Case Flow:: Philippine Stock Exchange, Inc., Petitioner

No. L-19671. November 29, 1965.
Case flow:
PSE – Rejected PALI’s application for listing of shares
PHILIPPINE STOCK EXCHANGE, INC., petitioner,
SEC – Reversed PSE’s decision
vs.
CA – PSE’s Petition for Review was Dismissed
THE HONORABLE COURT OF APPEALS, SECURITIES
AND EXCHANGE COMMISSION and PUERTO AZUL SC – PSE’s Petition for Review of Certiorari was Granted
LAND, INC., respondents.
FACTS:
 The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission
(SEC). PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE).
 On March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALI's application, citing the
existence of serious claims, issues and circumstances surrounding PALI's ownership over its assets that adversely
affect the suitability of listing PALI's shares in the stock exchange. The heirs of Ferdinand E. Marcos claims that the
late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul
Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development
Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held
in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate.
 On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. Invoking the Commissioner's authority
and jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of
Presidential Decree No. 902-A, the PSE was ordered to immediately cause the listing of the PALI shares in the
Exchange, without prejudice to its authority to require PALI to disclose such other material information it deems
necessary for the protection of the investigating public. PSE filed a motion for reconsideration of the said order on
April 29, 1996, which was, however denied by the Commission on May 9, 1996.
 The PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with Application for Writ of
Preliminary Injunction and Temporary Restraining Order) assailing the orders of the SEC. On June 27, 1996, the CA
promulgated its Resolution dismissing the PSE's Petition for Review. Hence, this Petition by the PSE.
ISSUE: How far does SEC’s regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock
Exchange, Inc.
HELD:
Notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the
PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's
judgment is attended by bad faith.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and
with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and
perquisites appropriate to such a body. As to its corporate and management decisions, therefore, the state will
generally not interfere with the same. Questions of policy and of management are left to the honest decision of
the officers and directors of a corporation, and the courts are without authority to substitute their judgment for
the judgment of the board of directors. The board is the business manager of the corporation, and so long as it
acts in good faith, its orders are not reviewable by the courts.
The Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound
discretion of the PSE, a corporation entity, whose business judgments are respected in the absence of bad faith.

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No. L-19671. November 29, 1965.

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