduled hearing
was set by petitioner itself on October 29, 1997.
Aggrieved, petitioner immediately took recourse to the
Court of Appeals on October 29, 1997 by filing therewith a
Petition for Certiorari with Prayer for the Issuance of a
Temporary14 Restraining Order and/or Writ of Preliminary
Injunction under Rule 65 of the 1997 Rules of Civil
Procedure. It imputed grave abuse of discretion on the part
of the SEC Hearing Panel in precipitately issuing the
suspension order dated September 19, 1997 and in
prematurely directing the creation of the Mancom prior to
the scheduled hearing of its Motion to Dismiss on October
29, 1997. Petitioner lamented that these actions of the
panel deprived it of due process by effectively rendering
moot and academic its Motion to Dismiss which allegedly
presented a prejudicial question to the propriety of creating
a Mancom. Furthermore, it insisted that

________________

13 Id., pp. 103-104.

14 Id., pp. 105-150. Docketed as CA-G.R. SP No. 45774.

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Union Bank of the Philippines vs. Court of Appeals

jurisdiction over private respondents’ petition properly

pertained to the Regional Trial Courts under Act No. 1956
and that, in any event, private respondents were not
entitled to suspension of payments since they had already
committed fraudulent dispositions of their properties.
Without giving due course to Union
15
Bank’s petition, the
appellate court issued a resolution on October 31, 1997
directing private respondents to submit their comment on
the petition while temporarily restraining the SEC from
appointing the members of the Mancom, annotating the
suspension orders on the titles of the properties of private
respondents, and taking further proceedings with regard to
the suspension of payments and/or rehabilitation.
Meanwhile, members of the so-called steering committee
of the consortium composed of the Philippine National
Bank, Far East Bank and Trust Company, Allied Bank,
Traders Royal Bank, Philippine Commercial International
Bank, Bank of Commerce and Westmont Bank (the
“Intervenors”) filed with16
the appellate court an Urgent
Motion for Intervention and a Consolidated Intervention
and Counter-Motion for Contempt and for the Imposition 17
of
Disciplinary Measures Against Petitioner’s Counsel both
dated November 3, 1997 claiming that they were not
impleaded at all by petitioner in its petition before the
appellate court when in fact they had actual, material,
direct and legal interest in the outcome of said case as
owners of at least eighty-five percent (85%) of private
respondents’ obligations. Moreover, they opposed said
petition because of petitioner’s ostensible failure to exhaust
administrative remedies in the consortium and in the SEC
and for being guilty of forum-shopping in the appellate
court as its Motion to Dismiss in the SEC was yet to be
resolved at the time.

_______________

15 Id., p. 151.
16 Id., pp. 154-155.
17 Id., pp. 157-165.

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210 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

Petitioner, however, countered intervenors’ motion in its

Opposition to Urgent Motion 18for Intervention and Reply to
the Comment-in-Intervention, vehemently challenging the
existence of a consortium, its membership therein, the
intervenors’ ownership of at least eighty-five percent (85%)
of private respondents’ obligations and their due
representation of the twenty-two (22) creditor banks, the
existence of an agreement drawn up during the September
19, 1997 meeting regarding the satisfaction of the
individual exposures of the creditor banks and its consent
to the creation of the Mancom. It also denied intervenors’
accusation of forum-shopping and non-exhaustion of
administrative remedies on the ground that it was acting
with a sense of urgency, the Hearing Panel having already
created the Mancom and was about to appoint the
members thereof at the same time.
After several exchanges of pleadings between the
parties, the Court of Appeals 19
First Division finally
rendered its assailed decision on December 22, 1997,
granting intervention of the seven (7) creditor banks
named above while dismissing the petition for failure to
exhaust administrative remedies and forum-shopping.
Nothing in the said decision, however, indicates that the
appellate court squarely confronted the issue of jurisdiction
raised earlier by petitioner.
Without moving for reconsideration of the appellate
court’s decision, petitioner elevated the said matter to this
Court through a Petition for Certiorari with Prayer for the
Issuance of a Temporary20 Restraining Order and/or Writ of
Preliminary Injunction filed on December 21
29, 1997.
Petitioner, however, seasonably amended the same on
January 5, 1998.
Upon being notified by petitioner that the SEC Hearing
Panel had already appointed members of the proposed
Man-

_______________

18 Id., pp. 194-233.

19 Id., pp. 54-62. Penned by Agcaoili, J.; Purisima and Ibay-Somera,
JJ., concurring.
20 Id., pp. 3-52.
21 Id., pp. 316-402.

