A.C. No. 7121 [Formerly CBD Case No. 04-1244 - Emiliani Wilfredo R. Cruz and Carlos R. Cruz vs. Atty. Evelyn Brul-Cruz and Atty. Gracelda N. Andres

On December 17, 1998, the Securities and Exchange Commission (SEC) approved the amended by-laws submitted by Baguio Country Club Corporation (BCCC).
The approved by-laws contained Article 5, Section 2, which provided that the Board of Directors be elected at the regular stockholders’ meeting and hold office for two (2) years and until their successors are elected and qualified.
This two-year term provision raised concerns since Section 23 of the Corporation Code mandates a term limit of one (1) year for board members.

On September 27, 2002, Atty. Manuel R. Singson, representing Ramon K. Ilusorio and Erlinda K. Ilusorio (the Ilusorios), submitted a letter-complaint to the SEC seeking to compel BCCC to hold the annual board election for 2002.
The petition asserted that the two-year term provision violated the statutory one-year term rule as required by the Corporation Code.
The petition noted that an earlier inquiry by a stockholder in 2001 had elicited from the SEC the opinion that the amendment extending the term was contrary to law.

On November 13, 2002, the SEC issued an Order through its Corporation Registration and Monitoring Department declaring Article 5, Section 2 of the amended by-laws void for violating Section 23 of the Corporation Code.
The SEC ordered BCCC to amend its by-laws and to conduct the annual board election.
On February 6, 2003, the SEC further issued an order requiring the officers and board members of BCCC to show cause for potential citation of indirect contempt for non-compliance.
BCCC later claimed it was awaiting further clarification before compliance with the SEC’s order.

Ramon Ilusorio, acting as a stockholder, formalized the request by petitioning the SEC on March 18, 2003, alleging that BCCC had refused to call a stockholders’ meeting for the proper election of board members.
In its August 15, 2003 Order, the SEC reaffirmed its power under the Corporation Code to call a stockholders’ meeting and conduct board elections under its control and supervision.

On September 26, 2003, BCCC filed a petition for certiorari and prohibition with the CA, challenging the SEC’s Order and asserting that the dispute was an intra-corporate matter outside the SEC’s regulatory purview.
In its March 26, 2004 Decision, the CA set aside the SEC’s orders and dismissed the petition of Ramon Ilusorio, while acknowledging that at least one petitioner had standing as a registered stockholder.
The CA characterized the controversy as an intra-corporate dispute, asserting that such matters were under the exclusive jurisdiction of the regular courts pursuant to the transfer of jurisdiction to the Regional Trial Courts via Republic Act No. 8799 (The Securities Regulation Code).
The CA also dismissed related contempt charges, attributing them to extraneous attempts by the parties to advance their respective positions.

In G.R. No. 165146, the SEC, through the Office of the Solicitor General, argued that the statutory one (1) year term for board members was mandatory and that the two-year term provision was void, regardless of prior SEC approval.
The SEC asserted that its regulatory power allowed it to compel an amendment of the by-laws and order the conduct of elections, characterizing its actions as enforcement of the statutory law.
In G.R. No. 165209, the Ilusorios contended that the CA erred in ruling that the SEC lacked jurisdiction to issue its August 15, 2003 Order and in determining that the dispute was intra-corporate, basing the controversy merely on the special relationships between stockholders and the corporation.
Both sets of petitioners further debated the scope of the SEC’s authority versus the proper forum for resolving intra-corporate disputes, with additional claims regarding the appropriate remedy and allegations of forum shopping by BCCC.

On July 19, 2005, BCCC filed a motion claiming that its board amended the by-laws to change the board’s term from two (2) years to one (1) year, effectively “reciprocating” the SEC’s position that the longer term was an inadvertent mistake.
Subsequently, on September 21, 2005, further filings confirmed that the SEC approved the amended by-laws and articles of incorporation.
Both the SEC and BCCC argued that the amendment rendered the underlying controversy moot and academic because the central issue—the longer board term—had been rectified.

Whether the SEC had the authority, under the Corporation Code and the Securities Regulation Code, to compel BCCC to amend its by-laws and to order the conduct of an election for board members.
Whether the SEC’s order to call a stockholders’ meeting fell within its regulatory functions or constituted an impermissible exercise of quasi-judicial power.

Whether the controversy was a genuine administrative dispute over the enforcement of statutory requirements or an intra-corporate dispute involving private rights between the corporation and its stockholders.
Whether the CA correctly characterized the dispute as intra-corporate and hence within the jurisdiction of the regular courts rather than the SEC.

Whether the amendment by BCCC to restore the one (1) year term for board members rendered the controversy mooted and academic.
Whether, notwithstanding the amendment, the SEC’s original order and the entire controversy remained justiciable, particularly regarding issues of administrative jurisdiction and statutory interpretation.