Professional Documents
Culture Documents
NILTantay
III-Manresa
Case Digests
TITLE I
GENERAL PROVISIONS
Definitions and Classifications
(3) the control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of these elements prevents piercing the corporate veil. The
evidence on record fails to show that these elements are present,
especially given the fact that plaintiffs complaint had pleaded that CLC
is a corporation duly organized and existing under the laws of the
Philippines.
Section 1
Title of the Code. - This Code shall be known as "The Corporation
Code of the Philippines".
Section 2
Corporation defined. A corporation is an artificial being created by
operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its
existence.
A. Artificial Being
Child Learning Center Vs. Tagorio (476 SCRA 236)
Facts:
Timothy was a Grade IV student at Marymount School, an academic
institution operated and maintained by Child Learning Center, Inc.
(CLC). In the afternoon of March 5, 1991, between 1 and 2 p.m.,
Timothy entered the boys comfort room at the third floor of the
Marymount building to answer the call of nature. He, however, found
himself locked inside and unable to get out. Timothy started to panic
and so he banged and kicked the door and yelled several times for
help. When no help arrived he decided to open the window to call for
help. In the process of opening the window, Timothy went right
through and fell down three stories. Timothy was hospitalized and
given medical treatment for serious multiple physical injuries.
An action under Article 2176 of the Civil Code was filed by respondents
against the CLC, the members of its Board of Directors, namely
Spouses Edgardo and Sylvia Limon, Alfonso Cruz, Carmelo Narciso
and Luningning Salvador, and the Administrative Officer of
Marymount School, Ricardo Pilao.
The court a quo found in favor of respondents and ordered petitioners
CLC and Spouses Limon to pay respondents, jointly and severally,
P200,253.12 as actual and compensatory damages, P200,000 as moral
damages, P50,000 as exemplary damages, P100,000 as attorneys fees
and the costs of the suit.
The trial court disregarded the corporate fiction of CLC and held the
Spouses Limon personally liable because they were the ones who
actually managed the affairs of the CLC.
Issue:
W/N there is basis for piercing the veil of corporate entity in
resolving the issue of alleged personal liability of petitioners Edgardo
L. Limon and Sylvia S. Limon
Ruling:
There was no basis to pierce CLCs separate corporate personality. To
disregard the corporate existence, the plaintiff must prove:
(1) Control by the individual owners, not mere majority or complete
stock ownership, resulting in complete domination not only of finances
but of policy and business practice in respect to a transaction so that
the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
(2) such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and unjust act in contravention of the
plaintiffs legal right; and
Facts:
The RTC granted the injunctive relief. The Court of Appeals reversed
the trial courts decision. Hence this petition.
Issue:
they were the only ones who became incorporators of FGT. They
transferred the assets of TVI to FGT.
Thus, the petitioners had acted in bad faith to defraud the bank since
they succeeded in hiding the chattels preventing the sheriff to foreclose
the mortgage. Therefore, they are the ones personally liable to the bank
for the payment of the loan and not TVI.
Petron Vs. NLRC (505 SCRA 596)
Facts:
are not theirs but the direct accountabilities of the corporation they
represent. True, solidary liabilities may at times be incurred by
corporate officers, but only when exceptional circumstances so
warrant. For instance, in labor cases, corporate directors and officers
may be held solidarily liable with the corporation for the termination of
employment if done with malice or in bad faith.
In the present case, the apparent basis for the NLRC in holding
petitioner Maligro solidarily liable with Petron were its findings that (1)
the Investigation Committee was created a day after the summons in
NLRC RAB-VII Case was received, with Maligro no less being the
chairman thereof; and (2) the basis for the charge of insubordination
was the private respondents alleged making of false accusations
against Maligro.
Those findings, however, cannot justify a finding of personal liability
on the part of Maligro inasmuch as said findings do not point to
Maligros extreme personal hatred and animosity with the respondent.
It cannot, therefore, be said that Maligro was motivated by malice and
bad faith in connection with private respondents dismissal from the
service.
If at all, what said findings show are the illegality itself of private
respondents dismissal, the lack of just cause therefor and the nonobservance of procedural due process. Verily, the creation of the
investigation committee and said committees consideration of the
insubordination charge against the private respondent, were merely
aimed to cover up the illegal dismissal or to give it a semblance of
legality.
Besides, the fact that Maligro himself was the committee chairman is
not itself sufficient to impute bad faith on his part or attribute bias
against him. It is undisputed that Maligro was private respondents
superior, being Petrons Operations Assistant Manager for Visayas and
Mindanao. It is thus logical for him to be part of the committee that
will investigate private respondents alleged infractions of company
rules and regulations. As well, the committee was composed of three
other Petron officers as members, and nowhere is there any showing
that Maligro, as committee chairman, influenced the other committee
members to side against the private respondent.
In any event, it must be stressed that private respondents allegation of
bad faith on the part of Maligro was not established in this case.
Yamamoto Vs. Nishino Leather (551 SCRA 447)
Facts:
Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under
Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a
corporation engaged principally in leather tanning, now known as
Nishino Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino),
also a Japanese national, forged a Memorandum of Agreement under
which they agreed to enter into a joint venture wherein Nishino would
acquire such number of shares of stock equivalent to 70% of the
authorized capital stock of WAKO.
Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu)
acquired more than 70% of the authorized capital stock of WAKO,
reducing Yamamoto's investment therein to, by his claim, 10% less
than 10% according to Nishino.
The corporate name of WAKO was later changed to, as reflected earlier,
its current name NLII.
Negotiations subsequently ensued in light of a planned takeover of
NLII by Nishino who would buy-out the shares of stock of Yamamoto.
In the course of the negotiations, Yoshinobu and Nishino's counsel
Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter
dated October 30, 1991, which stated that he (Yamamoto) may take
out the machineries (his contributions) for his own use and sale should
W/N the advice in the letter of Atty. Doce that Yamamoto may retrieve
the machineries and equipment, which admittedly was part of his
investment, bound the corporation.
Ruling:
The Court holds in the negative.
Without a Board Resolution authorizing respondent Nishino to act for
and in behalf of the corporation, he cannot bind the latter. Under the
Corporation Law, unless otherwise provided, corporate powers are
exercised by the Board of Directors.
Urging this Court to pierce the veil of corporate fiction, Yamamoto
argues that Ikuo, Yoshinobu, and Yamamoto were the owners thereof,
the presence of other stockholders being only for the purpose of
complying with the minimum requirements of the law. What course of
action the Company decides to do or not to do depends not on the
"other members of the Board of Directors". It depends on what Ikuo
and Yoshinobu decide. The Company is but a mere instrumentality of
Ikuo [and] Yoshinobu.
While the veil of separate corporate personality may be pierced when
the corporation is merely an adjunct, a business conduit, or alter ego of
a person, the mere ownership by a single stockholder of even all or
nearly all of the capital stocks of a corporation is not by itself a
sufficient ground to disregard the separate corporate personality.
The elements determinative of the applicability of the doctrine of
piercing the veil of corporate fiction follow:
"1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of
its own;
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of the
plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
NIDC transferred all its rights, title and interest in PHILSECO to the
National Government. Thereafter, the Asset Privatization Trust (APT)
was named the trustee of the National Government's share in
PHILSECO.
The APT deemed it best to sell the National Government's share in
PHILSECO to private entities.
To finance the purchase of the raw materials for the survival bolos,
petitioners, on behalf of El Oro Corporation, applied with respondent
Bank of the Philippine Islands (respondent bank) for two commercial
letters of credit. The letters of credit were in favor of El Oro
Corporations suppliers, Tanchaoco Manufacturing Incorporated
(Tanchaoco Incorporated) and Maresco Rubber and Retreading
Corporation (Maresco Corporation). Respondent bank granted
petitioners application and issued Letter of Credit No. 2-00896-3 for
P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 200914-5 for P294,000 to Maresco Corporation.
Simultaneous with the issuance of the letters of credit, petitioners
signed trust receipts in favor of respondent bank. Jose C. Tupaz
IV signed, in his personal capacity, a trust receipt corresponding to
Letter of Credit to Tanchaoco. He bound himself to sell the goods
covered by the letter of credit and to remit the proceeds to respondent
bank, if sold, or to return the goods, if not sold, on or before 29
December 1981. Likewise, the petitioners signed, in their capacities as
officers of El Oro Corporation, a trust receipt corresponding to Letter
of Credit to Maresco. They bound themselves to sell the goods covered
by that letter of credit and to remit the proceeds to respondent bank, if
sold, or to return the goods, if not sold, on or before 8 December 1981.
After Tanchaoco Incorporated and Maresco Corporation delivered the
raw materials to El Oro Corporation, respondent bank paid the former
P564,871.05 and P294,000, respectively.
Petitioners did not comply with their undertaking under the trust
receipts. Respondent bank made several demands for payments but El
Oro Corporation made partial payments only. On 27 June 1983 and 28
June 1983, respondent banks counsel and its representative
respectively sent final demand letters to El Oro Corporation. El Oro
Corporation replied that it could not fully pay its debt because the
Armed Forces of the Philippines had delayed paying for the survival
bolos.
Respondent bank charged petitioners with estafa.
The trial court rendered judgment acquitting petitioners of estafa on
reasonable doubt. However, the trial court found petitioners solidarily
liable with El Oro Corporation for the balance of El Oro Corporations
principal debt under the trust receipts.
Issue:
W/N the Tupazs were liable for the debt of the Corporation under the
trust receipts
Ruling:
A corporation, being a juridical entity, may act only through its
directors, officers, and employees. Debts incurred by these individuals,
acting as such corporate agents, are not theirs but the direct liability of
the corporation they represent. As an exception, directors or officers
are personally liable for the corporations debts only if they so
contractually agree or stipulate.
In the trust receipt dated 9 October 1981, petitioners signed below this
clause as officers of El Oro Corporation. Thus, under petitioner
Petronila Tupazs signature are the words Vice-PresTreasurer and
under petitioner Jose Tupazs signature are the words Vice-Pres
Operations. By so signing that trust receipt, petitioners did not bind
themselves personally liable for El Oro Corporations obligation.
Hence, for the trust receipt dated 9 October 1981, we sustain
petitioners claim that they are not personally liable for El Oro
Corporations obligation.
For the trust receipt dated 30 September 1981, the dorsal portion of
which petitioner Jose Tupaz signed alone, we find that he did so in his
personal capacity. Petitioner Jose Tupaz did not indicate that he was
signing as El Oro Corporations Vice-President for Operations. Hence,
In this petition, WHI contends that when RECCI sold Lot 2, it was well
aware of its obligation to provide the petitioner with a means of ingress
to or egress from the property to the Sumulong Highway, since the
latter had no adequate outlet to the public highway. WHI further
asserts that it agreed to buy the property because of the grant by the
respondent of a right of way and an option in its favor to buy a portion
of the adjacent property; that the RECCI never objected to Roxas'
acceptance of its offer to purchase the property and the terms and
conditions therein; the respondent even allowed Roxas to execute the
deed of absolute sale in its behalf; that WHI dealt with RECCI in good
faith.
Issue:
W/N RECCI is bound by the provisions in the deed of absolute sale
which was entered into by its president, Roberto Roxas with Woodchild
Holdings
Ruling:
RECCI was not bound by such agreement. RECCI did not authorize
Roxas to grant a right of way over a portion of Lot 1 in favor of the
petitioner, and an option for the respondent to buy a portion of the said
property. Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale.
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation
is not the property of its stockholders or members and may not be sold
by the stockholders or members without express authorization from
the corporation's board of directors. Section 23 of BP 68, otherwise
known as the Corporation Code of the Philippines, provides:
"SEC. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are
elected and qualified."
A corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its
officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and
its officers or agents, subject to the articles of incorporation, by-laws,
or relevant provisions of law. Generally, the acts of the corporate
officers within the scope of their authority are binding on the
corporation. However, acts done by such officers beyond the scope of
their authority cannot bind the corporation unless it has ratified such
acts expressly or tacitly, or is estopped from denying them:
The Supreme Court rejected WHIs submission that, in allowing Roxas
to execute the contract to sell and the deed of absolute sale and failing
to reject or disapprove the same, the respondent thereby gave him
apparent authority to grant a right of way and an option for the
respondent to sell a portion thereof to the petitioner. Absent estoppel
or ratification, apparent authority cannot remedy the lack of the
written power required.
It bears stressing that apparent authority is based on estoppel and can
arise from two instances: 1.) the principal may knowingly permit the
agent to so hold himself out as having such authority, and in this way,
the principal becomes estopped to claim that the agent does not have
such authority; 2.) the principal may so clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe
that he actually has such authority. There can be no apparent authority
of an agent without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied
upon in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant and such must have produced a
change of position to its detriment. The apparent power of an agent is
to be determined by the acts of the principal and not by the acts of the
agent.
Li, while one Mylene C. Padilla took the place of petitioner Vicky Tan
Toh as Vice-President.
The trial court described the Continuing Guaranty as effective only
while petitioner-spouses were stockholders and officers of FBPC since
respondent Bank compelled petitioners to underwrite FBPC's
indebtedness as sureties without the requisite investigation of their
personal solvency and capability to undertake such risk. The lower
court also believed that the Bank knew of petitioners' divestment of
their shares in FBPC and their subsequent resignation as officers
thereof as these facts were obvious from the numerous public
documents that detailed the changes and substitutions in the list of
authorized signatories for transactions between FBPC and the Bank,
including the many trust receipts being signed by persons other than
petitioners, as well as the designation of new FBPC officers which came
to the notice of the Bank's Vice-President Jose Chan Jr. and other
officers.
Issue:
W/N the petitioners are personally liable to the bank
Ruling:
The Continuing Guaranty is a valid and binding contract of petitionerspouses as it is a public document that enjoys the presumption of
authenticity and due execution. Luis Toh and Vicky Tan Toh
"voluntarily affixed their signatures" on the surety agreement and were
thus "at some given point in time willing to be liable under those
forms." In the absence of clear, convincing and more than
preponderant evidence to the contrary, our ruling cannot be otherwise.
Similarly, there is no basis for petitioners to limit their responsibility
thereon so long as they were corporate officers and stockholders of
FBPC. Nothing in the Continuing Guaranty restricts their contractual
undertaking to such condition or eventuality. In fact the obligations
assumed by them therein subsist "upon the undersigned, the heirs,
executors, administrators, successors and assigns of the undersigned,
and shall inure to the benefit of, and be enforceable by you, your
successors, transferees and assigns," and that their commitment "shall
remain in full force and effect until written notice shall have been
received by the Bank that it has been revoked by the undersigned."
Verily, if petitioners intended not to be charged as sureties after their
withdrawal from FBPC, they could have simply terminated the
agreement by serving the required notice of revocation upon the Bank
as expressly allowed therein.
In Garcia v. Court of Appeals we ruled Regarding the
petitioner's claim that he is liable only as a corporate officer
of WMC, the surety agreement shows that he signed the
same not in representation of WMC or as its president but in
his personal capacity. He is therefore personally bound.
There is no law that prohibits a corporate officer from
binding himself personally to answer for a corporate debt.
While the limited liability doctrine is intended to protect the
stockholder by immunizing him from personal liability for
the corporate debts, he may nevertheless divest himself of
this protection by voluntarily binding himself to the payment
of the corporate debts. The petitioner cannot therefore take
refuge in this doctrine that he has by his own acts effectively
waived.
But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety
agreement they signed so must we also hold respondent Bank to its
representations in the "letter-advise" of 16 May 1993. Particularly, as to
the extension of the due dates of the letters of credit, we cannot exclude
from the Continuing Guaranty the preconditions of the Bank that were
plainly stipulated in the "letter-advise." Fairness and justice dictate our
doing so, for the Bank itself liberally applies the provisions of cognate
agreements whenever convenient to enforce its contractual rights, such
as, when it harnessed a provision in the trust receipts executed by
respondent FBPC to declare its entire indebtedness as due and
demandable and thereafter to exact payment thereof from petitioners
Issue:
1.
2.
Ruling:
The Supreme Court held that Panfilo V Pajarillo Liner and PVP Liner
are one and the same entity belonging to one and the same person,
Panfilo. When PVP Liner Inc and Panfilo V Pajarillo Liner were
impleaded as party-respondents, it was Panfilo, through counsel, who
answered the complaint and filed the position papers, motions for
reconsiderations and appeals. It was Panfilo, through counsel, who
participated in the hearings and proceedings.
The Supreme Court also found that Panfilo started his transportation
business as the sole owner and operator of passenger buses utilizing
the name PVP Liner for his buses. After being charged by respondent
union of unfair labor practices, illegal deductions, illegal dismissal and
violation of labor standard laws, Panfilo transformed his
transportation business into a family corporation namely PV Pajarillo
Liner. He and petitioners were the incorporators, stockholders and
officers therein. PV Pajarillo Inc and the sole proprietorship of Panfilo
have the same business address and also used the name PVP Liner in
its buses. Further, the license to operate or franchise of the sole
proprietorship was merely transferred to PV Pajarillo Liner, Inc.
Thus, the doctrine of Piercing the Veil of Corporate Entity was properly
applied in this case. It is a fundamental principle of corporation law
that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be
connected. However, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to
promote justice. Hence, when it is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat labor laws, this separate personality of the corporation may be
disregarded or the veil of the corporate fiction pierced.
Ching Vs. Secretary Of Justice (481 SCRA 609)
Facts:
Alfredo Ching was the Senior Vice-President of Philippine Blooming
Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI,
through petitioner, applied with the Rizal Commercial Banking
Corporation for the issuance of commercial letters of credit to finance
its importation of assorted goods.3
Respondent bank approved the application, and irrevocable letters of
credit were issued in favor of petitioner. The goods were purchased and
delivered in trust to PBMI. Petitioner signed 13 trust receipts as surety,
acknowledging delivery of the goods.
