Makati Stock Exchange v. Campos
REITERATIONFacts
The Antecedents: Respondent Miguel V. Campos filed a petition with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC) against petitioners Makati Stock Exchange, Inc. (MKSE) and its directors. Respondent sought the nullification of a June 3, 1993 MKSE Board of Directors Resolution that allegedly deprived him of his right to participate equally in the allocation of Initial Public Offerings (IPOs) of corporations registered with MKSE. He also sought delivery of the IPO shares and payment of damages. Procedural History: The SICD initially granted a Temporary Restraining Order and later a Writ of Preliminary Injunction enjoining the enforcement of the resolution. Petitioners challenged these orders via Petitions for Certiorari before the SEC en banc. Petitioners also filed a Motion to Dismiss the main petition, citing mootness, lack of jurisdiction, and failure to state a cause of action. The SICD denied the Motion to Dismiss, which was also challenged before the SEC en banc. The SEC en banc nullified the injunction order and subsequently annulled the SICD's denial of the Motion to Dismiss, ordering the dismissal of respondent's petition for failure to state a cause of action. Respondent then filed a Petition for Certiorari with the Court of Appeals assailing the SEC en banc's orders. The Petition: The Court of Appeals granted respondent's petition, nullifying the SEC en banc's orders. Petitioners filed a Petition for Review on Certiorari with the Supreme Court, seeking to reverse the Court of Appeals' decision. During the pendency of the case, respondent Miguel V. Campos died and was substituted by his surviving spouse, Julia Ortigas vda. de Campos.
Issue(s)
Whether the SEC en banc committed grave abuse of discretion amounting to lack or excess of jurisdiction when it dismissed the petition for failure to state a cause of action. Whether the Court of Appeals erred in holding that the SEC en banc committed grave abuse of discretion by making an extended inquiry into the truth of allegations and using evidence from the injunction hearing to determine the existence of a cause of action. Whether the grant of IPO allocations to respondent was a mere accommodation. Whether respondent's claim for damages is illusory and his petition a nuisance suit because IPO allocations are for the investing public, not for brokers themselves.
Ruling
The Supreme Court granted the petition, reversed and set aside the decision and resolution of the Court of Appeals, and reinstated the orders of the Securities and Exchange Commission en banc. The petition filed by respondent before the SICD was dismissed for failure to state a cause of action.
Ratio Decidendi
On the issue of failure to state a cause of action: The Court held that a cause of action requires the existence of a legal right of the plaintiff, a correlative obligation of the defendant, and an act or omission of the defendant in violation of the plaintiff's right. The petition in SEC Case No. 02-94-4678, while alleging a right to subscribe to IPOs and a correlative obligation on the part of petitioners, utterly failed to lay down the source or basis of respondent's alleged right and/or petitioners' obligation. The mere assertion of a right and claim of an obligation without identifying the source thereof is merely a conclusion of fact and law. The Court emphasized that obligations must be rooted in law, contracts, quasi-contracts, acts or omissions punished by law, or quasi-delicts. The petition did not identify any of these sources for the alleged right to IPO allocations. The Court found that the quoted portion of the MKSE Articles of Incorporation merely created the position of Chairman Emeritus but did not confer any right to IPO allocations. The practice of allocating IPO shares, as described in the petition, was characterized as a mere custom, which, as a general rule, is not a source of a legally demandable or enforceable right. Therefore, the petition failed to state a cause of action because it did not establish a legally enforceable right to the IPO allocations. On the alleged grave abuse of discretion by the SEC en banc and the Court of Appeals' error: The Court found that while the SEC en banc might have overstepped its bounds by considering extraneous evidence in its dismissal order, its ultimate conclusion that the petition failed to state a cause of action was correct. The SEC en banc correctly identified that the respondent failed to establish the basis or authority for his alleged right to participate equally in IPO allocations. The provision cited from the amended articles of incorporation did not support his claim. Therefore, even if the SEC en banc's discussion of extraneous evidence was superfluous or obiter dictum, the main thrust of its decision to dismiss the petition for failure to state a cause of action was sound. The Supreme Court concluded that the Court of Appeals erred in granting the petition for certiorari and nullifying the SEC en banc's orders. The appellate court should have upheld the SEC en banc's dismissal of the petition for failure to state a cause of action, as the respondent had not adequately pleaded the legal basis for his claimed right to IPO allocations. The Court of Appeals' finding of grave abuse of discretion on the part of the SEC en banc was therefore reversed. On the nature of IPO allocations and whether the grant of IPO allocations to respondent was a mere accommodation: The Court noted that the petition itself described IPO allocations as being divided among members who pay therefor at the offering price. This description, coupled with the lack of a legal basis for the alleged right, indicated that the claim was not sufficiently grounded. The Court reiterated that a practice or custom, without more, does not create an enforceable right. The petition did not cite any law, contract, or other legal source that would convert the practice of allocating IPO shares into a demandable right. On whether respondent's claim for damages is illusory and his petition a nuisance suit: Consequently, the claim for damages arising from the deviation from this practice was deemed unsubstantiated due to the absence of a legally recognized right.
Main Doctrine
A petition must state the source or basis of the alleged right and correlative obligation to sufficiently state a cause of action; a mere practice or custom, without legal basis, does not create an enforceable right.