Philippine Stock Exchange, Inc. v. Court of Appeals [G.R. No. 125469 | October 27, 1997]

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Philippine Stock Exchange, Inc. v. Court of Appeals

G.R. No. 125469 | October 27, 1997

SECOND DIVISION, TORRES, JR. J.

 

Business Judgement Rule 

 

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. 

 

Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought to list its shares in the Philippine Stock Exchange (PSE) after obtaining a Securities and Exchange Commission (SEC) permit to sell shares to the public. The PSE’s Listing Committee initially recommended approval. However, the PSE Board of Governors denied the application, citing unresolved legal claims over PALI’s assets, including a claim by the Marcos family and sequestration by the Presidential Commission on Good Government (PCGG). 

PALI appealed to the SEC, which reversed the PSE’s decision, ordering the immediate listing of PALI’s shares. The PSE challenged this order before the Court of Appeals, arguing that the SEC had no authority to interfere with the PSE’s business discretion. The appellate court upheld the SEC’s ruling, prompting PSE to elevate the case to the Supreme Court.

 

Whether the SEC had the authority to overturn the PSE’s decision denying PALI’s listing application. 

YES. he Supreme Court ruled in favor of the PSE, holding that the SEC acted arbitrarily in reversing the PSE’s decision. The PSE, as a corporate entity, had the discretion to deny the listing of PALI based on legitimate concerns about the ownership and integrity of its assets. The Court recognized that while the SEC has regulatory power, it cannot override business decisions made in good faith and within the corporation’s legal authority. Thus, absent bad faith or clear abuse of discretion, regulatory authorities cannot interfere with the reasonable exercise of corporate management decisions.

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