Under the receipts, petitioner agreed to hold the goods in trust for the
said bank, with authority to sell but not by way of conditional sale,
pledge or otherwise; and in case such goods were sold, to turn over the
proceeds thereof as soon as received, to apply against the relative
acceptances and payment of other indebtedness to respondent bank. In
case the goods remained unsold within the specified period, the goods
were to be returned to respondent bank without any need of demand.
Thus, said "goods, manufactured products or proceeds thereof,
whether in the form of money or bills, receivables, or accounts separate
and capable of identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods
to respondent bank, or to return their value amounting to
P6,940,280.66 despite demands. Thus, the bank filed a criminal
complaint for estafa against petitioner in the Office of the City
Prosecutor of Manila.
10
Ruling:
Section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation,
partnership, association or other judicial entities, the penalty provided
for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the
offense, without prejudice to the civil liabilities arising from the
criminal offense.
There is no dispute that it was the respondent, who as senior vicepresident of PBM, executed the thirteen (13) trust receipts. As such, the
law points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it cannot
commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an
act amounting to a crime and never against the corporation itself.
Thus, the execution by respondent of said receipts is enough to indict
him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115
covers only goods which are ultimately destined for sale and not goods,
like those imported by PBM, for use in manufacture. This issue has
already been settled in the Allied Banking Corporation case, supra,
where he was also a party, when the Supreme Court ruled that PD 115
is not limited to transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component or a product ultimately
sold but covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance
with the terms of the trust receipts.
The respondent bound himself under the terms of the trust receipts not
only as a corporate official of PBM but also as its surety. It is evident
that these are two (2) capacities which do not exclude the other.
Logically, he can be proceeded against in two (2) ways: first, as surety
and, secondly, as the corporate official responsible for the offense
under PD 115, the present case is an appropriate remedy under our
penal law.
Petitioner asserts that the appellate courts ruling is erroneous because
(a) the transaction between PBMI and respondent bank is not a trust
receipt transaction; (b) he entered into the transaction and was sued in
his capacity as PBMI Senior Vice-President; (c) he never received the
goods as an entrustee for PBMI, hence, could not have committed any
dishonesty or abused the confidence of respondent bank; and (d) PBMI
acquired the goods and used the same in operating its machineries and
equipment and not for resale.
In the case at bar, the transaction between petitioner and respondent
bank falls under the trust receipt transactions envisaged in P.D. No.
115. Respondent bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as entrustee, with
the bank as entruster.
Although petitioner signed the trust receipts merely as Senior VicePresident of PBMI and had no physical possession of the goods, he
cannot avoid prosecution for violation of P.D. No. 115.
Though the entrustee is a corporation, nevertheless, the law specifically
makes the officers, employees or other officers or persons responsible
for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or
employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility
to devise means necessary to ensure compliance with the law and, if
they fail to do so, are held criminally accountable; thus, they have a
responsible share in the violations of the law.
If the crime is committed by a corporation or other juridical entity, the
directors, officers, employees or other officers thereof responsible for
the offense shall be charged and penalized for the crime, precisely
11
In their answer (with counterclaim against respondent and crossclaims against Hi-Cement, Riverside and Kanebo), E.T. Henry and the
spouses Tan claimed that: (1) the drawers of the postdated checks
failed to honor them due to the adverse economic conditions prevailing
at the time respondent presented them for payment; (2) the extrajudicial sale of the mortgaged Sucat property was void due to gross
inadequacy of the bid price and (3) their loans were subjected to a
usurious interest rate of 21% p.a.
On June 30, 1989, the trial court rendered a decision which ordered
E.T. Henry, Spouses Tan, Hi-Cement, Riverside and Kanebo to pay the
face value of the post dated checks.
demands
clear
and
convincing
Riverside and Kanebo did not appeal the decision to the CA which
affirmed it in toto. Hence, these petitions.
On the other hand, E.T. Henry and the spouses Tan essentially contend
that the lower courts erred in: (1) applying the doctrine of piercing the
veil of the corporate entity to make the spouses Tan solidarily liable
with E.T. Henry; (2) not ruling on their cross-claims and
counterclaims, and (3) not declaring the foreclosure of E.T. Henry's
Sucat property as void.
In their petition, E.T. Henry and the spouses Tan argue that the lower
courts erred in applying the piercing the veil of corporate entity
doctrine to their case. They claim that both the trial and appellate
courts failed to cite the reasons why the doctrine was relevant to them.
Issue:
W/N the Trial Court and the Court of Appeals erred in applying the
piercing the veil of Corporate entity and holding the spouses Tan
personally liable for the face value of the postdated checks
Ruling:
The Supreme Court agreed with petitioners E.T. Henry and the spouses
Tan in this respect.
If any general rule can be laid down, it is that the corporation will be
looked upon as a legal entity until sufficient reasons to the contrary
appear. It is only when the fiction or notion of legal entity is used to
defeat public convenience, justify wrong, perpetuate fraud or defend
crime that the law will shred the corporate legal veil and regard it as a
mere association of persons. This is referred to as the doctrine of
piercing the veil of corporate entity.
E.T. Henry's corporate veil should not have been pierced at all.
First, the trial court failed to provide a clear ground why the doctrine
was used. It merely stated that it agreed with respondents arguments
but did not explain why the doctrine was relevant to petitioner E.T.
Henry's and the spouses Tans case. On the other hand, the CA held:
It appears that spouses Tan are controlling
stockholders of E.T. Henry & Co., Inc. as well as its
authorized signatories. The business of the
corporation was conducted solely for the benefit of
the spouses Tan who colluded with Hi-Cement in
defrauding respondent. As the lower court cited
It is a settled law in this and other jurisdictions
that when the corporation is a mere alter ego of a
person, same being true when the corporation is
controlled, and its affairs are so conducted to make
it merely an instrumentality, agency or conduit of
another.
Similarly, the CA left a gaping hole by failing to provide the basis for its
ruling that E.T. Henry and the spouses Tan defrauded respondent. It
did
not
also
state
what
act
constituted the fraud.
12
GCC stressed that it is a distinct and separate entity from EQUITY and
alleging, in essence that the business relationships with each other
were always at arms length.
The trial court, finds that EQUITY was but an instrumentality or
adjunct of GCC and declaring them as jointly and severally liable to
Alsons.
Issue:
W/N there is basis of piercing the veil of corporate fiction
Ruling:
A corporation is an artificial being vested by law with a personality
distinct and separate from those of the persons composing it as well as
from that of any other entity to which it may be related. The first
consequence of the doctrine of legal entity of the separate personality
of the corporation is that a corporation may not be made to answer for
acts and liabilities of its stockholders or those of legal entities to which
it may be connected or vice versa.
The notion of separate personality, however, may be disregarded
under the doctrine piercing the veil of corporate fiction as in fact
the court will often look at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the
corporation unifying the group. Another formulation of this doctrine is
that when two (2) business enterprises are owned, conducted and
controlled by the same parties,
both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or one and the same.
Whether the separate personality of the corporation should be pierced,
hinges on obtaining facts appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit the
Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the
concept of corporate entity was not meant to promote unfair objectives.
Authorities are agreed on at least three (3) basic areas where piercing
the veil, with which the law covers and isolates the corporation from
any other legal entity to which it may be related, is allowed. These are:
1) defeat of public convenience, as when the corporate fiction is used as
vehicle for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend
a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
The CA found valid grounds to pierce the corporate veil of petitioner
GCC, there being justifiable basis for such action. When the appellate
court spoke of a justifying factor, the reference was to what the trial
court said in its decision, namely: the existence of certain
circumstances [which], taken together, gave rise to the ineluctable
conclusion that [respondent] EQUITY is but an instrumentality or
adjunct of [petitioner] GCC.
Foremost of what referred to as certain circumstances are the
commonality of directors, officers and stockholders and even sharing
of office between petitioner GCC and respondent EQUITY; certain
financing and management arrangements between the two, allowing
the petitioner to handle the funds of the latter; the virtual domination
if not control wielded by the petitioner over the finances, business
policies and practices of respondent EQUITY; and the establishment of
respondent EQUITY by the petitioner to circumvent CB rules.
It bears to stress at this point that the facts and the inferences drawn
therefrom, upon which the two (2) courts below applied the piercing
doctrine, stand, for the most part, undisputed. Among these is, to
reiterate, the matter of EQUITY having been incorporated to serve, as
13
month reckoned from March 1989 until fully paid; while defendants
Aratea & Canonigo should solidarily pay plaintiff the balance on the
principal amounting to P978,440.00 plus 5% interest per month
reckoned from March 1989 until fully paid. In addition all defendants
are hereby ordered solidarily to pay damages.
Issue:
W/N Aratea and Canonigo be held personally liable for the loans, cash
advances and capital infusion made to Suico
Ruling:
SAMDECO must generally be treated as separate and distinct entity
from petitioners Aratea and Canonigo unless there are facts and
circumstances that would justify the Court to pierce the veil of
corporate fiction and treat them as one and the same. From the facts,
as found by the trial court and reechoed by the appellate court, the
Court has no reason to doubt that Suico was very well aware that he
was dealing with SAMDECO and that Aratea and Canonigo were mere
authorized representatives acting for and in behalf of the corporation.
In fact, Suico took note that Aratea and Canonigo were duly authorized
by the corresponding board resolution. There were no indications
whatsoever that Suico was misled to believe that the loans and cash
advances were initially intended for the personal benefit of Aratea
and/or Canonigo, and that the corporation was only used thereafter for
the purpose of hiding behind the veil of corporate fiction to evade
personal liability. The evidence sufficiently established that all loans
and cash advances were used for the mining operations of SAMDECO,
and there were neither allegations nor proofs to the contrary. Absent
any proof of fraud or double dealing, therefore, the doctrine on
piercing the veil of corporate entity would not apply.
The general rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities.
There are times, however, when solidary liabilities may be incurred but
only when exceptional circumstances warrant such as in the following
cases:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation:
(a) vote for or assent to patently unlawful acts of the
corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the ssuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.
In labor cases, particularly, corporate directors and officers are
solidarily liable with the corporation for the termination of
employment of corporate employees done with malice or in bad faith.
14
Issue:
W/N the Court of Appeals erred when it pierced the veil of corporate
fiction and held ASJ Corpo. and Antonio San Juan as one entity
Ruling:
No. The Court of Appeals is correct. The doctrine of piercing the veil of
corporate fiction finds application in the instant case.
The Supreme Court held that although no hard and fast rule can be
accurately laid down under which the juridical personality of a
corporate entity may be disregarded; the following probative factors of
identity justify the application of the doctrine of piercing the veil of
corporate fiction in this case:
(1) San Juan and his wife own the bulk of sales of ASJ Corp.;
(2) The lot where the hatchery plant is located is owned by the
San Juan spouses;
(3) ASJ Corp. had no other properties or assets, except for the
hatchery plant and the lot where it is located;
(4) San Juan is in complete control of the corporation;
(5) There is no bona fide intention to treat ASJ Corp. as a
different entity from San Juan; and
(6) The corporate fiction of AJ Corp. was used by San Juan to
insulate himself from the legitimate claims of respondents,
defeat public convenience, justify wrong, defend crime, and
evade a corporations subsidiary liability for damages.
Therefore, the decision of the Court of Appeals, after applying the
doctrine of piercing the veil of corporate fiction, holding petitioners
ASJ Corporation and Antonio San Juan solidarily liable to respondents
Efren and Maura Evangelista for the unjustified retention of the chicks
and egg by-products covered by Setting Report Nos. 108 to 113 is
correct.
PCIB Vs. Custodio (545 SCRA 367)
Facts:
Dennis Custodio had a door-to-door dollar remittance business. While
Wilfredo D. Gliane was one of his agents in Saudi Arabia. As agent of
Custodio, Gliane collected dollars from overseas workers in Saudi
Arabia to be remitted to their beneficiaries in the Philippines.
In their transactions, Custodio and Gliane availed of the services of the
Express Padala desk of Philippine Commercial and International Bank
(PCIB), now Banco de Oro-EPCI, Inc., at its affiliate bank, the Al Rahji
Bank in Saudi Arabia. The procedure they adopted in remitting dollars
was to course them through regular clients of PCIB who, having
established a good relationship with the bank, enjoyed special foreign
exchange rates with it. One of those clients was respondent Rolando
Francisco who maintained joint accounts, including those with his wife
and Erlinda Chua.
Francisco and his wife, purportedly on behalf of ROL-ED Traders
Group Corporation (ROL-ED), a company said to be owned and
controlled by Francisco, entered into a Foreign Bills Purchase Line
Agreement (FBPLA) in the amount of P70 Million Pesos with the PCIBGreenhills bank which would purchase checks and demand drafts,
among other things, drawn on U.S. Bank, the proceeds of which
would be advanced to Francisco by the bank without going through the
regular 23-day clearing period. Under the FBPLA, the spouses made
the following undertaking, that If a check is returned/dishonored for
any reason whatsoever, we shall immediately, without need of demand,
pay [the bank] the amount of the check, together with the interest at
the rate of
** percent (%) per annum x x x and penalty at the rate of
twelve percent (12%) per annum, computed from the date of
purchase of the check to the date of full payment.
** - prevailing market rate
15
In his Decision dated June 10, 1999, the LA absolved Uytengsu from
any liability, holding that the latter did not act in bad faith and in
excess of his authority. Nevertheless, the LA found Mandaue Dinghow
liable, ordering the same to pay private respondents their respective
separation pay in the total amount of P122,720.00. Private respondents
filed their Motion for Reconsideration claiming, among others, that
Mandaue Dinghow was only made to pay without including Uytengsu;
that some of them were not awarded separation pay in the said
decision; and that Mandaue Dinghow and Uytengsu deliberately
intended to dismiss the private respondents. Private respondents
prayed that Mandaue Dinghow and Uytengsu be ordered, jointly and
severally, to pay all the private respondents separation pay, medical
allowance, attorneys fees and the penalty for failure to file notice of
closure. Thus, in an Order dated June 10, 1999, the LA awarded an
additional amount of P104,377.00 as separation pay to the other
private respondents.
On February 9, 2001, the NLRC issued an Entry of Judgment certifying
that the aforementioned decision had become final and executory on
December 4, 2000. On May 28, 2001, a Writ of Execution was issued
by the LA. However, when the said writ could not be executed, as
Mandaue Dinghow could no longer be found and had transferred
elsewhere; invoking the doctrine of piercing the veil of corporate
fiction, private respondents moved that the LA, in the exercise of his
equity jurisdiction, issue an alias writ of execution directing the Sheriff
to execute the judgment against Mandaue Dinghow and Uytengsu.
Thus, on February 18, 2002, the LA issued an Order decreeing that a
writ of execution be issued against the properties of the
officers/stockholders of Mandaue Dinghow. On April 16, 2002, an
Alias Writ of Execution was issued. On April 24, 2002, Mandaue
Dinghow and Uytengsu filed a Motion to Quash the Writ of Execution.
On May 14, 2002, the Sheriff submitted his Report manifesting that the
said Alias Writ was served on Mandaue Dinghow and Uytengsu, and
Notices of Garnishment were served on the banks. Thus, Uytengsus
bank deposits were frozen. On May 20, 2002, the LA denied
Uytengsus Motion to Quash the Writ of Execution. Uytengsu filed a
Motion for Reconsideration and/or Appeal from the said Order before
the NLRC. In its Decision dated March 12, 2003, the NLRC denied the
said appeal, holding that Uytengsu is jointly and severally liable with
Mandaue Dinghow on the ground that he is the President/Chairman of
Mandaue Dinghow and that the latter is no longer existing.
Uytengsu went to the CA via a petition for certiorari under Rule 65 of
the Rules of Civil Procedure, but the CA dismissed the said petition for
certiorari on the following grounds: (1) the petition failed to indicate
the full names of all private respondents and their respective complete
addresses; (2) the certificate of non-forum shopping attached to the
petition was merely signed by Uytengsu without attaching the
appropriate board resolution or secretarys certificate showing his
authority to file the said petition in behalf of Mandaue Dinghow; and
(3) Mandaue Dinghow and Uytengsu failed to file a motion for
reconsideration of the NLRC decision before going to the CA on
certiorari, without justifying the reasons for such failure.
Issue:
W/N the Doctrine of Piercing the Veil of Corporate Fiction was
properly invoked
Ruling:
A corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. Because of this, the
doctrine of piercing the veil of corporate fiction must be exercised with
caution.
In Malayang Samahan ng mga Manggagawa sa M. Greenfield v.
Ramos, this Court reiterated the rule that corporate directors and
officers are solidarily liable with the corporation for the termination of
employees done with malice or bad faith. It has been held that bad
faith does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or
interest or ill will; it partakes of the nature of fraud.
In this case, it is worth mentioning that the LA in his Decision dated
June 10, 1999, expressly absolved Uytengsu from any liability, holding
that the latter did not act in bad faith and in excess of his authority.
Such finding was not assailed by the private respondents nor did the
NLRC in its Decision dated October 24, 2000 overrule the same. The
liability of Uytengsu was never discussed in the said NLRC decision
16
17
Ruling:
No.
An examination of the facts reveals that, for both the coconut
plantation and the golf course, there is only one management which
the laborers deal with regarding their work. A portion of the plantation
(also called Hacienda Pamplona) had actually been converted into a
golf course and other recreational facilities. The weekly payrolls issued
by petitioner-company bore the name Pamplona Plantation Co., Inc. It
is also a fact that respondents all received their pay from the same
person, Petitioner Bondoc -- the managing director of the company.
Since the workers were working for a firm known as Pamplona
Plantation Co., Inc., the reason they sued their employer through that
name was natural and understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona
Plantation Leisure Corporation appear to be separate corporate
entities. But it is settled that this fiction of law cannot be invoked to
further an end subversive of justice.