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Union Bank of the Philippines vs. Court of Appeals

22 23
com on January 5, 1998, this Court issued a resolution
on January 6, 1998, granting the temporary restraining
order (TRO) prayed for in the petition and requiring all the
respondents to comment thereon.
Both 24EYCO and the Yutingcos duly filed their
Comment on January 14, 1998 asking the Court to cite
petitioner and its counsel for contempt because of
deliberate forum-shopping, assailing the propriety of the
temporary restraining order which we issued, and arguing
that Union Bank’s petition should be dismissed outright for
(1) categorizing it as having been filed both under Rule 45
and Rule 65 of the 1997 Rules of Civil Procedure; (2) failing
to move for reconsideration before the Court of Appeals; (3)
failing to implead indispensable parties; (4) raising factual
allegations of fraud; (5) forum-shopping; and (6) failing to
exhaust administrative remedies.
On January 27, 1998, the intervenors before the
appellate court25
also came to us through an Urgent
Manifestation, seeking the outright dismissal of the
petition on grounds of forum-shopping and failure to
implead them as indispensable parties which allegedly
violated Section 4, Rule 45 of the 1997 Rules of Civil
Procedure requiring that the petition should “state the
name of the appealing party as the petitioner and the
adverse party as respondent.”
For their part, the interim receivers who are also
impleaded as private respondents
26
in the instant petition,
filed their own Comment on January 30, 1998, likewise
contending that petitioner failed to exhaust administrative
remedies when it leap-frogged to the Court of Appeals and
that, in any case, the SEC had jurisdiction to entertain
private respondents’ petition for suspension of payments.

_______________

22 Id., pp. 991-994.

23 Id., pp. 936-938.
24 Id., pp. 942-988.
25 Id., pp. 1073-1078.
26 Id., pp. 1081-1098.

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In response to the respective comments of private

respondents and interim receivers, 27
petitioner filed its
Consolidated Reply and Opposition on February 5, 1998,
reiterating its earlier position that: (1) the SEC had no
jurisdiction to entertain private respondents’ petition for
suspension of payments; (2) private respondents are
already bankrupt because of the alleged fraudulent
dispositions they have made and, hence, are no longer
entitled to the remedy of suspension of payments; (3) prior
motion for reconsideration is not indispensable when, as in
this case, there is an actual threat that the Mancom
members would soon be appointed; (4) intervenors are not
indispensable parties; and (5) there is no forum-shopping.
 Complaining that daily interests on its outstanding
debts continue mounting by the millions and that the work
of the SEC-appointed interim receivers has been paralyzed
for quite
28
some time, private respondents filed an Urgent
Motion on February 12, 1998 praying that the temporary
restraining order be lifted for the preservation of their
assets and to pave the way for rehabilitation. They likewise
asked, among other things, that their motion to cite
petitioner and its counsel for contempt be immediately
resolved.
Petitioner, in turn, filed 29a Motion to Cite Yutingcos and
Their Counsel in Contempt for allegedly misleading this
Court in stating that Union Bank failed to pay the required
deposit for costs, that they were not served a copy of the
Amended Petition, and that they never nominated Sycip,
Gorres, Velayo & Co. (the “SGV”) as rehabilitation receiver.
As may be gleaned from the above factual account, there
are only two basic and outstanding issues in the instant
case which require our resolution, namely:

(1) Whether the SEC can validly acquire jurisdiction

over a petition for suspension of payments filed
pursuant to Section 5 (d) of

________________

27 Id., pp. 1110-1165.

28 Id., pp. 1214-1219.
29 Id., pp. 1295-1298.

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Union Bank of the Philippines vs. Court of Appeals

P.D. No. 902-A, as amended, when such petition

joins as co-petitioners the petitioning corporate
entities AND individual stockholders thereof; and
(2) Whether petitioner engaged in forum-shopping and
failed to exhaust administrative remedies in taking
direct recourse to the Court of Appeals to challenge
the assumption of jurisdiction by the SEC Hearing
Panel over private respondents’ petition for
suspension of payments.

