G.R. No. L-51651 - Limso vs. De Guzman, Jr.

Case Digest (G.R. No. L-51651)
Expanded Legal Reasoning Model

Facts:

Consolidation Agreement and Formation of IBAA

In March 1974, the Bank of Asia (ASIA), the First Insular Bank of Cebu, Inc. (INSULAR), and the Bank of America (BA) executed a Consolidation Agreement.
The Agreement provided for:

The consolidation of resources and the organization of the Insular Bank of Asia and America (IBAA).
The division of IBAA stock so that the ASIA and INSULAR groups each held 30%, with the remaining 10% allotted to Dai-Ichi Kangyo Bank of Japan.
Stipulations governing the right of first refusal on the sale of shares, including:

An obligation that any party intending to sell its shares must first offer them proportionately to the other participants or their nominees under the same terms.
Provisions for offering any subsequent shares for subscription in order to maintain the established ownership percentages.
A requirement that no new bank (foreign or domestic) could be admitted as an equity participant without the approval of more than four-fifths of the consolidated bank’s Board of Directors.

The Agreement was duly executed for INSULAR by its Board Chairman, Eduardo J. Aboitiz; for ASIA by its President, Edgardo T. Kalaw; and for BA by its President, Alden W. Clausen.

Dissolution of Pre-Consolidation Entities and Authority Issues

With the incorporation of IBAA, INSULAR and ASIA ceased to exist as separate corporate entities.
Consequently, Aboitiz and Kalaw no longer possessed the authority to represent their respective banks, although they continued to act as de facto representatives.

BA’s Sale Offer and the Right of First Refusal

In December 1977, BA decided to sell all its IBAA shares to the ASIA and INSULAR Groups at an initial price of P206.88 per share, later reduced to P189.17 per share.
The sale offer, communicated through Aboitiz and Kalaw as IBAA officers, was made under the assumption that they were duly authorized despite the lack of formal evidence of such authority.
In a series of correspondences:

Kalaw, by a letter dated February 1, 1978, stated that neither group was willing to increase their IBAA holdings.
On March 14, 1978, both Aboitiz and Kalaw confirmed in writing BA’s freedom to negotiate the sale without the stipulated offer to existing stockholders.
Subsequently, on March 22, 1978, Aboitiz qualified his earlier response, indicating that if the sale price fell between P140 to P150 per share, the option might then be exercised, thereby not fully relinquishing their right of first refusal.

Nomination of Buyers and Completion of the Sale

Despite representations of disinterest in purchasing additional shares directly, both representatives submitted nominees in accordance with the Agreement:

Kalaw nominated Daniel Go of the National Bank of Detroit for the ASIA Group’s right.
Aboitiz nominated Andrew Gotianun, who aspired to acquire the entire 30% BA holding in IBAA shares.

On July 14, 1978, BA proceeded to sell its IBAA shares to Andrew Gotianun for approximately P64 million (at about P178 per share), executing the transaction with a partial down-payment of P20 million and the remainder upon Central Bank approval.
Gotianun attempted to register the share transfer in IBAA’s corporate books, but was met with refusal by some ASIA Group members who challenged the transaction for violations of the Consolidation Agreement, specifically the right of first refusal and unauthorized sale to a bank.

SEC Intervention and Issuance of Temporary Restraining Orders (TROs)

On July 19, 1978, the ASIA Group initiated SEC Case No. 1613 seeking annulment of the BA-Gotianun sale with a prayer for a preliminary injunction.
In response, SEC issued an ex parte TRO that:

Enjoined the enforcement and registration of the sale.
Prevented the reorganization of IBAA’s board and management.
Prohibited the assignment or sale of rights acquired by Gotianun under the sale agreement.

The evidence presented during the preliminary injunction hearings was intended to also serve as the basis for the main case.

Subsequent SEC Actions and Contentious Corporate Reorganization

In December 1979, motions to lift the TRO of July 19, 1978 were filed.
While these motions awaited resolution, SEC further intervened in the corporate affairs of IBAA:

On September 17, 1979, SEC issued an order enjoining the IBAA reorganization and restraining the movement of IBAA officers without SEC approval.
IBAA’s reorganization, which affected the board of directors and executive staff, led to disputes and subsequent petitions alleging violations of corporate rights and due process.
On December 17, 1979, SEC issued an ex parte order abolishing the IBAA board and creating a management committee (invoking Sec. 6(d) of PD 902-A, as amended by PD 1653), a measure challenged on several procedural and substantive grounds.
Related petitions were filed seeking to annul the SEC orders and issues were raised concerning the lawful removal of corporate directors and the violation of a TRO issued on October 18, 1979.

Litigation Developments and Amicable Settlement

Multiple certiorari and intervention cases were filed:

G.R. Nos. 51651, 51678, 53493, and 53543 addressed issues ranging from the validity of SEC TROs to the corporate reorganization.
On October 1, 1985, parties reached an amicable settlement leading to the dismissal of G.R. Nos. 51651, 51678, and 53493.

Consequently, the resolution pertained solely to G.R. No. 53543 and the issues surrounding the prolonged enforcement of the SEC TRO of July 19, 1978.

SEC’s Prolonged TRO and the Court’s Assessment

The SEC TRO of July 19, 1978 was initially defended as justified by the allegations and the necessity of preserving the status quo pending further resolution.
However, the delay in ruling on the motions to lift this TRO – extended well beyond the period justified by the circumstances – was found to be an abuse of discretion.
This inaction was linked to the broader issue of protracted ex parte TROs and served as a factor in the Court’s subsequent decision annulling the TRO.

Issues:

Validity and Appropriateness of the SEC TRO of July 19, 1978

Whether the issuing of the TRO was justified by the prima facie evidence alleging violations of the Consolidation Agreement, particularly the right of first refusal.
The propriety of extending the enforcement of the TRO for an extended period pending the resolution of the related motions.

Authority and Representation Concerns

The issue of whether Aboitiz and Kalaw, acting as former officers of separate entities that had merged into IBAA, were properly authorized to represent the interests of the ASIA and INSULAR Groups in matters affecting the sale of IBAA shares.
Whether their actions effectively waived or preserved the right of first refusal stipulated in the Consolidation Agreement.

Legality of SEC’s Subsequent Orders

The lawfulness of the SEC order of September 17, 1979 that enjoined the IBAA reorganization and restrained movements of officers.
The legitimacy of the December 17, 1979 SEC order abolishing the board of directors and instituting a management committee, particularly under the limitations imposed on the SEC’s power in the banking context.

Due Process and Corporate Governance

Whether the methods employed by the SEC in issuing TROs and orders—often ex parte and without proper notice or hearing—violated due process rights and principles of corporate governance.
The compatibility of these SEC actions with the constitutional requirement for fair procedure in adjudicating corporate disputes.

Abuse of Discretion by the SEC

Whether the delay in resolving the motions to lift the TRO of July 19, 1978 constituted a grave abuse of discretion.
The implications of prolonging an ex parte TRO beyond the allowable period as later codified by Presidential Decree No. 224.

Ruling:

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Ratio:

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Case Digest (G.R. No. L-51651)
Expanded Legal Reasoning Model