The principle requiring the piercing of the corporate veil mandates
courts to see through the protective shroud that distinguishes one
corporation from a seemingly separate one. The corporate mask may
be removed and the corporate veil pierced when a corporation is the
mere alter ego of another. Where badges of fraud exist, where public
convenience is defeated, where a wrong is sought to be justified
thereby, or where a separate corporate identity is used to evade
financial obligations to employees or to third parties, the notion of
separate legal entity should be set aside and the factual truth upheld.
When that happens, the corporate character is not necessarily
abrogated. It continues for other legitimate objectives. However, it
18
19
Upon the failure of Maria Veloso to pay Torres, the subject property
was sold on April 5, 1978 to Torres as the highest bidder in an
extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's
Sale issued on April 20, 1978.
On July 20, 1978, Maria Veloso executed a Deed of Absolute
Assignment of the Right to Redeem in favor of Manuel Dulay assigning
her right to repurchase the subject property from Torres as a result of
the extra sale held on April 25, 1978.
As neither Maria Veloso nor her assignee Manuel Dulay was able to
redeem the subject property within the one year statutory period for
redemption, Torres filed an Affidavit of Consolidation of Ownership
with the Registry of Deeds of Pasay City and TCT No. 24799 was
subsequently issued to Manuel Torres on April 23, 1979.
On October 1, 1979, Torres filed a petition for the issuance of a writ of
possession against spouses Veloso and Manuel Dulay. However, when
Virgilio Dulay was never authorized by the Corporation to sell or
mortgage the subject property, the trial court ordered private
respondent Torres to implead the Corporation as an indispensable
party but the latter moved for the dismissal of his petition which was
granted in an Order dated April 8, 1980.
Issue:
W/N the sale of the subject property between private respondents
spouses Veloso and Manuel Dulay has no binding effect on petitioner
corporation as Board Resolution No. 18 which authorized the sale of
the subject property was resolved without the approval of all the
members of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be its
secretary
Ruling:
Section 101 of the Corporation Code of the Philippines provides:
Unless the by-laws provide otherwise, any action by the directors of a
close corporation without a meeting shall nevertheless be deemed valid
if:
1. Before or after such action is taken, written consent
thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of
the action and make no prompt objection thereto in writing;
or
3. The directors are accustomed to take informal action with
the express or implied acquiesce of all the stockholders, or
4. All the directors have express or implied knowledge of the
action in question and none of them makes prompt objection
thereto in writing.
If a directors' meeting is held without call or notice, an action taken
therein within the corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his written objection with
the secretary of the corporation after having knowledge thereof.
In the instant case, Petitioner Corporation is classified as a close
corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, corporate action
taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case,
Virgilio Dulay failed to do.
Facts:
The "Club Filipino, Inc. de Cebu,", is a civic corporation organized
under the laws of the Philippines with an original authorized capital
stock of P22,000.00, which was subsequently increased to
P200,000.00. Neither in the articles or by-laws are there a provision
relative to dividends and their distribution, although it is covenanted
that upon its dissolution, the Club's remaining assets, after paying
debts, shall be donated to a charitable Philippine Institution in Cebu.
The Club owns and operates a club house, a bowling alley, a golf course
(on a lot leased from the government), and a bar-restaurant where it
sells wines and liquors, soft drinks, meals and short orders to its
members and their guests. The bar-restaurant was a necessary
incident to the operation of the club and its golf-course. The club is
operated mainly with funds derived from membership fees and dues.
20
Whatever profits it had, were used to defray its overhead expenses and
to improve its golf-course. In1951 as a result of a capital surplus,
arising from the re-valuation of its real properties, the value or price of
which increased, the Club declared stock dividends; but no actual cash
dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant, although
it secured licenses. The Collector of Internal Revenue assessed against
and demanded from the Club, the following sums:
As percentage tax on its gross receipts during the tax years
1946 to 1951 P9,599.07
Surcharge therein 2,399.77
21
On May 31, 1996, more than a decade after LOI 1295 was implemented,
petitioner filed a complaint before the SEC SICD docketed as SEC Case
No. 05-96-5357 entitled Rodolfo M. Cuenca v. PNCC, et al., for the
SEC to determine and declare whether the GFIs were registered
stockholders of PNCC and the number of shares held by each of them
and to compel PNCC to call and hold regular stockholders meetings
and election of directors every year.
Petitioner averred that while PNCC issued the above specified
certificates of stock to the GFIs pursuant to LOI 1295, the GFIs
however refused to cancel and never did cancel the loans in their books
as payment for the shares issued in their names by PNCC as they
considered it to be a diminution of the value of their investments.
Thus, petitioner claimed that some of the GFIs refused to accept
delivery of the stock certificates from PNCC while others were not even
aware of the issuance of the certificates of stock in their names.
Consequently, respondents-GFIs continued to charge and receive
payments for their loan and interest charges from PNCC though these
loans were supposed to have been converted into common stock in
1983 pursuant to LOI 1295.
Issue:
W/N the GFIs have actually cancelled PNCCs loan in their books and
W/N PNCC is a GOCC
Ruling:
Yes.
First, it is undisputed that shares of stock were issued to the GFIs
converting part of their outstanding loan credit to equity with PNCC.
The certificates of stock issued attest to this fact. Moreover, the
administrative body below had duly debunked any irregularity in the
face of these certificates of stock. Second, the records and accounts of
PNCC duly reflected such debt-to-equity conversion as attested to by
the independent auditors from Carlos J. Valdes & Co., Certified Public
Accountants, in the comparative Financial Statements covering the
years 1982 and 1983. Third, the due issuance of the shares of stock in
the names of the GFIs was corroborated by PNCCs stock transfer
agent, Caval Securities Registry, Inc. Fourth, the Deed of Confirmation
and its Supplement erased any doubt as to the implementation of LOI
1295. Thus, based on these reasons, there can be no doubt as to the
implementation of LOI 1295. Corollarily, the shares of stock subject of
the instant case issued to the GFIs were for value and thus cannot be
considered as void or watered stocks.
Finally, it has been settled in Philippine National Construction
Corporation v. Pabion that PNCC is an acquired asset corporation and
not a government-owned and/or controlled corporation (GOCC). In
said case, we held that PNCC did not lose its status as a private
corporation upon acquisition by the government through GFIs of the
majority of its shares of stock. Our determination that PNCC is an
(b)
22
Issue:
W/N the petitioner is a private entity not subject to the jurisdiction of
COA
Ruling:
Yes, the PSPCA is a private entity.
The charter test as it stands today provides:
[T]he test to determine whether a corporation is
government owned or controlled, or private in
nature is simple. Is it created by its own charter
for the exercise of a public function, or by
incorporation under the general corporation
law? Those with special charters are government
corporations subject to its provisions and its
employees are under the jurisdiction of the Civil
Service Commission, and are compulsory
members of the Government Service Insurance
System. xxx
The petitioner is correct in stating that the charter test is predicated, at
best, on the legal regime established by the 1935 Constitution, Section
7, Article XIII, which states:
Sec. 7. The National Assembly shall not,
except by general law, provide for the formation,
organization, or regulation of private corporations,
unless such corporations are owned or controlled
by the Government or any subdivision or
instrumentality thereof.
The foregoing proscription has been carried over to the 1973 and the
1987 Constitutions.
Section 16 of Article XII of the present
Constitution provides:
23
24
Issue:
The decree also interferes with purely private agreements without any
demonstrated connection with the public interest; there is likewise an
impairment of the obligation of contract.
Ruling:
Facts:
A Special Audit Team from COA Regional Office audited the accounts
of Leyte Metropolitan Water District. Subsequently, LMWD received a
letter from COA requesting payment of auditing fees. As General
Manager of LMWD, Feliciano sent a reply informing COAs Regional
Director that the water district could not pay the auditing fees. The
Regional Director referred petitioners reply to the COA Chairman.
Thereafter, Feliciano wrote COA through the Regional Director asking
for refund of all auditing fees LMWD previously paid to COA.COA
Chairman Celso D. Gangan denied his requests. Petitioner filed a
motion for reconsideration on 31 March 2000, which COA denied on
30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to
the petition were resolutions of the Visayas Association of Water
Districts (VAWD) and the Philippine Association of Water Districts
(PAWD) supporting the petition.
The COA ruled that this Court has already settled COAs audit
jurisdiction over local water districts in Davao City Water District
v. Civil Service Commission and Commission on Audit, as
follows:
The above-quoted provision [referring to Section 3(b) PD 198]
definitely sets to naught petitioners contention that they are private
corporations. It is clear therefrom that the power to appoint the
members who will comprise the members of the Board of Directors
belong to the local executives of the local subdivision unit where such
districts are located. In contrast, the members of the Board of
Directors or the trustees of a private corporation are elected from
among members or stockholders thereof. It would not be amiss at this
25
If LWDs are neither GOCCs with original charters nor GOCCs without
original charters, then they would fall under the term agencies or
instrumentalities of the government and thus still subject to COAs
audit jurisdiction. However, the stark and undeniable fact is that the
government owns LWDs. Section 45 of PD 198 recognizes government
ownership of LWDs when Section 45 states that the board of directors
may dissolve an LWD only on the condition that another public
entity has acquired the assets of the district and has assumed all
obligations and liabilities attached thereto. The implication is clear
that an LWD is a public and not a private entity.
Section 5
Corporators and incorporators, stockholders and members. Corporators are those who compose a corporation, whether as
stockholders or as members. Incorporators are those stockholders or
members mentioned in the articles of incorporation as originally
forming and composing the corporation and who are signatories
thereof.
Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called
members.
26
Ruling:
While the stock certificate does allow redemption, the option to do so
was clearly vested in the petitioner bank. The redemption therefore is
clearly the type known as "optional". Thus, except as otherwise
provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or
refuse the redemption of its stock. Furthermore, the terms and
conditions set forth therein use the word "may". It is a settled doctrine
in statutory construction that the word "may" denotes discretion, and
cannot be construed as having a mandatory effect.
The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has
been suffering from chronic reserve deficiency, and that such finding
resulted in a directive, issued on January 31, 1973 by then Gov. G.S.
Licaros of the Central Bank, to the President and Acting Chairman of
the Board of the petitioner bank prohibiting the latter from redeeming
any preferred share, on the ground that said redemption would reduce
the assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was
obviously meant to preserve the status quo, and to prevent the
Considering that the terms and conditions set forth in the stock
certificate clearly indicate that redemption of the preferred shares may
be made at any time after the lapse of two years from the date of issue,
private respondents should have taken it upon themselves, after the
lapse of the said period, to inquire from the petitioner the reason why
the said shares have not been redeemed. As it is, not only two years had
lapsed, as agreed upon, but an additional sixteen years passed before
the private respondents saw it fit to demand their right. The petitioner,
at the time it issued said preferred shares to the private respondents in
1961, could not have known that it would be suffering from chronic
reserve deficiency twelve years later. Had the private respondents been
vigilant in asserting their rights, the redemption could have been
effected at a time when the petitioner bank was not suffering from any
financial crisis.
Castillo Vs. Balinghasay (440 SCRA 443)
Facts:
27
NO. OF SHARES
1,000
31,000
PAR VALUE
P1,000.00
1,000.00
28
In view of Reese desire that upon his death, Mantrasco and its own two
subsidiaries, Mantrasco (Guam) Inc. and the Port Motors Inc. would
continue under the management of respondents, a trust agreement on
his and respondents interest in Mantrasco was executed.
Upon Reese death, the projected transfer of his shares in the name of
Mnatrasco could, not, however, be immediately effected for lack of
sufficient funds to cover initial payment on the shares.
Issue:
W/N it is proper to compensate the Lim Chu Sing indebtedness of
P9,105.17, which is claimed in the complaint, with the sum of P10,000
representing the value of his shares of stock with the Mercantile Bank
of China
Ruling:
A share of stock or the certificate thereof is not indebtedness to the
owner nor evidence of indebtedness and, therefore, it is not a credit.
Stockholders, as such, are not creditors of the corporation. It is the
prevailing doctrine of the American courts, repeatedly asserted in the
broadest terms, that the capital stock of a corporation is a trust fund to
be used more particularly for the security of creditors of the
corporation, who presumably deal with it on the credit of its capital
stock. Therefore, the defendant-appellant Lim Chu Sing not being a
creditor of the Mercantile Bank of China, although the latter is a
creditor of the former, there is no sufficient ground to justify
compensation (art. 1195, Civil Code).
Section 7 Founders' shares. - Founders' shares classified as such in the
articles of incorporation may be given certain rights and privileges not
enjoyed by the owners of other stocks, provided that where the
exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years
subject to the approval of the Securities and Exchange Commission.
The five-year period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission.
Section 8 Redeemable shares. - Redeemable shares may be issued by the
corporation when expressly so provided in the articles of incorporation.
They may be purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation, and upon such other
terms and conditions as may be stated in the articles of incorporation,
which terms and conditions must also be stated in the certificate of
stock representing said shares.
Section 9 Treasury shares. - Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently reacquired by the
issuing corporation by purchase, redemption, donation or through
some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors.
CIR Vs. Manning (66 SCRA 14)
Facts:
Manila Trading and Supply Co. (MANTRASCO) had an authorized
capital stock of P2,500,000 divided into 25,000 common shares;
24,700 of these were owned by Julius Reese and the rest, at 100 shares
each by the three respondents Manning, McDonald and Simmons.
29
30
Filipinas Orient Airways should alone be liable for its corporate acts as
duly authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot
be held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such services. It
was only the results of such services that Barretto and Garcia presented
to them and which persuaded them to invest in the proposed airline.
The most that can be said is that they benefited from such services, but
that surely is no justification to hold them personally liable therefor.
Otherwise, all the other stockholders of the corporation, including
those who came in later, and regardless of the amount of their share
holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
Japan Domestic Airlines (JDA) and Lim entered into and executed a
sales contract for the sale and purchase of two (2) DC-3A Type aircrafts
and one (1) set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. One DC-3 Aircraft arrived in
Manila on June 7,1965 while the other aircraft, arrived in Manila on
July 18,1965.
Facts:
The petitioners were not really involved in the initial steps that finally
led to the incorporation of the Filipinas Orient Airways. The project
study was undertaken by the private respondent at the request of
Barretto and Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed airline. The study
could have been presented to other prospective investors. At any rate,
the airline was eventually organized on the basis of the project study
with the petitioners as major stockholders and, together with Barretto
and Garcia, as principal officers.
RTC ruled that since Barretto was the moving spirit in the preorganization work of corporation based on his experience and
expertise, hence he was logically compensated in the amount of
P200,000.00 shares of stock not as industrial partner but more for his
technical services that brought to fruition the corporation. By the same
token, Arellano should be similarly compensated not only for having
actively participated in the preparation of the project study for several
months and its subsequent revision but also in his having been
involved in the pre-organization of the defendant corporation, in the
preparation of the franchise, in inviting the interest of the financiers
and in the training and screening of personnel. For these special
services of the plaintiff the amount of P50,000.00 as compensation is
reasonable.
Issue:
W/N the petitioners themselves are also and personally liable for such
expenses and, if so, to what extent
Ruling:
The petitioners were not involved in the initial stages of the
organization of the airline, which were being directed by Barretto as
the main promoter. It was he who was putting all the pieces together,
so to speak. The petitioners were merely among the financiers whose
interest was to be invited and who were in fact persuaded, on the
strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways
was a fictitious corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders
thereof, responsible for its obligations. As a bona fide corporation, the
Facts:
Jacob S. Lim was engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship.
31
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
The trial court rendered a decision holding Lim liable to pay Pioneer
but dismissed Pioneer's complaint against all other defendants.
Applying therefore the principles of law earlier cited to the facts of the
case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and
spare parts.
The appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all
other respects the trial court's decision was affirmed.
Section 11
Issue:
What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who
failed to incorporate the entity in which they had chosen to invest?
How are the losses to be treated in situations where their contributions
to the intended 'corporation' were invested not through the corporate
form?
Ruling:
These questions are premised on the petitioner's theory that as a result
of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de facto
partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to reimburse
certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating
thereto and not by the rules governing partners, it is ordinarily held
that persons who attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the position of partners
inter se. Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation
within the statute, they become in legal effect partners inter se, and
their rights as members of the company to the property acquired by the
company will be recognized. So, where certain persons associated
themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them
contracted to pay a third the difference in the proportionate value of
the land conveyed by him, and no stock was ever issued in the
corporation, it was treated as a trustee for the associates in an action
between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in
proportion to the value of the property contributed by each. However,
such a relation does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners, as between
themselves, when their purpose is that no partnership shall exist, and
it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become
a partner with other subscribers who engage in business under the
name of the pretended corporation, so as to be liable as such in an
action for settlement of the alleged partnership and contribution. A
partnership relation between certain stockholders and other
stockholders, who were also directors, will not be implied in the
absence of an agreement, so as to make the former liable to contribute
for payment of debts illegally contracted by the latter
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them.
This gives credence to the cross-claims of the respondents to the effect
that they were induced and lured by the petitioner to make
32
already expired when the said law took effect in short, said law has no
retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of
SEC's ruling aforesaid, refiled the amended articles of incorporation.
SEC, however, issued an order denying the reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the
conclusion below.
Issue:
W/N Alhambra could extend the term of its corporation existence
Ruling:
From July 15 to October 28, 1963, when Alhambra made its attempt to
extend its corporate existence, its original term of fifty years had
already expired (January 15, 1962); it was in the midst of the three-year
grace period statutorily fixed in Section 77 of the Corporation Law,
thus:
SEC. 77. Every corporation whose charter expires by its own limitation
or is annulled by forfeiture or otherwise, or whose corporate existence
for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it
gradually to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established.
Plain from the language of the provision is its meaning: continuance of
a "dissolved" corporation as a body corporate for three years has for its
purpose the final closure of its affairs, and no other; the corporation is
specifically enjoined from "continuing the business for which it was
established". The liquidation of the corporation's affairs set forth in
Section 77 became necessary precisely because its life had ended. For
this reason alone, the corporate existence and juridical personality of
that corporation to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of
corporation law.