We shall discuss these issues seriatim.

I. Jurisdiction of the Securities and Exchange
Commission.

It is already a well-settled jurisprudential precept 30that

jurisdiction over a subject matter is conferred by law. In
this regard, the pertinent provision of law conferring
jurisdiction upon the SEC over petitions for suspension of
payments such as the one filed earlier by private
respondents provides:

“SEC. 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.
x x x      x x x      x x x
(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. (As added by P.D. No. 1758).”

_______________

30 Republic v. Court of Appeals and ACIL Corporation, 263 SCRA 758

(1996); Amigo v. Court of Appeals, et al., 253 SCRA 382 (1996) citing
Isidro v. Court of Appeals, et al., 228 SCRA 503 (1993) and Ilaw at Buklod
ng Manggagawa (IBM) v. National Labor Relations Commission, 219
SCRA 536 (1993).

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214 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

As stated earlier, it is precisely on the basis of the above

provision that petitioner now avers that the SEC cannot
validly entertain private respondents’ petition for
suspension of payments. Its reason is that the law vesting
jurisdiction upon the SEC to hear petitions of this kind
limits itself to petitions filed only by corporations,
partnerships or associations. Petitioner thus asserts that
the petition filed by private respondents with the SEC
should have been dismissed because it was not such a kind
of petition filed solely by corporations when it impleaded as
co-petitioners the Yutingcos who are individual persons
upon whom said body cannot acquire jurisdiction.
We fully agree with petitioner in contending that the
SEC’s jurisdiction on matters of suspension of payments is
confined only to those initiated by corporations,
partnerships or associations. Actually, this is not the first
time that the Court has encountered an issue as the one at
bar. It has made a similar pronouncement in the seminal
case31
of Chung Ka Bio v. Intermediate Appellate Court, et
al., likewise involving a petition for suspension of
payments filed by a corporate entity and an individual
stockholder, where we ruled that:

“This section [referring to Section 5 (d) of P.D. No. 902-A, as

amended] clearly does not allow a mere individual to file the
petition which is limited to ‘corporations, partnerships or
associations.’ Administrative agencies like the SEC are tribunals
of limited jurisdiction and, as such, can exercise only those powers
which are specifically granted to them by their enabling statutes.
Consequently, where no authority is granted to hear petitions of
individuals for suspension of payments, such petitions are beyond
the competence of the SEC. x x x.
The circumstance that Ching is a co-signer in the corporation’s
promissory notes, collateral or guarantee or security agreements,
does not make him a proper party. Jurisdiction over the subject
matter must exist as a matter of law and cannot be fixed by
agreement of the parties, acquired through, or waived, enlarged
or diminished by, any act or omission; neither can it be conferred
by acquiescence of

_______________

31 163 SCRA 534 (1988).

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Union Bank of the Philippines vs. Court of Appeals

the tribunal. Hence, Alfredo Ching, as a mere individual, cannot

be allowed as a co-petitioner in SEC Case No. 2250.” [Italics
supplied].

This Court reinforced further the above32

dictum in Traders
Royal Bank v. Court of Appeals, et al., a sequel to Chung
Ka Bio, where we declared:
“Although Ching was impleaded in SEC Case No. 2250, as a co-
petitioner of PBM [Philippine Blooming Mills], the SEC could not
assume jurisdiction over his person and properties. The Securities
and Exchange Commission was empowered, as rehabilitation
receiver, to take custody and control of the assets and properties
of PBM only, for the SEC has jurisdiction over corporations only
not over private individuals, except stockholders in an intra-
corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758).
Being a nominal party in SEC Case No. 2250, Ching’s properties
were not included in the rehabilitation receivership that the SEC
constituted to take custody of PBM’s assets. Therefore, the
petitioner bank was not barred from filing a suit against Ching,
as a surety for PBM. An anomalous situation would arise if
individual sureties for debtor corporations may escape liability by
simply co-filing with the corporation a petition for suspension of
payments in the SEC whose jurisdiction is limited only to
corporations and their corporate assets.” [Italics supplied].

