G.R. No. 239010, July 6, 2022
SECURITIES AND EXCHANGE COMMISSION and AZUCENA LOCSIN-GARCIA, PETITIONERS, VS. AZ 17/31 REALTY, INC., RESPONDENT.

FACTS

The case originated from a petition to revoke the certificate of incorporation of AZ 17/31 Realty, Inc. The Securities and Exchange Commission (SEC) found that one of the incorporators listed in the Articles of Incorporation, Pacita Javier, had been deceased for over three years at the time of the corporation’s registration in 2013. The SEC, invoking its authority under Presidential Decree No. 902-A and its own SEC Resolution No. 359, Series of 2010, revoked the certificate for fraud in its procurement. The Court of Appeals reversed the SEC, holding that the inclusion of a deceased incorporator was a mere formal defect that did not constitute fraud warranting corporate dissolution. The majority of the Supreme Court affirmed the appellate court, ruling that the minimum number of incorporators and capital requirements were still met and that the corporation should be given time to correct the defect.

ISSUE

Whether the deliberate inclusion of a deceased person as an incorporator constitutes fraud in the procurement of a certificate of incorporation, warranting its revocation by the SEC.

RULING

Justice Leonen, in his dissenting opinion, argued that the majority erred. He posited that the deliberate inclusion of a deceased incorporator is a clear misrepresentation and a violation of the Corporation Code, constituting fraud that the SEC has the authority to sanction. The dissent took issue with the majority’s treatment of SEC Resolution No. 359, which explicitly authorizes the revocation of a certificate if any incorporator is deceased at the time of incorporation. The majority deemed this resolution merely persuasive, lacking the force of “practical construction” without judicial acquiescence, and distinguished it from the constitutional interpretation issue in Guingona, Jr. v. Gonzales.
Justice Leonen countered that the doctrine of respect for administrative construction applies squarely here. As the specialized agency tasked with implementing corporate law, the SEC’s contemporaneous and expert interpretation of statutory provisions—like what constitutes “fraud” in procurement—is entitled to great weight, especially absent prior judicial interpretation. He emphasized that Congress expressly delegated rule-making powers to the SEC to effect its mandate. Therefore, SEC Resolution No. 359 is a valid exercise of this delegated power to fill in the details of the law and should be upheld. The dissent concluded that the fraudulent act goes to the very integrity of the incorporation process and the SEC correctly exercised its jurisdiction to revoke the certificate, a power essential to its regulatory function of preventing schemes amounting to fraud or misrepresentation.