The contract of lease provides that the term of the lease is for twenty
years beginning from the date of the contract and "is extendable for
another term of twenty years at the option of the LESSEE should its
term of existence be extended in accordance with law." The contract
also states that the lessee agrees to "use the property as factory site and
for that purpose to construct whatever buildings or improvements may
be necessary or convenient and/or . . . for any purpose it may deem fit;
and before the termination of the lease to remove all such buildings
and improvements"
In accordance with the contract, PBM introduced on the land,
buildings, machineries and other useful improvements. These
constructions and improvements were registered with the Registry of
Deeds of Rizal and annotated at the back of the respondents'
certificates of title.
Subsequently, PBM executed in favor of Philippine National Bank a
deed of assignment, conveying and transferring all its rights and
interests under the contract of lease which it executed with private
respondents. The assignment was for and in consideration of the loans
granted by PNB to PBM. The deed of assignment was registered and
annotated at the back of the private respondents' certificates of title as
On November 6, 1963 and December 23, 1963 respectively, PBM
executed in favor of PNB a real estate mortgage for a loan of
P100,000.00 and an addendum to real estate mortgage for another
loan of P1,590,000.00, covering all the improvements constructed by
PBM on the leased premises. These mortgages were registered and
annotated at the back of respondents' certificates.
PBM filed a petition for registration of improvements in the titles of
real property owned by private respondents.
Private respondents filed a motion in the same proceedings which was
given a different case number to wit, LRC Case No. R-2744, because of
the payment of filing fees for the motion. The motion sought to cancel
the annotations on respondents' certificates of title pertaining to the
assignment by PBM to PNB of the former's leasehold rights, inclusion
of improvements and the real estate mortgages made by PBM in favor
of PNB, on the ground that the contract of lease entered into between
PBM and respondents-movants had already expired by the failure of
PBM and/or its assignee to exercise the option to renew the second 20year lease commencing on March 1, 1974 and also by the failure of PBM
to extend its corporate existence in accordance with law. The motion
also states that since PBM failed to remove its improvements on the
leased premises before the expiration of the contract of lease, such
improvements shall accrue to respondents as owners of the land.
The common law rule, at the beginning, was rigid and inflexible in that
upon its dissolution, a corporation became legally dead for all
purposes. Statutory authorizations had to be provided for its
continuance after dissolution "for limited and specified purposes
incident to complete liquidation of its affairs". Thus, the moment a
corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take
part in mundane affairs cease to exist upon his death". There is
nothing left but to conduct, as it were, the settlement of the estate of a
deceased juridical person.
Facts:
Private respondents are the registered owners of three parcels of land
in Pasig, Metro Manila covered by OCT No. 853, TCT Nos. 32843 and
32897 of the Registry of Deeds of Rizal.
Issue:
Private respondents entered into a contract of lease with Philippine
Blooming Mills, Co., Inc., whereby the letter shall lease the
aforementioned parcels of land as factory site. PBM was duly organized
and incorporated on January 19, 1952 with a corporate term of twentyfive (25) years. This leasehold right of PBM covering the parcels of land
was duly annotated at the back of the above stated certificates of title.
W/N the Trial Court gravely abused its discretion in issuing an order
directing the cancellation of the inscriptions on respondents'
certificates of title
Ruling:
33
34
ARTICLES OF INCORPORATION
OF
__________________________
(Name of Corporation)
NATIONALITY
RESIDENCE
....................
.............................
....................................
....................
.............................
....................................
....................
.............................
....................................
....................
.............................
....................................
....................
.............................
....................................
NATIONALITY
RESIDENCE
....................
.............................
....................................
....................
.............................
....................................
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.............................
....................................
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35
No of Share
Amount
Subscribed Subscribed
........................ ....................
.................... .....................
........................ ....................
.................... .....................
........................ ....................
.................... .....................
........................ ....................
.................... .....................
........................ ....................
.................... .....................
................................................
................................................
Total Paid-In
TREASURER'S AFFIDAVIT
................................. ................................
.....................
................................. ................................
.....................
CITY/MUNICIPALITY OF ) S.S.
................................. ................................
.....................
PROVINCE OF )
................................. ................................
.....................
................................. ................................
.....................
Name of Subscriber
Amount Subscribed
.......................................
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public,
for and in the City/Municipality of ..................................
Province of .........................................., this ............. day
of ........................., 19 ........; by ............................................
with Res. Cert. No. ..................... issued at .................
on
......................,
19
..........
NOTARY PUBLIC
................................................
36
On June 22, 1977, it registered its corporate and business name with
the Bureau of Domestic Trade.
Industrial Refractories Corporation of the Philippines, on the other
hand, was incorporated on August 23, 1979 originally under the name
"Synclaire Manufacturing Corporation". It amended its Articles of
Incorporation on August 23, 1985 to change its corporate name to
"Industrial Refractories Corp. of the Philippines". It is engaged in the
business of manufacturing all kinds of ceramics and other products,
except paints and zincs.
Both companies are the only local suppliers of monolithic gunning mix.
Discovering that IRCP was using such corporate name, RCP filed on
April 14, 1988 with the Securities and Exchange Commission (SEC) a
petition to compel petitioner to change its corporate name on the
ground that its corporate name is confusingly similar with that of
petitioners such that the public may be confused or deceived into
believing that they are one and the same corporation.
The SEC decided in favor of RCP and against the IRCP declaring the
latters corporate name Industrial Refractories Corporation of the
Philippines as deceptively and confusingly similar to that of RCPs
corporate name Refractories Corporation of the Philippines.
Accordingly, respondent is hereby directed to amend its Articles of
Incorporation by deleting the name Refractories Corporation of the
Philippines in its corporate name within thirty (30) days from finality
of this Decision. Likewise, respondent is hereby ordered to pay the
petitioner the sum of P50,000.00 as attorneys fees."
Petitioner appealed to the SEC En Banc, arguing that it does not have
any jurisdiction over the case, and that respondent RCP has no right to
the exclusive use of its corporate name as it is composed of generic or
common words. The SEC En Banc modified the appealed decision in
that petitioner was ordered to delete or drop from its corporate name
only the word "Refractories".
Petitioner IRCP elevated the decision of the SEC En Banc through a
petition for review on certiorari to the Court of Appeals which then
rendered the herein assailed decision. The appellate court upheld the
jurisdiction of the SEC over the case and ruled that the corporate
names of petitioner IRCP and respondent RCP are confusingly or
deceptively similar, and that respondent RCP has established its prior
right to use the word "Refractories" as its corporate name. The
appellate court also found that the petition was filed beyond the
reglementary period.
Issue:
(1) W/N jurisdiction is vested with the regular courts as the present
case is not one of the instances provided in P.D. 902-A;
(2) W/N respondent RCP is not entitled to use the generic name
"refractories"; and
(3) W/N there is no confusing similarity between their corporate
names
Ruling:
The jurisdiction of the SEC is not merely confined to the adjudicative
functions provided in Section 5 of P.D. 902-A, as amended. By express
mandate, it has absolute jurisdiction, supervision and control over all
corporations. It also exercises regulatory and administrative powers to
implement and enforce the Corporation Code, one of which is Section
18, which provides:
"SEC. 18. Corporate name. -- No corporate name may be allowed by the
Securities and Exchange Commission if the proposed name is identical
or deceptively or confusingly similar to that of any existing corporation
37
finality, and are binding upon this Court, unless it is shown that it had
arbitrarily disregarded or misapprehended evidence before it to such
an extent as to compel a contrary conclusion had such evidence been
properly appreciated. And even without such proof of actual confusion
between the two corporate names, it suffices that confusion is probable
or likely to occur.
PC Javier & Sons Vs. CA (462 SCRA 36)
Facts:
P.C. Javier and Sons Services, Inc., Plaintiff Corporation, for short,
applied with First Summa Savings and Mortgage Bank, later on
renamed as PAIC Savings and Mortgage Bank, Defendant Bank, for
short, for a loan accommodation under the Industrial Guarantee Loan
Fund (IGLF) for P1.5 Million. Plaintiff Corporation through Pablo C.
Javier was advised that its loan application was approved and that the
same shall be forwarded to the Central Bank (CB) for processing and
release.
The CB released the loan to Defendant Bank in two (2) tranches of
P750,000 each. The first tranche was released to the Plaintiff
Corporation on May 18, 1981 in the amount of P750,000.00 and the
second tranche was released to Plaintiff Corporation on November 21,
1981 in the amount of P750,000.00. From the second tranche release,
the amount of P250,000.00 was deducted and deposited in the name
of Plaintiff Corporation under a time deposit.
Plaintiffs claim that the loan releases were delayed; that the amount of
P250,000.00 was deducted from the IGLF loan of P1.5 Million and
placed under time deposit; that Plaintiffs were never allowed to
withdraw the proceeds of the time deposit because Defendant Bank
intended this time deposit as automatic payments on the accrued
principal and interest due on the loan. Defendant Bank, however,
claims that only the final proceeds of the loan in the amount of
P750,000.00 was delayed the same having been released to Plaintiff
Corporation only on November 20, 1981, but this was because of the
shortfall in the collateral cover of Plaintiffs loan; that this second
tranche of the loan was precisely released after a firm commitment was
made by Plaintiff Corporation to cover the collateral deficiency through
the opening of a time deposit using a portion of the loan proceeds in
the amount of P250,000.00 for the purpose; that in compliance with
their commitment to submit additional security and open time deposit,
Plaintiff Javier in fact opened a time deposit for P250,000.00 and on
February 15, 1983, executed a chattel mortgage over some machineries
in favor of Defendant Bank; that thereafter, Plaintiff Corporation
defaulted in the payment of its IGLF loan with Defendant Bank hence
Defendant Bank sent a demand letter dated November 22, 1983,
reminding Plaintiff Javier to make payments because their accounts
have been long overdue; that on May 2, 1984, Defendant Bank sent
another demand letter to Plaintiff spouses informing them that since
they have defaulted in paying their obligation, their mortgage will now
be foreclosed; that when Plaintiffs still failed to pay, Defendant Bank
initiated extrajudicial foreclosure of the real estate mortgage executed
by Plaintiff spouses and accordingly the auction sale of the property
was scheduled by the ExOfficio Sheriff on May 9, 1984.
The instant complaint was filed to forestall the extrajudicial
foreclosure sale of a piece of land covered by Transfer Certificate of
Title (TCT) No. 473216 mortgaged by petitioner corporation in favor of
First Summa Savings and Mortgage Bank which bank was later
renamed as PAIC Savings and Mortgage Bank, Inc. It likewise asked for
the nullification of the Real Estate Mortgages it entered into with First
Summa Savings and Mortgage Bank. The supplemental complaint
added several defendants who scheduled for public auction other real
estate properties contained in the same real estate mortgages and
covered by TCTs No. N-5510, No. 426872, No. 506346 and Original
Certificate of Title No. 10146.
Several extrajudicial foreclosures of the mortgaged properties were
scheduled but were temporarily restrained by the RTC notwithstanding
the denial of petitioners prayer for a writ of preliminary injunction. In
an Order dated 10 December 1990, the RTC ordered respondents-
38
39
40
A corporation has an exclusive right to the use of its name, which may
be protected by injunction upon a principle similar to that upon which
persons are protected in the use of trademarks and tradenames.
Notably, too, Private Respondents' name actually contains only a single
word, that is, "STANDARD", different from that of Petitioners
inasmuch as the inclusion of the term "Corporation" or "Corp." merely
serves the purpose of distinguishing the corporation from partnerships
and other business organizations.
In support of its application for the registration of its Articles of
Incorporation with the SEC, Private Respondent had submitted an
undertaking "manifesting its willingness to change its corporate name
in the event another person, firm or entity has acquired a prior right to
the use of the said firm name or one deceptively or confusingly similar
to it." Private Respondent must now be held its undertaking.
"As a general rule, parties organizing a corporation must choose a
name at their peril; and the use of a name similar to one adopted by
another corporation, whether a business or a nonbusiness or nonprofit
organization if misleading and likely to injure it in the exercise of its
corporate functions, regardless of intent, may be prevented by the
corporation having the prior right, by a suit for injunction against the
new corporation to prevent the use of the name.
41
3.
42
43
44
Ruling:
It is the contention of GCC that it is a corporation separate and distinct
from CCC-QC and, therefore, its properties may not be levied upon to
satisfy the monetary judgment in favor of petitioner. In short,
respondent raises corporate fiction as its defense. Hence, we are
necessarily called upon to apply the doctrine of piercing the veil of
corporate entity in order to determine if General Credit Corporation,
formerly CCC, may be held liable for the obligations of CCC-QC.
The defense of separateness will be disregarded where the business
affairs of a subsidiary corporation are so controlled by the mother
corporation to the extent that it becomes an instrument or agent of its
parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies
only when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.
It is obvious that the use by CCC-QC of the same name of Commercial
Credit Corporation was intended to publicly identify it as a component
of the CCC group of companies engaged in one and the same business,
i.e. , investment and financing. Aside from CCC-Quezon City, other
franchise companies were organized such as CCC-North Manila and
CCC-Cagayan Valley. The organization of subsidiary corporations as
what was done here is usually resorted to for the aggrupation of capital,
the ability to cover more territory and population, the decentralization
of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease
to act in good faith and honest business judgment, when the corporate
device is used by the parent to avoid its liability for legitimate
obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily
abrogated. It continues for legitimate objectives. However, it is pierced
in order to remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business
operations of CCC-QC. The exclusive management contract insured
that CCC-QC would be managed and controlled by CCC and would not
deviate from the commands of the mother corporation. In addition to
the exclusive management contract, CCC appointed its own employee,
petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was
placed in CCC-QC by a superior authority. In fact, even after his
assignment to the subsidiary corporation, petitioner continued to
receive his salaries, allowances, and benefits from CCC, which later
became respondent General Credit Corporation. Not only that.
Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan of
CCC.
There are other indications in the record which attest to the
applicability of the identity rule in this case, namely: the unity of
interests, management, and control; the transfer of funds to suit their
individual corporate conveniences; and the dominance of policy and
practice by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the
same principal line of business involving a single transaction process.
Under their discounting arrangements, CCC financed the operations of
CCC-QC. The subsidiary sold, discounted, or assigned its accounts
receivables to CCC.
Faced with the financial obligations which CCC-QC had to satisfy, the
mother firm closed CCC-QC, in obvious fraud of its creditors. CCC-QC,
instead of opposing its closure, cooperated in its own demise.
Conveniently, CCC-QC stated in its opposition to the motion for alias
writ of execution that all its properties and assets had been transferred
and taken over by CCC.
45
The consultancy agreement was not reduced into writing because of the
mutual trust between Marubeni and the Lirag family. Their close
business and personal relationship dates back to 1960, when
respondent's family was engaged in the textile fabric manufacturing
business, in which Marubeni supplied the needed machinery,
equipment, spare parts and raw materials.
In civil cases, he who alleges a fact has the burden of proving it; a mere
allegation is not evidence. He must establish his cause by a
preponderance of evidence, which respondent failed to establish in the
instant case.
46
47
Ellice and Margo filed against Alicia, Guia and Rita with the Securities
and Exchange Commission (SEC) a petition for accounting and
restitution by the directors and officers and prayed that they be allowed
to inspect the corporate books and documents of Ellice. So that, Alicia,
Rita and Guia initiated a complaint against Ellice and Margo praying
for, among others, the nullification of the elections of directors and
officers of both Margo and Ellice; the nullification of all board
resolutions issued by Margo f by Ellice and the return of all titles to real
property in the name of Margo and Ellice, as well as all corporate
papers and records of both Margo and Ellice which are in the
possession and control of the respondents.
These two cases were consolidated.
Meanwhile, during the pendency of the SEC cases, the shares of stock
of Alicia and Ofelia Gala in Ellice were levied and sold at public auction
to satisfy a judgment rendered against them in a Civil Case entitled
Regines Condominium v. Ofelia (Gala) Panes and Alicia Gala.
Thereafter, the SEC rendered a Joint Decision in two SEC Cases,
Dismissing the petition in SEC Case against Alicia, Rita and Guia,
enjoining Ellice and Margo to perform corporate acts as directors and
officers thereof, nullifying the election of the new sets of Board of
Directors and Officers of Ellice and Margo, ordering Raul Gala to
return all the titles of real properties in the names of Ellice and Margo
which were unlawfully taken and held by him and directing the Ellice
to return to herein Alicia all corporate papers, records of both Ellice
and Margo which are in their possession and control.
Thus, Ellice and Margo appealed to the SEC En Banc, which reversed
and set aside the decision of the Hearing Officer and a new one hereby
rendered. Accordingly, Alicia Gala and Guia G. Domingo are ordered as
follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the amount of
P700,000.00 representing the consideration for the unauthorized sale
of a parcel of land to Lucky Homes and Development Corporation;
(2) jointly and severally pay ELLICE and MARGO the proceeds of sales
of agricultural products averaging P120,000.00 per month from
February 17, 1988;
(3) jointly and severally indemnify the appellants P90,000.00 as
attorneys fees;
(4) jointly and solidarily pay the costs of suit;
(5) turn over to the individual appellants the corporate records of
ELLICE and MARGO in their possession; and
(6) desist and refrain from interfering with the management of ELLICE
and MARGO.
Petitioners filed a petition for review with the Court of Appeals which
dismissed the petition for review and affirmed the decision of the SEC
En Banc.