Very recently, we reiterated said pronouncements in

Modern
33
Paper Products, Inc., et al. v. Court of Appeals, et
al., viz.:

“The Court of Appeals was correct in concluding that the SEC

lacked or exceeded its jurisdiction when it included the Co
spouses under a state of suspension of payments together with
MPPI. x x x
It is axiomatic that jurisdiction is conferred by the Constitution
or by law. It is indubitably clear from the aforequoted Section 5
(d) that only corporations, partnerships and associations—NOT
private individuals—can file with the SEC petitions to be declared
in a state of suspension of payments. It logically follows that the
SEC does not have jurisdiction to entertain petitions for
suspension of

_______________

32 177 SCRA 788 (1989).

33 G.R. No. 127166 promulgated on March 2, 1998.

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216 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

payments filed by parties other than corporations, partnerships or

associations. x x x” [Italics supplied].

Notwithstanding the foregoing conclusions, this Court,

however, does not subscribe to the theory espoused by
petitioner that the case filed by private respondents should
be dismissed outright in its entirety. The reason is that
while it is true that the SEC cannot acquire jurisdiction
over an individual filing a petition for suspension of
payments together with a corporate entity, a closer
scrutiny of Chung Ka Bio and MPPI does not in any
manner suggest, even tangentially, that a petition as the
one at bar must be dismissed likewise with respect to the
corporate co-petitioner. What Chung Ka Bio and MPPI
respectively declared was that “Alfredo Ching, as a mere
individual, cannot be allowed as a co-petitioner in SEC
Case No. 2250” and “respondent Court of Appeals was
correct in ordering the dismissal of the petition for
suspension of payments insofar as the Co spouses were
concerned.” [Italics supplied].
That the Court never dismissed a petition for suspension
of payments as the ones involved in Chung Ka Bio and
MPPI is not without legal basis. The reason is to be found
in Section 1, Rule XXIII of the REVISED RULES OF
PROCEDURE IN THE SECURITIES AND EXCHANGE
COMMISSION (As amended on April 26, 1993) which was
promulgated pursuant to the rule-making powers vested in
the SEC by P.D. No. 902-A, as amended. It states:

“SECTION 1. Provisions of the Rules of Court.—The provisions of

the Rules of Court, unless inconsistent, shall have suppletory
effect on those Rules. (Amended). [Italics Supplied].

Since we have painstakingly probed said SEC rules but

unearthed nothing that squarely treats of a situation
where an individual and a corporate entity both filed
together a petition for suspension of payments, recourse
must then be had to the Rules of Court which is expressly
made suppletory to the SEC rules. In this regard, we find
Section 11, Rule 3 of the 1997 Rules of Civil Procedure
applicable which provides:

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Union Bank of the Philippines vs. Court of Appeals

“SEC. 11. Misjoinder and non-joinder of parties.—Neither

misjoinder nor non-joinder of parties is ground for dismissal of an
action. Parties may be dropped or added by order of the court on
motion of any party or on its own initiative at any stage of the
action and on such terms as are just. Any claim against a
misjoined party may be severed and proceeded with separately.
(11a) [Italics supplied]

From the foregoing, it is thus clear that in a case of

misjoinder of parties—which in this case is the co-filing of
the petition for suspension of payments by both the
Yutingcos and the EYCO group—the remedy has never
been to dismiss the petition in its entirety but to dismiss it
only as against the party upon whom the tribunal or body
cannot acquire jurisdiction. The result, therefore, is that
the petition with respect to EYCO shall subsist and may be
validly acted upon by the SEC. The Yutingcos, on the other
hand, shall be dropped from the petition and be required to
pursue their34 remedies in the regular courts of competent
jurisdiction.
We are, of course, aware of the argument advanced by
petitioner that the petition should be entirely dismissed
and taken out of the SEC’s jurisdiction on account of the
alleged insolvency of private respondents. In this regard,
petitioner theorizes that private respondents have already
become insolvent when they allegedly disposed of a
substantial portion of their properties in fraud of creditors,
hence, suspension of payments with the SEC is not the
proper remedy.

_______________

34 Under Section 2 of Act No. 1956 also known as the “Insolvency Law,”
an individual person, sociedad or a corporation may file a petition in the
regular courts that he be declared in the state of suspension of payments.
This provision, however, is deemed to have been impliedly repealed or
modified by P.D. No. 902-A, as amended, which now vests jurisdiction over
suspension of payments filed by corporations, partnerships and
associations with the SEC. Hence, individuals seeking to be declared in a
state of suspension of payments are the only ones required now to file
their petitions with the regular courts. See note No. 37, infra.

