Case Digest for ReMAKATI STOCK EXCHANGE, INC. VS MIGUEL CAMPOS G.R. NO. 138814, APRIL 26, 2009

MAKATI STOCK EXCHANGE, INC. VS MIGUEL CAMPOS G.R. NO. 138814, APRIL 26, 2009 FACTS: SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE). The Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of his right to participate equally in the allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million as exemplary damages, and P500,000.00 as attorney’s fees and litigation expenses. The SICD issued an Order granting respondent’s prayer for the issuance of a Temporary Restraining Order to enjoin petitioners from implementing or enforcing the Resolution of the MKSE Board of Directors. Subsequently issued another Order on 10 March 1994 granting respondent’s application for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678, the implementation or enforcement of the MKSE Board Resolution in question. On 11 March 1994, petitioners filed a Motion to Dismiss respondent’s Petition based on the following grounds: (1) the Petition became moot due to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a cause of action. The SICD denied petitioner’s Motion to Dismiss. Petitioners again challenged Order of SICD before the SEC en banc through another Petition for Certiorari. The SEC en banc nullified the Order of SICD granting a Writ of Preliminary Injunction in favour of respondent. SEC en banc annulled the Order of SICD in SEC Case No. 02-94-4678 denying petitioners’ Motion to Dismiss, and accordingly ordered the dismissal of respondent’s Petition before the SICD. Respondent filed a Petition for Certiorari with the Court of Appeals. Petitioners filed a Motion for Reconsideration but was denied by the Court of Appeals.

ISSUE: WHETHER OR NOT THE PETITION FAILED TO STATE A CAUSE OF ACTION.

RULING: The petition filled by the respondent, Miguel Campos should be dismissed for failure to state a cause of action. A cause of action is the act or omission by which a party violates a right of another. A complaint states a cause of action where it contains three essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action. However, the terms right and obligation are not magic words that would automatically lead to the conclusion that such Petition sufficiently states a cause of action. Right and obligation are legal terms with specific legal meaning. A right is a claim or title to an interest in anything whatsoever that is enforceable by law while an obligation is defined in the Civil Code as a juridical necessity to give, to do or not to do. Justice J.B.L. Reyes offers the definition given by Arias Ramos as a more complete definition: An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinative conduct (the giving, doing or not doing), and in case of breach, may demand satisfaction from the assets of the latter. Art. 1157 of the Civil Code provides that Obligations arise from (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. The mere assertion of a right and claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis or source thereof, is merely a conclusion of fact and law. (In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondent’s right to subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners’ obligation to continue respecting and observing such right, the Petition utterly failed to lay down the source or basis of respondent’s right and/or petitioners’ obligation.) Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the said Petition from which the Court can deduce that respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to subscribe to the IPOs of corporations listed in the stock market at their offering prices. (allocation of IPO shares was merely alleged to have been done in accord with a practice normally observed by the members of the stock exchange) A practice or custom is, as a general rule, not a source of a legally demandable or enforceable right.