Issue:
I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT
DECLARING AS ILLEGAL AND CONTRARY TO PUBLIC POLICY
THE PURPOSES AND MANNER IN WHICH RESPONDENT
CORPORATIONS WERE ORGANIZED WHICH WERE, E.G. TO (1)
PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER
THE COVERAGE OF THE COMPREHENSIVE AGRARIAN REFORM
48
49
Facts:
Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged
inter alia that defendant was a corporation duly organized and existing
under the laws of the Philippines. Defendant, through Jose M. Aruego,
its President, entered into a contract with Albert whereby it agreed to
pay plaintiff P30,000.00 for the exclusive right to publish his revised
Commentaries on the Revised Penal Code and for his share in previous
sales of the book's first edition; that defendant had undertaken to pay
in eight quarterly installments of P3,750.00 starting July 15, 1948; that
per contract failure to pay one installment would render the rest due;
and that defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's corporate
existence; admitted the execution and terms of the contract dated July
19, 1948; but alleged that it was plaintiff who breached their contract
by failing to deliver his manuscript. Furthermore, defendant
counterclaimed for damages.
Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him. The Court renders judgment in
favor of the plaintiff and against the defendant the University
Publishing Co., Inc., ordering the defendant to pay the administrator
Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest
from the date of the filing of this complaint until the whole amount
shall have been fully paid. The defendant shall also pay the costs. The
counterclaim of the defendant is hereby dismissed for lack of evidence.
As aforesaid, we reduced the amount of damages to P15,000.00, to be
executed in full. Thereafter, on July 22, 1961, the court a quo ordered
issuance of an execution writ against University Publishing Co., Inc.
Plaintiff, however, on August 10, 1961, petitioned for a writ of
50
Section 21
Corporation by estoppel. - All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities and damages incurred or
arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.
Lim Tong Lim Vs. Phil. Fishing (418 SCRA 431)
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission.
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.
The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the three in a Civil Case
which Chua and Yao had brought against Lim in the RTC of Malabon,
for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing
boats; (d) an injunction and (e) damages.
Lim appealed to the Court of Appeals which affirmed the RTC.
Issue:
W/N by their acts, Lim, Chua and Yao could be deemed to have entered
into a partnership
Ruling:
Art. 1767 By the contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Chua, Yao and Lim had decided to engage in a fishing business, which
they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and
the repair of which were financed with borrowed money, fell under the
term "common fund" under Article 1767. The contribution to such fund
51
Facts:
International Express Travel and Tour Services, Inc., through its
managing director, wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent Henri Kahn,
wherein the former offered its services as a travel agency to the latter.
The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of China
and Brisbane. The total cost of the tickets amounted to P449,654.83.
For the tickets received, the Federation made two partial payments,
both in September of 1989, in the total amount of P176,467.50.
On 4 October 1989, petitioner wrote the Federation, through the
private respondent a demand letter requesting for the amount of
P265,894.33. On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00. On 27 December 1989,
Henri Kahn issued a personal check in the amount of P50,000 as
partial payment for the outstanding balance of the Federation.
Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial
Court of Manila. Petitioner sued Henri Kahn in his personal capacity
Thus being said, it follows that private respondent Henry Kahn should
be held liable for the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and
becomes personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or nonexistence of the Federation. We cannot subscribe to the position taken
by the appellate court that even assuming that the Federation was
defectively incorporated; the petitioner cannot deny the corporate
existence of the Federation because it had contracted and dealt with
the Federation in such a manner as to recognize and in effect admit its
existence. The doctrine of corporation by estoppel is mistakenly
applied by the respondent court to the petitioner. The application of
the doctrine applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant
ground of defective incorporation. In the case at bar, the petitioner is
not trying to escape liability from the contract but rather is the one
claiming from the contract.
Merril Lynch Vs. CA (211 SCRA 824)
Facts:
52
statute does not provide that the contract shall be void, but merely fixes
a special penalty for violation of the statute. . . ."
The doctrine was adopted by this Court as early as 1924 in Asia
Banking Corporation v. Standard Products Co., in which the following
pronouncement was made:
The general rule that in the absence of fraud of person who has
contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body is
thereby estopped to deny its corporate existence in any action leading
out of or involving such contract or dealing, unless its existence is
attacked for causes which have arisen since making the contract or
other dealing relied on as an estoppel and this applies to foreign as
well as domestic corporations .
There would seem to be no question that the Laras received benefits
generated by their business relations with ML FUTURES. Those
business relations, according to the Laras themselves, spanned a period
of seven (7) years; and they evidently found those relations to be of
such profitability as warranted their maintaining them for that not
insignificant period of time; otherwise, it is reasonably certain that they
would have terminated their dealings with ML FUTURES much, much
earlier. In fact, even as regards their last transaction, in which the
Laras allegedly suffered a loss in the sum of US$160,749.69, the Laras
nonetheless still received some monetary advantage, for ML FUTURES
credited them with the amount of US$75,913.42 then due to them, thus
reducing their debt to US$84,836.27. Given these facts, and assuming
that the Lara Spouses were aware from the outset that ML FUTURES
had no license to do business in this country and MLPI, no authority to
act as broker for it, it would appear quite inequitable for the Laras to
evade payment of an otherwise legitimate indebtedness due and owing
to ML FUTURES upon the plea that it should not have done business
in this country in the first place, or that its agent in this country, MLPI,
had no license either to operate as a "commodity and/or financial
futures broker."
Considerations of equity dictate that, at the very least, the issue of
whether the Laras are in truth liable to ML FUTURES and if so in what
amount, and whether they were so far aware of the absence of the
requisite licenses on the part of ML FUTURES and its Philippine
correspondent, MLPI, as to be estopped from alleging that fact as
defense to such liability, should be ventilated and adjudicated on the
merits by the proper trial court.
Issue:
Section 22 -
Ruling:
If it be true that during all the time that they were transacting with ML
FUTURES, the Laras were fully aware of its lack of license to do
business in the Philippines, and in relation to those transactions had
made payments to, and received money from it for several years, the
question is whether or not the Lara Spouses are now estopped to
impugn ML FUTURES' capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. And the "doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic corporations;" "one
who has dealt with a corporation of foreign origin as a corporate entity
is estopped to deny its corporate existence and capacity." The principle
"will be applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the
statutes, chiefly in cases where such person has received the benefits of
the contract, where such person has acted as agent for the corporation
and has violated his fiduciary obligations as such, and where the
This provision shall not apply if the failure to organize, commence the
transaction of its businesses or the construction of its works, or to
continuously operate is due to causes beyond the control of the
corporation as may be determined by the Securities and Exchange
Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES/OFFICERS
Section 23
53
to pay a basic fine of P5,000 and a daily fine of P500 for continuing
violations.
Aggrieved, petitioner went to the Court of Appeals on certiorari
contending that the SEC acted with grave abuse of discretion or lack or
excess of jurisdiction in issuing the above orders. The appellate court
issued a temporary restraining order on July 26, 1996, and a writ of
preliminary injunction on August 26, 1996.
On June 17, 1998, the appellate court dismissed the petition. It ruled
that the power to regulate petitioners fees was included in the general
power given to the SEC under Section 40 of The Revised Securities Act
to regulate, supervise, examine, suspend or otherwise discontinue, the
operation of securities-related organizations like petitioner.
Facts:
Issue:
W/N the SEC acted with grave abuse of discretion or lack or excess of
jurisdiction in issuing the controverted Orders of July 8 and 11, 1996
Before its repeal, Section 47 of The Revised Securities Act clearly gave
the SEC the power to enjoin the acts or practices of securities-related
organizations even without first conducting a hearing if, upon proper
investigation or verification, the SEC is of the opinion that there exists
the possibility that the act or practice may cause grave or irreparable
injury to the investing public, if left unrestrained. Section 47 clearly
provided,
petitioners
motion
for
Ruling:
54
1.) Whether or not the term to file in behalf of the Metropolitan Cebu
Water District expropriation and other cases include the grant of
authority to sign the certificate of non- forum shopping for and in
behalf of the MCWD.
2.) Whether or not the consent of the Board of Directors of the Water
District is a condition sine qua non to the grant of CPC by the NWRB
upon operators of waterworks within the service area of the Water
District.
Ruling:
1. The term to file in behalf of the Metropolitan Cebu Water District
expropriation and other cases did not include the grant of power to
sign the certificate of non- forum shopping for and in behalf of the
MCWD.
While the questioned resolution sufficiently identifies the kind of cases
which Engr. Paredes may file in petitioners behalf, the same does not
authorize him for the specific act of signing verifications and
certifications against forum- shopping for it merely authorizes him to
file cases in behalf of the corporation. There is no mention of signing
verifications or for that matter, any document of whatever nature.
A board resolution purporting to authorize a person to sign documents
in behalf of the corporation must explicitly vest such authority.
Under Rule 13, Section 2 of the Rules of Court, filing is the act of
presenting the pleading or other paper to the clerk of court. Since the
signing of verifications and certifications against forum- shopping is
not integral to the act of filing, this may not be deemed as necessarily
included in an authorization merely to file cases.
Engr. Paredes not having been authorized to sign the verification and
certification of non- forum shopping, the instant petition may be
dismissed outright.
2. The consent of the Board of Directors of MCWD was needed in
granting a CPC to the respondent based on the express provision of
Section 47 of PD 198.
However, this cannot be the basis of MCWD in opposing against the
application of respondent Adala because Section 47 of PD 198 was held
by the Court to be unconstitutional since this provision vests an
exclusive franchise upon public utilities. This is found by the Court to
be repugnant to Article XIV Section 5 of the 1973 Constitution that
franchise, certificate or authorization for public utility which is
exclusive in character shall not be granted (the 1973 Constitution was
the basis of declaring the provision unconstitutional because PD 198
was enacted into law when the 1973 Constitution was still in force).
Therefore, Section 47 of PD 198 cannot be relied upon by the petitioner
in support of its opposition against respondents application.
Manila Metal Container Vs. PNB (511 SCRA 444)
Facts:
Petitioner was the owner of a 8,015 square meter parcel of land located
in Mandaluyong (now a City), Metro Manila.
The property was
covered by Transfer Certificate of Title (TCT) No. 332098 of the
Registry of Deeds of Rizal. To secure a P900,000.00 loan it had
obtained from respondent Philippine National Bank (PNB), petitioner
executed a real estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation of P1,000,000.00;
and, on November 16, 1973, petitioner executed an Amendment of
Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable in
quarterly installments of P32,650.00, plus interests and other charges.
On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property
sold at public auction for P911,532.21, petitioners outstanding
Issue/s:
55
56
The CTA dismissed the petition and denied BLCs claim of refund. The
CTA held that Revenue Regulation 19-86, as amended, may only be
applied prospectively such that it only covers all leases written on or
after January 1, 1987, as stated under Section 7 of said revenue
regulation.
The CTA ruled that, since BLCs rental income was all received prior to
1986, it follows that this was derived from lease transactions prior to
January 1, 1987, and hence, not covered by the revenue regulation.
A motion for reconsideration of the CTAs decision was filed, but was
denied in a resolution dated July 26, 1995. BLC then appealed the case
to the Court of Appeals, which issued the aforementioned assailed
decision and resolution. Hence, the present petition.
The respondents argue that the petition should be dismissed on the
ground that the Verification/Certification of Non-Forum Shopping was
signed by the counsel of record and not by BLC, through a duly
authorized representative, in violation of Supreme Court Circular 2891.
Issue:
W/N BLC complies with the requirement on Verification/Certification
of Non-Forum Shopping
Ruling:
In BA Savings Bank v. Sia , it was held that the certificate of nonforum shopping may be signed, for and on behalf of a corporation, by a
specifically authorized lawyer who has personal knowledge of the facts
required to be disclosed in such document. This ruling, however, does
not mean that any lawyer, acting on behalf of the corporation he is
representing, may routinely sign a certification of non-forum shopping.
The Court emphasizes that the lawyer must be "specifically authorized"
in order validly to sign the certification.
57
58
59
The Chief State Prosecutor dismissed the appeal for having been filed
out of time. Petitioner's lawyer received a copy of the letter-resolution
dismissing the appeal on January 20, 1995.
The Trial Court denied and dismissed the petition for mandamus of
petitioner.
Issue:
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of Concord,
the payee of the dishonored check, since the firm's board of directors
had not empowered him to act on its behalf. Second, he and Concord
had already agreed to amicably settle the issue after he made a partial
payment of P19,000,000.00 on the dishonored check.
The City Prosecutor dismissed the complaint on the following grounds:
(1) that petitioner lacked the requisite authority to initiate the criminal
complaint for and on Concord's behalf; and (2) that Concord and Vic
Ang Siong had already agreed upon the payment of the latter's balance
on the dishonored check.
60
Issue:
W/N Supreme Court Revised Circular No. 28-91 allows a corporation
to authorize its counsel to execute a certificate of non-forum shopping
for and on its behalf
Ruling:
A corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that are
implied by or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly
authorized officers and agents. Physical acts, like the signing of
documents, can be performed only by natural persons duly authorized
for the purpose by corporate bylaws or by a specific act of the board of
directors. All acts within the powers of a corporation may be
performed by agents of its selection; and, except so far as limitations or
restrictions which may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law which govern
the relation of agency for a natural person govern the officer or agent of
a corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents once appointed, or members acting in
their stead, are subject to the same rules, liabilities and incapacities as
are agents of individuals and private persons.
In the present case, the corporations board of directors issued a
Resolution specifically authorizing its lawyers to act as their agents in
any action or proceeding before the Supreme Court, the Court of
Appeals, or any other tribunal or agency; and to sign, execute and
deliver in connection therewith the necessary pleadings, motions,
verification, affidavit of merit, certificate of non-forum shopping and
other instruments necessary for such action and proceeding. The
Resolution was sufficient to vest such persons with the authority to
bind the corporation and was specific enough as to the acts they were
empowered to do.
In the case of natural persons, Circular 28-91 requires the parties
themselves to sign the certificate of non-forum shopping. However,
such requirement cannot be imposed on artificial persons, like
corporations, for the simple reason that they cannot personally do the
task themselves. As already stated, corporations act only through their
officers and duly authorized agents. In fact, physical actions, like the
signing and the delivery of documents, may be performed, on behalf of
the corporate entity, only by specifically authorized individuals.
It is noteworthy that the Circular does not require corporate officers to
sign the certificate. More important, there is no prohibition against
authorizing agents to do so.
In fact, not only was BA Savings Bank authorized to name an agent to
sign the certificate; it also exercised its appointing authority reasonably
well. For who else knows of the circumstances required in the
Certificate but its own retained counsel. Its regular officers, like its
board chairman and president, may not even know the details required
therein.
Consistent with this rationale, the Court en banc in Robern
Development Corporation v. Judge Jesus Quitain has allowed even an
acting regional counsel of the National Power Corporation to sign,
among others, the certificate of non-forum shopping required by
Circular 28-91. The Court held that the counsel was in the best
61
62
Issue:
What is the scope and extent of the powers that may be wielded by the
PCGG with regard to the properties or businesses placed under
sequestration or provisionally taken over
Ruling:
The PCGG cannot exercise acts of dominion over property sequestered,
frozen or provisionally taken over. AS already earlier stressed with no
little insistence, the act of sequestration; freezing or provisional
takeover of property does not import or bring about a divestment of
title over said property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over,
the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is especially true in the
situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or
can upon due application and hearing, grant authority for the
performance of acts of dominion.
The PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much like
a court-appointed receiver, such as to bring and defend actions in its
own name; receive rents; collect debts due; pay outstanding debts; and
generally do such other acts and things as may be necessary to fulfill its
mission as conservator and administrator.
So, too, it is within the parameters of these conditions and
circumstances that the PCGG may properly exercise the prerogative to
63
Issue:
W/N a president of a corporation may sign a verification and
certification without need of a board resolution?
Ruling:
Yes.
The Court had held, in a line of cases, that the following officials may
sign the verification and certification without need of a board
resolution.
1.
the Chairperson of the Board of Directors;
2. the President of a corporation;
3. the General Manager or Acting General
Manager;
4. the Personnel Officer; and
5. an Employment Specialist in a labor case.
While the above list is not exclusive, the determination of the
sufficiency and the authority was done on a case to case basis. The
rationale is to justify the authority of corporate officers or
representatives of the corporation to sign the verification or certificate
against forum shopping, being in a position to verify the
truthfulness and correctness of the allegations in the
petition. The required submission of the board resolution is
grounded on the basic precept that corporate powers are exercised by
the board directors, and not solely by an officer of the corporation.
The Court ruled that petitioner substantially complied with Sec 4 and 5
Rule 7 of the 1997 Revised Rules of Civil Procedure, as regards the
certificate on non-forum shopping.
First, the requisite board resolution has been submitted albeit belatedly
by petitioner.
Second, the President of petitioner is in a position to verify the
truthfulness and correctness of the allegations in the petition.
Third, the President of petitioner has signed the complaint before the
CTA at the inception of this judicial claim for refund or tax credit.
Ilusorio Vs. Ilusorio (540 SCRA 182)
Facts:
64
Jovito on his part said that the breaking of the door and locks was
really an act of maintenance on the property upon the written request
of Sylvia as one of the legitimate owners of the unit.
The Prosecutor dismissed the charges for lack of probable cause. He
found that, Sylvia, being among the legitimate owners of and who had
on several occasions visited the unit, had the authority to do so for the
effective maintenance of the unit. Mariettas motion for
reconsideration of the Resolution was denied. She elevated the case to
the Department of Justice; however, the DOJ Secretary denied the
same. Finally, petitioner sought recourse in the Court of Appeals which
denied her petition for lack of merit. Hence, the petition to the
Supreme Court.
Issue:
WN the private respondents were representatives of LAKERIDGE and
are authorized to break open the doors of Penthouse Unit 43-C of
Pacific Plaza Condominium and gain entry thereto?
Ruling:
Yes, the private respondents has authority to break open the doors of
the unit and gain entry thereto.