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218 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

Such argument does not persuade us. Petitioner’s

allegations of fraudulent dispositions of private
respondents’ assets and the supposed insolvency of the
latter are hardly of any consequence to the assumption of
jurisdiction by the SEC over the nature or subject matter of
the petition for suspension of payments. Aside from the fact
that these allegations are evidentiary in nature and still
remains to be proved, we have likewise consistently ruled
that what determines the nature of an action, as well as
which court or body has jurisdiction over it, are the
allegations of the complaint, or a petition
35
as in this case,
and the character of the relief sought. That the merits of
the case after due proceedings are later found to veer away
from the claims asserted by EYCO in its petition, as when
it is shown later that it is actually insolvent and may not
be entitled to suspension of payments, does not divest the
SEC at all of its jurisdiction already acquired at its
inception through the allegations made in the petition.
Neither are we convinced by petitioner’s reasoning that
the Yutingcos and the corporate entities36 making up the
EYCO Group, on the basis of the footnote that the former
were filing the petition because they bound themselves as
surety to the corporate obligations, should be considered as
mere individuals who should file their petition for
suspension of payments with the regular37
courts pursuant
to Section 2 of the Insolvency Law. We do not see any
legal ground which

_______________

35 Javelosa v. Court of Appeals, et al., 265 SCRA 493 (1996); Amigo v.

Court of Appeals, et al., 253 SCRA 382 (1996); Cañiza v. Court of Appeals,
268 SCRA 640 (1997); Bernarte v. Court of Appeals, et al., 263 SCRA 323
(1996); Bernardo, Sr., et al. v. Court of Appeals, et al., 263 SCRA 660
(1996).
36 See footnote No. 4.
37 “SEC. 2. The debtor who, possessing sufficient property to cover all
his debts, be it an individual person, be it a sociedad or corporation,
foresees the impossibility of meeting them when they respectively fall due,
may petition that he be declared in the state of suspension of payments by
the court, or the judge thereof in vacation, of the province or of the city in
which he has resided for six months next preceding the filing of his
petition. x x x”

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Union Bank of the Philippines vs. Court of Appeals

should lead one to such conclusion. The doctrine of piercing

the veil of corporate fiction heavily relied upon by
petitioner is entirely misplaced, as said doctrine only
applies when such corporate fiction is used to defeat public
38
convenience, justify wrong, protect fraud or defend crime.
II. Non-Exhaustion of Administrative Remedies and
Forum-Shopping

Equally weak is petitioner’s challenge on the Court of

Appeals’ decision dismissing its petition for certiorari for
failure to exhaust administrative remedies. Its complaint
that the SEC Hearing Panel was acting without
jurisdiction in conducting proceedings relative to private
respondents’ petition and for rendering moot and academic
its Motion to Dismiss does not justify the procedural “short-
cut” it took to the appellate court. Basic is the rule which
has been consistently held by this Court in a long line of
cases that “before a party is allowed to seek the
intervention of the court, it is a precondition that he should
have availed of all the means of administrative processes
afforded him. Hence, if a remedy within the administrative
machinery can still be resorted to by giving the
administrative officer concerned every opportunity to
decide on a matter that comes within his jurisdiction, then
such remedy should be exhausted first before the court’s
judicial power can be sought. The premature invocation 39
of
court’s intervention is fatal to one’s cause of action.” That
this is the prevailing rule is aptly explained thus:

“The underlying principle of the rule on exhaustion of

administrative remedies rests on the presumption that the
administrative agency, if afforded a complete chance to pass upon
the matter, will decide the same correctly. There are both legal
and practical reasons for the principle. The administrative
process is intended to provide less expensive and more speedy
solutions to disputes. Where the enabling statute indicates a
procedure for administrative review and

_______________

38 Yu v. National Labor Relations Commission, 245 SCRA 134 (1995).

39 Paat v. Court of Appeals, et al., 266 SCRA 167 (1997).

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220 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

provides a system of administrative appeal or reconsideration, the

courts—for reasons of law, comity and convenience—will not
entertain a case unless the available administrative remedies
have been resorted to and the appropriate authorities have been
given an opportunity to act
40
and correct the errors committed in
the administrative forum.”