In this case, the Court found no compelling reason to deviate from our
policy of non-interference with the investigating prosecutors findings
of absence of probable cause. It is admitted by both parties that the
registered owner of Penthouse Unit 43-C is Lakeridge. Aside from the
allegation of Marietta, there is no sufficient evidence on record that
Erlinda was indeed the lawful occupant of the unit. In fact, the letter
dated October 7, 1999, by which she claimed Erlinda gave her authority
to occupy, oversee, and secure Penthouse Unit 43-C, and belatedly
received by the management of the Pacific Plaza on November 3, 1999,
was signed by Erlinda for LAKERIDGE without the appropriate
resolution of Lakeridges board of directors to support it. Likewise,
Marietta is not armed with any board resolution authorizing her to
institute the criminal charges against the private respondents.
Furthermore, Sylvia and Cristina were able to establish by competent
evidence that they were then the Vice-President and the Assistant VicePresident of Lakeridge, respectively. As such officers, they would,
ostensibly, have the right and authority to freely enter and perform acts
of maintenance of Penthouse Unit 43-C. The right could include
breaking open the door and replacing its locks, apparently due to loss
of the keys.
As to the criminal charges filed, the Supreme Court said that:
We hold that the evidence adduced does not support a finding of
probable cause for the offenses defined in the provisions cited (Article
293 and 299 of the RPC and PD 1829. Marietta failed to prove, by
competent evidence, that: (1) Penthouse Unit 43-C was the dwelling
place of Erlinda; (2) she has authority over the said unit; (3) Sylvia and
Cristina had no authority to enter the unit and conduct acts of
maintenance thereon; and (4) Sylvia and Cristina were armed when
they effected entrance. Based on these circumstances, the charges of
robbery and qualified trespass to dwelling must inevitably fail.
Perforce, the charge against Jovito for violation of P.D. No. 1829
should also be dismissed.
Elcee Farms Vs. NLRC (512 SCRA 602)
Facts:
Pampelo Semillano and one hundred forty-three (143) other
complainants, represented by the labor union, Sugar Agricultural
Industrial Labor Organization (SAILO), filed this complaint for illegal
dismissal with prayer for reinstatement with back wages, or in the
alternative, separation pay, with damages against Elcee Farms,
Corazon Saguemuller, Hilla Corporation (HILLA), Rey Hilado, and
65
66
The by-laws may and usually do provide for such other officers, e.g.,
vice-president, cashier, auditor, and general manager.
In this case, there is no basis from which it may be deduced that
Bondoc, as manager of petitioner, is also a corporate officer such that
he may be held liable for the money claims awarded in favor of
respondents. Even assuming that he is a corporate officer, still, there is
no showing that he acted with evident malice and bad faith. Bondoc
may have signed and approved the payrolls; nevertheless, it does not
follow that he had a direct hand in determining the amount of
respondents corresponding salaries and other benefits. Bondoc,
therefore, should not have been held liable together with petitioner.
BPI Family Vs.First Metro (429 SCRA 30)
Facts:
First Metro Investment Corporation (FMIC), respondent, is an
investment house organized under Philippine laws. Petitioner, Bank of
Philippine Islands Family Savings Bank, Inc. is a banking corporation
also organized under Philippine laws.
FMIC, through its Executive Vice President Antonio Ong, opened
current account no. 8401-07473-0 and deposited METROBANK check
no. 898679 of P100 million with BPI Family Bank(BPI-FB) San
Francisco del Monte Branch (Quezon City). Ong made the deposit upon
request of his friend, Ador de Asis, a close acquaintance of Jaime
Sebastian, then Branch Manager of BPI-FB San Francisco del Monte
Branch. Sebastians aim was to increase the deposit level in his
Branch.
While it may be true that barely one month and seven days from the
date of deposit, respondent FMIC demanded the withdrawal of
P86,057,646.72 through the issuance of a check payable to itself, the
same was made as a result of the fraudulent and unauthorized transfer
by petitioner BPI FB of its P80 million deposit to Tevestecos savings
account. Certainly, such was a normal reaction of respondent as a
depositor to petitioners failure in its fiduciary duty to treat its account
with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent
FMIC before the one-year maturity date did not change the nature of
its time deposit to one of demand deposit.
In its attempt to evade any liability therefor, petitioner now impugns
the validity of the subject agreement on the ground that its Branch
Manager, Jaime Sebastian, overstepped the limits of his authority in
accepting respondents deposit with 17% interest per annum. We have
held that if a corporation knowingly permits its officer, or any other
agent, to perform acts within the scope of an apparent authority,
holding him out to the public as possessing power to do those acts, the
corporation will, as against any person who has dealt in good faith with
the corporation through such agent, be estopped from denying such
authority.
Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year.
Thus, petitioner is estopped from denying that it authorized its Branch
Manager to enter into an agreement with respondents Executive Vice
President concerning the deposit with the corresponding 17% interest
per annum.
Martinez Vs. CA (438 SCRA 130)
Facts:
BPI International Finance is a foreign corporation not doing business
in the Philippines, with office address at the Bank of America Tower, 12
Harcourt Road, Central Hongkong. It was a deposit-taking company
organized and existing under and by virtue of the laws of Hongkong,
and was also engaged in investment banking operations therein.
Cintas Largas, Ltd. (CLL) was also a foreign corporation, established in
Hongkong, with a paid-up capital of HK$10,000. The registered
shareholders of the CLL in Hongkong were the Overseas Nominee, Ltd.
and Shares Nominee, Ltd., which were mainly nominee shareholders.
In Hongkong, the nominee shareholder of CLL was Baker & McKenzie
Nominees, Ltd., a leading solicitor firm. However, beneficially, the
company was equally owned by Messrs. Ramon Siy, Ricardo Lopa,
Wilfrido C. Martinez, and Miguel J. Lacson. The registered office
address of CLL in Hongkong was 22/F, Princes Building, also the
office address of Price Waterhouse & Co., a large accounting firm in
Hongkong.
The bulk of the business of the CLL was the importation of molasses
from the Philippines, principally from the Mar Tierra Corporation, and
the resale thereof in the international market. However, Mar Tierra
Corporation also sold molasses to its customers. Wilfrido C. Martinez
was the president of Mar Tierra Corporation, while its executive vicepresident was Blamar Gonzales. About 42% of the capital stock of Mar
Tierra Corporation was owned by RJL Martinez Fishing Corporation
(RJL), the leading tuna fishing outfit in the Philippines.
BPI International Finance (then AIFL) granted CLL a letter of credit in
the amount of US$3,000,000. Wilfrido Martinez signed the letter
agreement with the respondent for the CLL.
The CLL opened a money market placement with the respondent
bearing MMP No. 063, with an initial placement of US$390,000. The
CLL also opened and maintained a foreign currency account and a
deposit account with the respondent. The authorized signatory in both
accounts of CLL was Wilfrido C. Martinez. Some instructions also
came from Gonzales, to be confirmed by Wilfrido Martinez. Ruben
67
The mere fact that the majority stockholder of Mar Tierra Corporation
is the RJL, and that the petitioner, along with Jose and Luis Martinez,
owned about 42% of the capital stock of RJL, do not constitute
sufficient evidence that the latter corporation, and/or the petitioner
and his brothers, had complete domination of Mar Tierra Corporation.
It does not automatically follow that the said corporation was used by
the petitioner for the purpose of committing fraud or wrong, or to
perpetrate an injustice on the respondent.
There is no evidence on record that the petitioner had any involvement
in the purchases of molasses by Wilfrido Martinez, Gonzales and
Lacson, and the subsequent sale thereof to the CLL, through Mar
Tierra Corporation. On the contrary, the evidence on record shows
that the CLL purchased molasses from Mar Tierra Corporation and
paid for the same through the credit facility granted by the respondent
to the CLL. The CLL, thereafter, made remittances to Mar Tierra
Corporation from its deposit account and MMP Nos. 063 and 084 with
the respondent. The close business relationship of the two
corporations does not warrant a finding that Mar Tierra Corporation
was but a conduit of the CLL.
Likewise, the respondent failed to adduce preponderant evidence to
prove that the Mar Tierra Corporation and the RJL were so organized
and controlled, its affairs so conducted as to make the latter
corporation merely an instrumentality, agency, conduit or adjunct of
the former or of Wilfrido Martinez, Gonzales, and Lacson for that
matter, or that such corporations were organized to defraud their
creditors, including the respondent. The mere fact, therefore, that the
businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.
Also, the mere fact that part of the proceeds of the sale of molasses
made by Mar Tierra Corporation to the CLL may have been used by the
latter as deposits in its deposit account with the respondent or in the
money market placements in MMP Nos. 063 and 084, or that the
funds of Mar Tierra Corporation and the CLL with the respondent were
mingled, and their disposition controlled by Wilfrido Martinez, does
not constitute preponderant evidence that the petitioner, Wilfrido
Martinez and Lacson used the Mar Tierra Corporation and the RJL to
defraud the respondent. The respondent treated the CLL and Mar
Tierra Corporation as separate entities and considered them as one and
the same entity only when Wilfrido C. Martinez and/or Blamar
Gonzales failed to pay the US$340,000 remitted by the respondent to
FCD SA 18402-7. This being the case, there is no factual and legal
basis to hold the petitioner liable to the respondent for the said
amount.
Section 26
Report of election of directors, trustees and officers. - Within
thirty (30) days after the election of the directors, trustees and officers
of the corporation, the secretary, or any other officer of the
corporation, shall submit to the Securities and Exchange Commission,
the names, nationalities and residences of the directors, trustees, and
officers elected. Should a director, trustee or officer die, resign or in
any manner cease to hold office, his heirs in case of his death, the
secretary, or any other officer of the corporation, or the director,
trustee or officer himself, shall immediately report such fact to the
Securities and Exchange Commission.
Premium Marble Vs. CA (264 SCRA 11)
Facts:
On July 18, 1986, Premium Marble Resources, Inc. (Premium),
assisted by Atty. Arnulfo Dumadag as counsel, filed an action for
damages against International Corporate Bank:
Sometime in August to October 1982, Ayala Investment and
Development Corporation issued three (3) checks.
68
69
In the instant case, the six signatories to the March 31, 1997 Board
Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H.
Monfort to represent the Corporation, were: Ma. Antonia M.
Salvatierra, President; Ramon H. Monfort, Executive Vice President;
Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M.
Yusay; and Ester S. Monfort, Secretary.
However, the names of the last four (4) signatories to the said Board
Resolution do not appear in the 1996 General Information Sheet
submitted by the Corporation with the SEC. Under said General
Information Sheet the composition of the Board is as follows:
Antonio Monfort III alleged that they are possessing and controlling
the Haciendas and harvesting the produce therein on behalf of the
corporation and not for themselves.
They likewise raised the
affirmative defense of lack of legal capacity of Ma. Antonia M.
Salvatierra to sue on behalf of the Corporation.
Issue:
W/N Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf
of the Corporation
Ruling:
A corporation has no power except those expressly conferred on it by
the Corporation Code and those that are implied or incidental to its
existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents. Thus,
it has been observed that the power of a corporation to sue and be sued
in any court is lodged with the board of directors that exercises its
corporate powers. In turn, physical acts of the corporation, like the
signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate by-laws or by a specific act of
the board of directors.
Corollary thereto, corporations are required under Section 26 of the
Corporation Code to submit to the SEC within thirty (30) days after the
election the names, nationalities and residences of the elected
directors, trustees and officers of the Corporation. In order to keep
stockholders and the public transacting business with domestic
corporations properly informed of their organizational operational
status, the SEC issued the following rules:
xxx
xxx
1.
2.
3.
4.
5.
6.
xxx
2.
A General Information Sheet shall be filed with this
Commission within thirty (30) days following the date of the annual
stockholders meeting. No extension of said period shall be allowed,
except for very justifiable reasons stated in writing by the President,
Secretary, Treasurer or other officers, upon which the Commission may
grant an extension for not more than ten (10) days.
In the case at bar, the fact that four of the six Members of the Board
listed in the 1996 General Information Sheetare already dead at the
time the March 31, 1997 Board Resolution was issued, does not
automatically make the four signatories (i.e., Paul M. Monfort, Yvete
M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said
Board Resolution (whose name do not appear in the 1996 General
Information Sheet) as among the incumbent Members of the Board.
This is because it was not established that they were duly elected to
replace the said deceased Board Members.
A corporation is mandated to inform the SEC of the names and the
change in the composition of its officers and board of directors within
30 days after election if one was held, or 15 days after the death,
resignation or cessation of office of any of its director, trustee or officer
if any of them died, resigned or in any manner, ceased to hold office.
This, the Corporation failed to do. The alleged election of the directors
and officers who signed the March 31, 1997 Board Resolution was held
on October 16, 1996, but the SEC was informed thereof more than two
years later, or on November 11, 1998. The 4 Directors appearing in the
1996 General Information Sheet died between the years 1984 1987,
but the records do not show if such demise was reported to the SEC.
What further militates against the purported election of those who
signed the March 31, 1997 Board Resolution was the belated
submission of the alleged Minutes of the October 16, 1996 meeting
where the questioned officers were elected. The issue of legal capacity
of Ma. Antonia M. Salvatierra was raised before the lower court by the
group of Antonio Monfort III as early as 1997, but the Minutes of said
October 16, 1996 meeting was presented by the Corporation only in its
September 29, 1999 Comment before the Court of Appeals.
Moreover, the Corporation failed to prove that the same October 16,
1996 Minutes was submitted to the SEC. In fact, the 1997 General
Information Sheet submitted by the Corporation does not reflect the
names of the 4 Directors claimed to be elected on October 16, 1996.
2.A.
Should a director, trustee or officer die, resign or in any
manner, cease to hold office, the corporation shall report such fact to
the Commission with fifteen (15) days after such death, resignation or
cessation of office.
3.
If for any justifiable reason, the annual meeting has to be
postponed, the company should notify the Commission in writing of
such postponement.
Section 27
70
impossible for the PCGG to carry out its duties as conservator if the
Board or officers do not cooperate, are hostile or antagonistic to the
conservator's objectives.
Thus, it is necessary to achieve a balancing of or reconciliation between
the stockholder's right to vote and the conservator's statutory duty to
recover and in the process thereof, to conserve assets, thought to be illgotten wealth, until final judicial determination of the character of such
assets or until a final compromise agreement between the parties is
reached.
In BASECO, the court ruled that, there should be no exercise of the
right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the
corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about
substantial changes in policy, program of practice of the corporation
except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional
takeover, i e ., to prevent the dispersion or undue disposal of the
corporate assets. Directors are not to be voted out simply because the
power to do so exists. Substitution of directors is not to be done
without reason or rhyme, should indeed be shunned if at all possible,
and undertaken only when essential to prevent disappearance or
wastage of corporate property, and always under such circumstances
as to assure that the replacements are truly possessed of competence,
experience and probity.
In the case at bar, there was adequate justification to vote the
incumbent directors out of office and elect others in their stead because
the evidence showed prima facie that the former were just tools of
President Marcos and were no longer owners of any stock in the firm, if
they ever were at all.
Section 28
Removal of directors or trustees. - Any director or trustee of a
corporation may be removed from office by a vote of the stockholders
holding or representing at least two-thirds (2/3) of the outstanding
capital stock, or if the corporation be a non-stock corporation, by a vote
of at least two-thirds (2/3) of the members entitled to vote: Provided,
That such removal shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose, and in either
case, after previous notice to stockholders or members of the
corporation of the intention to propose such removal at the meeting. A
special meeting of the stockholders or members of a corporation for the
purpose of removal of directors or trustees, or any of them, must be
called by the secretary on order of the president or on the written
demand of the stockholders representing or holding at least a majority
of the outstanding capital stock, or, if it be a non-stock corporation, on
the written demand of a majority of the members entitled to vote.
Should the secretary fail or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there is no secretary,
the call for the meeting may be addressed directly to the stockholders
or members by any stockholder or member of the corporation signing
the demand. Notice of the time and place of such meeting, as well as of
the intention to propose such removal, must be given by publication or
by written notice prescribed in this Code. Removal may be with or
without cause: Provided, That removal without cause may not be used
to deprive minority stockholders or members of the right of
representation to which they may be entitled under Section 24 of this
Code.
Raniel Vs. Jochico (517 SCRA 221)
Facts:
Petitioners are Ma. Victoria Pag-ong director of Nephro and
Nectarina Raniel director and acting corporate secretary and
administrator of Nephro.
71
Ruling:
Facts:
Only stockholders or members have the power to remove the directors
or trustees elected by them, as laid down in Section 28 of the
Corporation Code, which provides in part:
SEC. 28. Removal of directors or trustees. -- Any director or
trustee of a corporation may be removed from office by a
vote of the stockholders holding or representing at least twothirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds
(2/3) of the members entitled to vote: Provided, that such removal
shall take place either at a regular meeting of the corporation or at a
special meeting called for the purpose, and in either case, after
previous notice to stockholders or members of the corporation of the
intention to propose such removal at the meeting. A special meeting of
the stockholders or members of a corporation for the purpose of
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad SalasTubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same
family, are the majority and controlling members of the Board of
Trustees of Western Institute of Technology, Inc. (WIT, for short), a
stock corporation engaged in the operation, among others, of an
educational institution. According to petitioners, the minority
stockholders of WIT, sometime on June 1, 1986 in the principal office
of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In
attendance were other members of the Board including one of the
petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting,
copies of notice thereof, dated May 24, 1986, were distributed to all
Board Members. The notice allegedly indicated that the meeting to be
held on June 1, 1986 included Item No. 6 which states:
72
Section 31
Liability of directors, trustees or officers. - Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts
of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members
and other persons.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect
of any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the
profits which otherwise would have accrued to the corporation.
Cebu Country Club Vs. Elizagaque (542 SCRA 65)
Facts:
Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation
operating as a non-profit and non-stock private membership club,
having its principal place of business in Banilad, Cebu City.