In this case, petitioner was actually not without remedy to

correct what it perceived and supposed was an erroneous
assumption of jurisdiction by the SEC, without having
recourse immediately to the Court of Appeals. Under
Section 6(m) of P.D. No. 902-A, it has been expressly
provided that “the decision, ruling or order of any such
Commissioner, bodies, boards, committees and/or officer
may be appealed to the Commission sitting en banc within
thirty days after receipt by the appellant of notice of such
decision, ruling or order.” Such procedure being available,
could have been resorted to by petitioner which, however, it
chose to forego. Furthermore, by taking up the matter with
the SEC, it could still have obtained an injunction which it
similarly sought from the appellate court via its petition for
certiorari because the said body has been empowered by
Section 6 (a) of P.D. No. 902-A “to issue preliminary or
permanent injunctions, whether prohibitory or mandatory,
in all cases in which it has jurisdiction . . . .” Finally,
petitioner itself hardly concealed the fact that it distrusted
altogether the whole mechanism of appeal to the SEC en
banc, which is why it did not find resort thereto imperative.
Thus, it explicitly stated that “it is a given that SEC will
not reverse itself, therefore, any reconsideration or appeal
en banc would be a mere exercise of futility, [particularly]
when public respondent Associate Commissioner
41
Fe Gloria
is the acting Chairperson of SEC.” What basis does
petitioner have in casting doubt on the integrity and
competence of the SEC en banc? This baseless, even
reckless, reasoning hardly deserves an iota of attention. It
cannot justify a procedural

_______________

40 University of the Philippines v. Catungal, Jr., et al., G.R. No. 121863,

May 5, 1997.
41 Rollo, p. 365.

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Union Bank of the Philippines vs. Court of Appeals

short-cut quite contrary to law. If this were so, then the

SEC en banc would not have been empowered at all by the
statute to take cognizance of appeals from its subordinate
units. But the lawmakers, having faith in a collegial body
such as the SEC en banc, precisely empowered it to act as
such appellate body. Whatever opinion petitioner
entertains with respect to the SEC’s competence cannot
override the fact that the law mandates recourse thereto.
As to the issue of forum-shopping, we fully subscribe to
the Court of Appeals in ruling that such violation existed
when it declared:

“Finally, the charge that petitioner is guilty of forum-shopping—

which is the institution of two or more actions or proceedings
grounded on the same cause—cannot unceremoniously be glossed
over. It is patent that the instant petition and the pending motion
to dismiss before the SEC raise identical issues, namely, lack of 42
jurisdiction and the propriety of the suspension of payments.”
[Italics supplied].

Actually, even a simple perusal of the pleadings filed by

petitioner before this Court reveals that it has been
continuously reiterating the same arguments that it had
earlier raised in its Motion to Dismiss and in its Petition
for Certiorari before the appellate court. Hence, we do not
see why the appellate court’s decision on this aspect should
not be sustained.
WHEREFORE, the instant petition is hereby DENIED
for lack of merit. Finding neither reversible error nor grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of the Court of Appeals, its decision
dated December 22, 1997 is AFFIRMED. Furthermore, the
Temporary Restraining Order (TRO) issued by this Court
in its resolution and order of January 6, 1998, is hereby
LIFTED and/or DISSOLVED. However, the Securities and
Exchange Commission is directed to drop from the petition
for suspension of pay-

_______________

42 Id., p. 61.

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222 SUPREME COURT REPORTS ANNOTATED

Union Bank of the Philippines vs. Court of Appeals

ments filed before it the names of Eulogio O. Yutingco,

Caroline Yutingco-Yao and Theresa T. Lao without
prejudice to their filing a separate petition in the Regional
Trial Courts.
 Costs against petitioner.
SO ORDERED.

     Narvasa (C.J., Chairman) and Kapunan, J., concur.

          Purisima, J., No part; having taken part in the
Decision of CA.

Petition denied, judgment affirmed.

Notes.—Piercing the veil of corporate entity requires

the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguishes one corporation
from a seemingly separate one, were it not for the existing
corporate fiction. (Traders Royal Bank vs. Court of Appeals,
269 SCRA 15 [1997])
A court action is ipso jure suspended only upon the
appointment of a management committee or a
rehabilitation receiver. (Barotac Sugar Mills, Inc. vs. Court
of Appeals, 275 SCRA 497 [1997])

——o0o——

223

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