Petitioners herein are members of its Board of Directors. Sometime in
1987, San Miguel Corporation, a special company proprietary member
of CCCI, designated respondent Ricardo F. Elizagaque, its Senior Vice
President and Operations Manager for the Visayas and Mindanao, as a
special non-proprietary member. The designation was thereafter
approved by the CCCIs Board of Directors. In 1996, respondent filed
with CCCI an application for proprietary membership.
The
application was indorsed by CCCIs two (2) proprietary members,
namely: Edmundo T. Misa and Silvano Ludo.
Issue:
W/N in disapproving respondents application for proprietary
membership with CCCI, petitioners are liable to respondent for
damages, and if so, whether their liability is joint and several
Ruling:
73
Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
It is thus clear that respondent was left groping in the dark wondering
why his application was disapproved. He was not even informed that a
unanimous vote of the Board members was required. When he sent a
letter for reconsideration and an inquiry whether there was an
objection to his application, petitioners apparently ignored him.
Certainly, respondent did not deserve this kind of treatment. Having
been designated by San Miguel Corporation as a special nonproprietary member of CCCI, he should have been treated by
petitioners with courtesy and civility. At the very least, they should
have informed him why his application was disapproved.
Lastly, petitioners argument that they could not be held jointly and
severally liable for damages because only one (1) voted for the
disapproval of respondents application lacks merit.
74
Ruling:
Section 31 of the Corporation Code, stipulating on the liability of
directors, trustees, or officers, provides:
5.
6.
75
Issue:
W/N Carag and David be held personally liable for the closure of MAC
Ruling:
Carag was not issued summons, not accorded a conciliatory
conference, not ordered to submit a position paper, not accorded a
hearing, not given an opportunity to present his evidence, and not
notified that the case was submitted for resolution. Thus, we hold that
Arbiter Ortiguerras Decision is void as against Carag for utter absence
of due process.
The rule is that a director is not personally liable for the debts of the
corporation, which has a separate legal personality of its own. Section
31 of the Corporation Code lays down the exceptions to the rule, as
follows:
Liability of directors, trustees or officers. Directors or trustees who wilfully and knowingly
vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the
corporation, its stockholders or members and
other persons.
76
77
78
derivative suit for and in behalf of the corporation. After all, the
members/stockholders who filed a derivative suit are merely nominal
parties, the real party-in-interest being the corporation itself for and in
whose behalf the suit is filed. Any monetary benefits under the decision
of the court shall pertain to the corporation.
In light of the foregoing, there is no longer a need for the Court to still
resolve the other issues on whether Symaco violated the doctrine of
corporate opportunity.
79
On due dates, Caltex presented the said checks for payment. However,
Three (3) checks were dishonored by the drawee bank, for the reason
that they were drawn against insufficient funds. Another check was,
likewise, dishonored with the notation account closed. Hence, Caltex,
through Dalao, made verbal demands to INSURECO for the
replacement of the dishonored checks with either managers checks or
cash, to no avail. On May 6, 1992, Caltex sent a confirmation telegram
informing INSURECO of the dishonor of the said checks, and again
demanded their replacement, but received no reply.
On July 6, 1992, Caltex filed criminal complaints for violation of B.P.
Blg. 22 against Marigomen and Dalao with the Office of the City
Prosecutor of Bacolod City. They were, thereafter, charged with three
counts of violation of B.P. Blg. 22 in three separate Informations filed
with the RTC of Bacolod City, and docketed as Criminal Case Nos.
13012 to 13014.
Issue:
W/N Marigomen could be held civilly liable for the bouncing checks
issued to Caltex
Ruling:
For violation of B.P. Blg. 22 to be committed, the prosecution must
prove the following essential elements:
(1)
(2)
(3)
80
For her part, respondent Hao claimed that the suit was brought under
the concept of a derivative suit. Respondent maintained that when the
directors or trustees refused to file a suit even when there was a
demand from stockholders, a derivative suit was allowed.
Issue:
W/N the Lydia Haos filing of criminal case no. 285721 was in the
nature of a derivative suit
Ruling:
In Western Institute, we said:
Here, however, the case is not a derivative suit but is merely an appeal
on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with
the RTC of Iloilo for estafa and falsification of public document.
Among the basic requirements for a derivative suit to prosper is that
the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that
he is suing on a derivative cause of action on behalf of the corporation
and all other shareholders similarly situated who wish to join. . . .This
was not complied with by the petitioners either in their complaint
before the court a quo nor in the instant petition which, in part, merely
states that this is a petition for review on certiorari on pure questions
of law to set aside a portion of the RTC decision in Criminal Cases Nos.
37097 and 37098 since the trial courts judgment of acquittal failed to
impose civil liability against the private respondents. By no amount of
equity considerations, if at all deserved, can a mere appeal on the civil
aspect of a criminal case be treated as a derivative suit.
Moreover, in Western Institute, we said that a mere appeal in the civil
aspect cannot be treated as a derivative suit because the appeal lacked
the basic requirement that it must be alleged in the complaint that the
shareholder is suing on a derivative cause of action for and in behalf of
the corporation and other shareholders who wish to join.
Under Section 36 of the Corporation Code, read in relation to Section
23, where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. An individual stockholder is
permitted to institute a derivative suit on behalf of the corporation
wherein he holds stocks in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or are the
ones to be sued, or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.
A derivative action is a suit by a shareholder to enforce a corporate
cause of action. The corporation is a necessary party to the suit. And
the relief which is granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a defense to an action
against it and is not asserting it, a stockholder may intervene and
defend on behalf of the corporation.
In Criminal Case No. 285721, the complaint was instituted by
respondent against petitioner for falsifying corporate documents whose
subject concerns corporate projects of Siena Realty Corporation.
Clearly, Siena Realty Corporation is an offended party. Hence, Siena
Realty Corporation has a cause of action. And the civil case for the
corporate cause of action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not
institute the action against petitioner. Private respondent was the one
who instituted the action. Private respondent asserts that she filed a
derivative suit in behalf of the corporation. This assertion is inaccurate.
Not every suit filed in behalf of the corporation is a derivative suit. For
a derivative suit to prosper, it is required that the minority stockholder
suing for and on behalf of the corporation must allege in his complaint
that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish
to join him in the suit. It is a condition sine qua non that the
corporation be impleaded as a party because not only is the
81
Issue:
W/N the offcers of Meycauyan may be held for indirect contempt
Ruling:
Meycauayans Executive Vice-President Juan M. Lamson, Jr. guilty of
indirect contempt. We also find that Meycauayan committed forum
shopping, and thus Meycauayan and its Executive Vice President Juan
M. Lamson, Jr. are guilty of direct contempt.
Meycauayans obstinate refusal to abide by the Courts Decision in G.R.
No. 118436 has no basis in view of this Courts clear pronouncement to
the contrary. The fact that this Court specifically ordered the
cancelation of Meycauayans titles to the disputed parcels of land in the
Resolution dated 29 July 1998 should have laid to rest the issue of
whether the Decision and Resolution in G.R. No. 118436 is binding on
Meycauayan. Clearly, Meycauayans defiance of this Courts Decision
and Resolution by filing an action for reconveyance, quieting of title
and damages involving the same parcels of land which this Court
already decided with finality constitutes indirect contempt under
Section 3(d), Rule 71 of the Rules of Civil Procedure. Section 3(d) of
Rule 71 reads:
SEC. 3. Indirect contempt to be punished after charge and hearing.
After a charge in writing has been filed, and an opportunity given to the
respondent to comment thereon within such period as may be fixed by
the court and to be heard by himself or counsel, a person guilty of any
of the following acts may be punished for indirect contempt:
xxx
(d)
Any improper conduct tending, directly or indirectly, to
impede, obstruct, or degrade the administration of justice;
In Halili, et al. v. CIR, et al., this Court explained the concept of
contempt of court:
Contempt of court is a defiance of the authority, justice or dignity of the
court; such conduct as tends to bring the authority and administration
of the law into disrespect or to interfere with or prejudice parties
litigant or their witnesses during litigation.
Contempt of court is defined as a disobedience to the Court by acting in
opposition to its authority, justice and dignity. It signifies not only a
willful disregard or disobedience of the courts orders, but such
conduct as tends to bring the authority of the court and the
administration of law into disrepute or in some manner to impede the
due administration of justice.
Meycauayans continuing resistance to this Courts judgment is an
affront to the Court and to the sovereign dignity with which it is
clothed. Meycauayans persistent attempts to raise issues long since
laid to rest by a final and executory judgment of no less than the
highest tribunal of the land constitute contumacious defiance of the
authority of this Court and impede the speedy administration of
justice.
In this case, Meycauayan Executive Vice President Juan M. Lamson,
Jr. caused the preparation and the filing of the Petition for Intervention
in G.R. No. 118436 and the Complaint for Reconveyance, Damages and
Quieting of Title with the trial court. Juan M. Lamson, Jr. signed the
verification and certification of non-forum shopping for the Petition for
Intervention and the Complaint for Reconveyance, Damages and
Quieting of Title. Even though a judgment, decree, or order is
addressed to the corporation only, the officers, as well as the
corporation itself, may be punished for contempt for disobedience to
its terms, at least if they knowingly disobey the courts mandate, since a
lawful judicial command to a corporation is in effect a command to the
officers. Thus, for improper conduct tending to impede the orderly
82
Issue:
W/N respondents Jesus Typoco and Tan Yu are solidarily liable with
MPC
Ruling:
These two respondents are not liable.
Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides:
Section 31. Liability of directors, trustees or officers. Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith x x x shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders and
other persons.
The personal liability of corporate officers validly attaches only when
(a) they assent to a patently unlawful act of the corporation; or (b) they
are guilty of bad faith or gross negligence in directing its affairs; or (c)
they incur conflict of interest, resulting in damages to the corporation,
its stockholders or other persons.
The records are bereft of any evidence that Typoco acted in bad faith
with gross or inexcusable negligence, or that he acted outside the scope
of his authority as company president. The unilateral termination of
the Contract during the existence of the TRO was indeed contemptible
-- for which MPC should have merely been cited for contempt of court
at the most -- and a preliminary injunction would have then stopped
work by the second contractor. Besides, there is no showing that the
unilateral termination of the Contract was null and void.
Respondent Tan is not an officer or a director of MPC. His
participation is limited to an alleged conversation between him and
Engineer Mario Cornista, petitioners project manager. Supposedly,
the former verbally agreed therein to guarantee the payment of the
latters progress billings. We find no satisfactory evidence to show
respondents alleged solidary liability to petitioner.
Section 32
83
assets to one of its members was made by the unanimous consent of all
the directors in the corporation at that time.
Facts:
Mead and the "Philippine Engineering and Construction Company,"
the incorporators being the only stockholders and also the directors of
said company, with general ordinary powers. Each of the stockholders
paid into the company $2,000 Mexican currency in cash, with the
exception of Mead, who turned over to the company personal property
in lieu of cash.
Shortly after the organization, the directors held a meeting and elected
the Mead as general manager. He held this position with the company
for nine months, when he resigned to accept the position of Engineer of
the Canton and Shanghai Railway Company.
Under the organization the company began business about April 1, 102.
The contract and work undertaken by the company during the
management of Mead were the wrecking contract with the Navy
Department at Cavite for the raising of the Spanish ships sunk by
Admiral Dewey; the contract for the construction of certain warehouses
for the quartermaster department; the construction of a wharf at Fort
McKinley for the Government; The supervision of the construction of
the Pacific Oriental Trading Company's warehouse; and some other
odd jobs not specifically set out in the record.
Shortly after Mead left the Philippine Islands for China, the other
directors, the defendants in this case, held a meeting on December 24,
1903, for the purpose of discussing the condition of the company at
that time and determining what course to pursue.
The PECC, Mccullough as the President, entered into a contract
reffered to in the foregoing document was known as the wrecking
contract with the naval authorities.
On the 28th of the same month, McCullough executed and signed the
transfer of his right, title, and interest in the within contract, with the
exception of one sixth, which he hereby retain, to R. W. Brown, H. D. C.
Jones, John T. Macleod, and T. H. Twentyman.
The assignees of the wrecking contract, including McCullough, formed
was not known as the "Manila Salvage Association." This association
paid to McCullough $15,000 Mexican Currency cash for the
assignment of said contract. In addition to this payment, McCullough
retained a one-sixth interest in the new company or association.
Issue:
W/N a majority of the stockholders, who were at the same time a
majority of the directors of a corporation, have the power under the law
and its Articles of Agreement, to sell or transfer to one of its members
the assets of said corporation
Ruling:
When the sale or transfer heretofore mentioned took place, there were
present four directors, all of whom gave their consent to that sale or
transfer. The plaintiff was then about and his express consent to make
this transfer or sale was not obtained. He was, before leaving, one of
the directors in this corporation, and although he had resigned as
manager, he had not resigned as a director. He accepted the position of
engineer of the Canton and Shanghai Railway Company, knowing that
his duties as such engineer would require his whole time and attention
and prevent his returning to the Philippine Islands for at least a year or
more. The new position which he accepted in China was incompatible
with his position as director in the Philippine Engineering and
Construction Company, a corporation whose sphere of operations was
limited to the Philippine Islands. These facts are sufficient to constitute
an abandoning or vacating of hid position as director in said
corporation. Consequently, the transfer or sale of the corporation's
There were only five stockholders in this corporation at any time, four
of whom were the directors who made the sale, and the other the
plaintiff, who was absent in China when the said sale took place. The
sale was, therefore, made by the unanimous consent of four-fifths of all
the stockholders. Under the articles of incorporation, the stockholders
and directors had general ordinary powers. There is nothing in said
articles which expressly prohibits the sale or transfer of the corporate
property to one of the stockholders of said corporation.
Articles 1700 to 1708 of the Civil Code deal with the manner of
dissolving a corporation. There is nothing in these articles which
expressly or impliedly prohibits the sale of corporate property to one of
its members, nor a dissolution of a corporation in this manner. Neither
is there anything in articles 151 to 174 of the Code of Commerce which
prohibits the dissolution of a corporation by such sale or transfer.
Article XIII of the corporation's statutes expressly provides that "in all
the meetings of the stockholders, a majority vote of the stockholders
present shall be necessary to determine any question discussed."
The sale or transfer to one of its members was a matter which a
majority of the stockholders could very properly consider. But it i said
that if the acts and resolutions of a majority of the stockholders in a
corporation are binding in every case upon the minority, the minority
would be completely wiped out and their rights would be wholly at the
mercy of the abuses of the majority.
Generally speaking, the voice of a majority of the stockholders is the
law of the corporation, but there are exceptions to this rule. There must
necessarily be a limit upon the power of the majority. Without such a
limit the will of the majority would be absolute and irresistible and
might easily degenerate into an arbitrary tyranny. The reason for these
limitations is that in every contract of partnership (and a corporation
can be something fundamental and unalterable which is beyond the
power of the majority of the stockholders, and which constitutes the
rule controlling their actions. this rule which must be observed is to be
found in the essential compacts of such partnership, which gave served
as a basis upon which the members have united, and without which it
is not probable that they would have entered not the corporation.
Notwithstanding these limitations upon the power of the majority of
the stockholders, their (the majority's) resolutions, when passed in
good faith and for a just cause, deserve careful consideration and are
generally binding upon the minority.
The resolutions of the boards passed by a majority vote are valid . . .
and authority for passing such resolutions is unlimited, provided that
the original contract is not broken by them, the partnership funds not
devoted to foreign purposes, or the partnerships transformed, or
changes made which are against public policy or which infringe upon
the rights of third persons.
McCullough did not represent the corporation in this transaction. It
was represented by a quorum of the board of directors, who were at the
same time a majority of the stockholders. Ordinarily, McCullough's
duties as president were to preside at the meetings, rule on questions
of order, vote in case of a tie, etc. He could not have voted in this
transaction because there was no tie.
The acts of Hilbert, Green, Hartigan, and McCullough in this
transaction, in view of the relations which they bore to the corporation,
are subject to the most severe scrutiny. They are obliged to establish
that they acted with the utmost candor and fair dealing for the interest
of the corporation, and without taint motives. We have subjected their
conduct to this test, and, under the evidence, we believe it has safely
emerged from the ordeal.
Transaction which only accomplish justice, which are done in good
faith and operate legal injury to no one, lack the characteristics of fraud
84
and are not to be upset because the relations of the parties give rise to
suspicions which are fully cleared away. (Hancock vs. Holbrook,supra)
We therefore conclude that the sale or transfer made by the quorum of
the board of directors a majority of the stockholders is valid and
binding upon the majority-the plaintiff. This conclusion is not in
violation of the articles of incorporation of the Philippine Engineering
and Construction Company. Nor do we here announce a doctrine
contrary to that announced by the supreme court of Spain in its
decisions dated April 2, 1862, and July 8, 1903.
Section 33
Contracts
between
corporations
with
interlocking
directors. - Except in cases of fraud, and provided the contract is fair
and reasonable under the circumstances, a contract between two or
more corporations having interlocking directors shall not be
invalidated on that ground alone: Provided, That if the interest of the
interlocking director in one corporation is substantial and his interest
in the other corporation or corporations is merely nominal, he shall be
subject to the provisions of the preceding section insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding
capital stock shall be considered substantial for purposes of
interlocking directors.
Palting Vs. San Jose (18 SCRA 924)
SAN JOSE PETROLEUM filed with the Philippine Securities and
Exchange Commission a sworn registration statement, for the
registration and licensing for sale in the Philippines Voting Trust
Certificates representing 2,000,000 shares of its capital stock of a par
value of $0.35 a share, at P1.00 per share. It was alleged that the entire
proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (a
domestic mining corporation hereafter to be referred to as SAN JOSE
OIL) which has 14 petroleum exploration concessions covering an area
of a little less than 1,000,000 hectares, located in the provinces of
Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and
Agusan. It was the express condition of the sale that every purchaser of
the securities shall not receive a stock certificate, but a registered or
bearer-voting-trust certificate from the voting trustees named therein
James L. Buckley and Austin G.E. Taylor, the first residing in
Connecticut, U.S.A., and the second in New York City.
While this application for registration was pending consideration by
the Securities and Exchange Commission, SAN JOSE PETROLEUM
filed an amended Statement on June 20, 1958, for registration of the
sale in the Philippines of its shares of capital stock, which was
increased from 2,000,000 to 5,000,000, at a reduced offering price of
from P1.00 to P0.70 per share. At this time the par value of the shares
has also been reduced from $.35 to $.01 per share.
Pedro R. Palting and others, allegedly prospective investors in the
shares of SAN JOSE PETROLEUM, filed with the Securities and
Exchange Commission an opposition to registration and licensing of
the securities on the grounds that (1) the tie-up between the issuer,
SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE
OIL, a domestic corporation, violates the Constitution of the
Philippines, the Corporation Law and the Petroleum Act of 1949; (2)
the issuer has not been licensed to transact business in the Philippines;
(3) the sale of the shares of the issuer is fraudulent, and works or tends
to work a fraud upon Philippine purchasers; and (4) the issuer as an
enterprise, as well as its business, is based upon unsound business
principles.
SAN JOSE PETROLEUM claimed that it was a "business enterprise"
enjoying parity rights under the Ordinance appended to the
Constitution, which parity right, with respect to mineral resources in
the Philippines, may be exercised, pursuant to the Laurel-Langley
Agreement, only through the medium of a corporation organized under
85
86
87
Section 35
Executive committee. - The by-laws of a corporation may create an
executive committee, composed of not less than three members of the
board, to be appointed by the board. Said committee may act, by
majority vote of all its members, on such specific matters within the
competence of the board, as may be delegated to it in the by-laws or on
a majority vote of the board, except with respect to: (1) approval of any
action for which shareholders' approval is also required; (2) the filing
of vacancies in the board; (3) the amendment or repeal of by-laws or
the adoption of new by-laws; (4) the amendment or repeal of any
resolution of the board which by its express terms is not so amendable
or repealable; and (5) a distribution of cash dividends to the
shareholders.
Filipinas Port Services Vs. Go (518 SCRA 453)
Facts:
On 4 September 1992, petitioner Eliodoro C. Cruz, Filports president
from 1968 until he lost his bid for reelection as Filports president
during the general stockholders meeting in 1991, wrote a letter to the
corporations Board of Directors questioning the boards creation of the
following positions with a monthly remuneration of P13,050.00 each,
and the election thereto of certain members of the board.
In his aforesaid letter, Cruz requested the board to take necessary
action/actions to recover from those elected to the aforementioned
positions the salaries they have received.
On 14 June 1993, Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner Mindanao Terminal
and Brokerage Services, Inc. (Minterbro), filed with the SEC a petition
which he describes as a derivative suit against the herein respondents
who were then the incumbent members of Filports Board of Directors,
for alleged acts of mismanagement detrimental to the interest of the
corporation and its shareholders at large, namely, amomg others the
creation of an executive committee in 1991 composed of seven (7)
members of the board with compensation of P500.00 for each member
per meeting, an office which, to Cruz, is not provided for in the by-laws
of the corporation and whose function merely duplicates those of the
President and General Manager;
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz
alleged that despite demands made upon the respondent members of
the board of directors to desist from creating the positions in question
and to account for the amounts incurred in creating the same, the
demands were unheeded. Cruz thus prayed that the respondent
members of the board of directors be made to pay Filport, jointly and
severally, the sums of money variedly representing the damages
incurred as a result of the creation of the offices/positions complained
of and the aggregate amount of the questioned increased salaries.
Issue:
W/N CA erred in holding that Filports Board of Directors acted within
its powers in creating the executive committee and the positions of
AVPs for Corporate Planning, Operations, Finance and Administration,
and those of the Special Assistants to the President and the Board
Chairman, each with corresponding remuneration, and in increasing
the salaries of the positions of Board Chairman, Vice-President,
Treasurer and Assistant General Manager
Ruling:
The governing body of a corporation is its board of directors. Section
23 of the Corporation Code explicitly provides that unless otherwise
provided therein, the corporate powers of all corporations formed
under the Code shall be exercised, all business conducted and all
property of the corporation shall be controlled and held by a board of
directors. Thus, with the exception only of some powers expressly
granted by law to stockholders (or members, in case of non-stock
corporations), the board of directors (or trustees, in case of non-stock
corporations) has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation within
the scope of its charter, i.e., its articles of incorporation, by-laws and
relevant provisions of law. Verily, the authority of the board of
directors is restricted to the management of the regular business affairs
of the corporation, unless more extensive power is expressly conferred.
The raison detre behind the conferment of corporate powers on the
board of directors is not lost on the Court. Indeed, the concentration in
the board of the powers of control of corporate business and of
appointment of corporate officers and managers is necessary for
efficiency in any large organization. Stockholders are too numerous,
scattered and unfamiliar with the business of a corporation to conduct
its business directly. And so the plan of corporate organization is for
the stockholders to choose the directors who shall control and
supervise the conduct of corporate business.
In the present case, the boards creation of the positions of Assistant
Vice Presidents for Corporate Planning, Operations, Finance and
Administration, and those of the Special Assistants to the President
and the Board Chairman, was in accordance with the regular business
operations of Filport as it is authorized to do so by the corporations
by-laws, pursuant to the Corporation Code.
The election of officers of a corporation is provided for under Section
25 of the Code. Also, the amended Bylaws of Filport provides that
Officers of the corporation, as provided for by the by-laws,
shall be elected by the board of directors at their first meeting
after the election of Directors.
Likewise, the fixing of the corresponding remuneration for the
positions in question is provided for in the same by-laws of the
corporation, that xxx The Board of Directors shall fix the
compensation of the officers and agents of the corporation.
Unfortunately, the bylaws of the corporation are silent as to the
creation by its board of directors of an executive committee. Under
Section 35 of the Corporation Code, the creation of an executive
committee must be provided for in the bylaws of the corporation.
Notwithstanding the silence of Filports bylaws on the matter, we
cannot rule that the creation of the executive committee by the board of
directors is illegal or unlawful. One reason is the absence of a showing
as to the true nature and functions of said executive committee
considering that the executive committee, referred to in Section 35 of
the Corporation Code which is as powerful as the board of directors
and in effect acting for the board itself, should be distinguished from
other committees which are within the competency of the board to
create at anytime and whose actions require ratification and
confirmation by the board. Another reason is that, ratiocinated by
both the two (2) courts below, the Board of Directors has the power to
create positions not provided for in Filports bylaws since the board is
the corporations governing body, clearly upholding the power of its
board to exercise its prerogatives in managing the business affairs of
the corporation.
As well, it may not be amiss to point out that, as testified to and
admitted by petitioner Cruz himself, it was during his incumbency as
Filport president that the executive committee in question was
created, and that he was even the one who moved for the creation of
the positions of the AVPs for Operations, Finance and Administration.
By his acquiescence and/or ratification of the creation of the aforesaid
offices, Cruz is virtually precluded from suing to declare such acts of
the board as invalid or illegal. And it makes no difference that he sues
88
Section 36
The petition was referred to the Land Management Bureau (LMB) for
investigation and hearing. Director Abelardo G. Palad, Jr. of the LMB
found for respondents declaring that the claim of Pascual and Santos,
Inc., over the three lots is, dismissed and the individual members of
TRAMO WAKAS NEIGHBORHOOD ASSOCIATION, now represented
by Dominga Magno, if qualified may file appropriate public land
applications over the land they actually possessed and occupied. An
individual survey shall be conducted on the land at their own expense
and after approval of the said survey the same shall be given due
course.
Issue:
TITLE IV
POWERS OF CORPORATION
89
Issue:
Whether Respondent Bormaheco, Inc. is estopped from contesting the
legal personality to sue of "Lideco Corporation"
Ruling:
Examining the records of the case, we observe that the motion adverted
to indeed made use of LIDECO as an acronym for Laureano
Investment and Development Corporation. But said motion distinctly
specified that LIDECO was the shorter term for Laureano Investment
and Development Corporation. It is obvious that no false
representation or concealment can be attributed to private respondent.
Neither can it be charged with conveying the impression that the facts
are other than, or inconsistent with, those which it now asserts since
LIDECO, as an acronym, is clearly different from "Lideco Corporation"
which represented itself as a corporation duly registered and organized
in accordance with law. Nor can it be logically inferred that petitioner
relied or acted upon such representation of private respondent in
thereafter referring to itself as "Lideco Corporation;" for petitioner is
90
On July 21, 1973, CENTRO submitted a third party claim to the Sheriff
of Manila likewise averring exclusive ownership of the properties in
question.
Issue:
Ruling:
Although it was CENTRO that was actively prosecuting the case, in
substance, it was representing the mother organization, the Union
Espiritista Cristiana de Filipinas, Inc., which is the real party in interest
and is itself named in the Complaint. It is an organization that is duly
registered with the Securities and Exchange Commission, and thus
possessed of a juridical personality to sue and be sued.
The evidence sufficiently establishes that the registered owners of the
parcels of land, all of whom are members of CENTRO, hold the
properties in trust for CENTRO by virtue of the indubitable documents
executed even before the institution of suit. The fact of registration in
the name of Alejandro Estudillo and others does not bar evidence to
show that the registered owners hold the properties in trust for
CENTRO.
Admittedly, the trust was not registered in accordance with section 65
of Act 496 (the former Land Registration Law). The absence of said
registration, however, cannot be taken against CENTRO inasmuch as,
if the public auction sale had actually been held, with petitioner as the
successful buyer, petitioner could not have been considered a
purchaser for value and in good faith at said sale since it had
knowledge of CENTRO's claim, particularly when the latter had filed a
third-party-claim with the Sheriff of Manila before the scheduled
auction sale, which knowledge was equivalent to registration of the
several "Acknowledgments" in the Registry of Deeds.
The conclusion follows that inasmuch as Estudillo has no interest in
the properties in question, there is nothing that petitioner can levy
upon. The power of a Court in the execution of its judgment extends
only over properties unquestionably belonging to the judgment debtor.
Section 37
Power to extend or shorten corporate term. - A private
corporation may extend or shorten its term as stated in the articles of
incorporation when approved by a majority vote of the board of
directors or trustees and ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or by at least two-thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder or member
at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or
served personally: Provided, That in case of extension of corporate
term, any dissenting stockholder may exercise his appraisal right under
the conditions provided in this code.
Section 38
Power to increase or decrease capital stock; incur, create or
increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of the incurring, creating,
or increasing of any bonded indebtedness and of the time and place of
the stockholder's meeting at which the proposed increase or
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by each,
and the amount paid by each on his subscription in cash or property, or
the amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock,
or the incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating
or increasing of any bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the
corporation and the other shall be filed with the Securities and
Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and Exchange
Commission and the issuance by the Commission of its certificate of
filing, the capital stock shall stand increased or decreased and the
incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the sworn
statement of the treasurer of the corporation lawfully holding office at
the time of the filing of the certificate, showing that at least twenty-five
(25%) percent of such increased capital stock has been subscribed and
that at least twenty-five (25%) percent of the amount subscribed has
been paid either in actual cash to the corporation or that there has been
transferred to the corporation property the valuation of which is equal
to twenty-five (25%) percent of the subscription: Provided, further,
That no decrease of the capital stock shall be approved by the
Commission if its effect shall prejudice the rights of corporate
creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board of
trustees and of at least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities
and Exchange Commission, which shall have the authority to
determine the sufficiency of the terms thereof.
Ong Yong Vs. Tiu (401 SCRA 1)
Facts:
91
92
xxx xxx xxx (C)ontracts intra vires entered into by the board of
directors are binding upon the corporation and courts will not interfere
unless such contracts are so unconscionable and oppressive as to
amount to wanton destruction to the rights of the minority, as when
plaintiffs aver that the defendants (members of the board), have
concluded a transaction among themselves as will result in serious
injury to the plaintiffs stockholders.
The reduction in its assets by P4,398,297.98 was due to the fact that its
capital stock was reduced by the amount of P5,599,540.54.
In 1975, for the period of only six months, the respondent reported a
net profit of P547,414.72, which when added to the surplus of
P5,591.214.19, makes a total surplus of P6,138,628.91 as of June 30,
1975.
The petitioner would, however, have us believe that it in fact sustained
losses. Whatever profits it earned, so it claims were in the nature of
dividends "declared on its shareholdings in other companies in the
earning of which the employees had no participation whatsoever."
"Cash dividends," according to it, "are the absolute property of the
stockholders and cannot be made available for disposition if only to
meet the employees' economic demands."
There is no merit in this contention. We agree with the National Labor
Relations Commission that "[t]he dividends received by the company
are corporate earnings arising from corporate investment." Indeed, as
found by the Commission, the petitioner had entered such earnings in
its financial statements as profits, which it would not have done if they
were not in fact profits.
Moreover, it is incorrect to say that such profits in the form of
dividends are beyond the reach of the petitioner's creditors since the
petitioner had received them as compensation for its management
services in favor of the companies it managed as a shareholder thereof.
As such shareholder, the dividends paid to it were its own money,
which may then be available for wage increments. It is not a case of a
corporation distributing dividends in favor of its stockholders, in which
case, such dividends would be the absolute property of the
stockholders and hence, out of reach by creditors of the corporation.
Here, the petitioner was acting as stockholder itself, and in that case,
the right to a share in such dividends, by way of salary increases, may
not be denied its employees.
Accordingly, this court is convinced that the petitioner's capital
reduction efforts were, to begin with, a subterfuge, a deception as it
were, to camouflage the fact that it had been making profits, and
93
During the tenure of the Maggay Board, from June 22, 1979 to March
10, 1980, it did not reform the contract of April 12, 1977, and entered
into another contract with CSI for the supply and installation of
additional equipment but also issued to CSI 113,800 shares of common
stock.
Issue:
Section 39
Power to deny pre-emptive right. - All stockholders of a stock
corporation shall enjoy pre-emptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles of
incorporation or an amendment thereto: Provided, That such preemptive right shall not extend to shares to be issued in compliance with
laws requiring stock offerings or minimum stock ownership by the
public; or to shares to be issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate purposes or in
payment of a previously contracted debt.
Petitioner bewails the fact that in view of the lack of notice to him of
such subsequent issuance, he was not able to exercise his right of preemption over the unissued shares. However, the general rule is that
pre-emptive right is recognized only with respect to new issues of
shares, and not with respect to additional issues of originally
authorized shares. This is on the theory that when a corporation at its
inception offers its first shares, it is presumed to have offered all of
those which it is authorized to issue. An original subscriber is deemed
to have taken his shares knowing that they form a definite
proportionate part of the whole number of authorized shares. When
the shares left unsubscribed are later re-offered, he cannot therefore
claim a dilution of interest.
The questioned issuance of the 113,800 stocks is not invalid even
assuming that it was made without notice to the stockholders as
claimed by the petitioner. The power to issue shares of stocks in a
corporation is lodged in the board of directors and no stockholders
meeting is required to consider it because additional issuance of shares
of stocks does not need approval of the stockholders. Consequently, no
pre-emptive right of Natelco stockholders was violated by the issuance
of the 113,800 shares to CSI.
Section 40
Sale or other disposition of assets. - Subject to the provisions of
existing laws on illegal combinations and monopolies, a corporation
may, by a majority vote of its board of directors or trustees, sell, lease,
exchange, mortgage, pledge or otherwise dispose of all or substantially
all of its property and assets, including its goodwill, upon such terms
and conditions and for such consideration, which may be money,
stocks, bonds or other instruments for the payment of money or other
property or consideration, as its board of directors or trustees may
deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or in case of non-stock corporation, by the vote of at least to two-thirds
(2/3) of the members, in a stockholder's or member's meeting duly
called for the purpose. Written notice of the proposed action and of the
time and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions
provided in this Code.
A sale or other disposition shall be deemed to cover substantially all
the corporate property and assets if thereby the corporation would be
rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
94
Nell Co. secured against Insular Farms, Inc. a judgment for the sum of
P1,853.80 representing the unpaid balance of the price of a pump sold
by Nell to Insular Farms with interest on said sum, plus P125.00 as
attorney's fees and P84.00 as costs. A writ of execution was returned
unsatisfied, stating that Insular Farms had no leviable property.
Soon thereafter Nell filed with the present action against Pacific Farms,
Inc. for the collection of the judgment aforementioned, upon the theory
that it is the alter ego of Insular Farms. In due course, the Municipal
Court rendered judgment dismissing Nell's complaint. Upon appeal to
CA, the same was denied.
Issue:
Hence this appeal by certiorari , upon the ground that the Court of
Appeals had erred: (1) in not holding the Pacific liable for said unpaid
obligation of the Insular Farms.
Issue:
W/N Pacific Farms is liable to Nell Co.
95
Ruling:
Generally where one corporation sells or otherwise transfers all of its
assets to another corporation, the latter is not liable for the debts and
liabilities of the transferor, except: (1) where the purchaser expressly or
impliedly agrees to assume such debts; (2) where the transaction
amounts to a consolidation or merger of the corporations; (3) where
the purchasing corporation is merely a continuation of the selling
corporation; and (4) where the transaction is entered into fraudulently
in order to escape liability for such debts.
In the case at bar, there is neither proof nor allegation that Pacific had
expressly or impliedly agreed to assume the debt of Insular Farms in
favor of appellant herein, or that the it is a continuation of Insular
Farms, or that the sale of either the shares of stock or the assets of
Insular Farms to the Pacific has been entered into fraudulently, in
order to escape liability for the debt of the Insular Farms in favor of
appellant herein. In fact, these sales took place (March, 1958) not only
over six (6) months before the rendition of the judgment (October 9,
1958) sought to be collected in the present action, but, also, over a
month before the filing of the case (May 29, 1958) in which said
judgment was rendered. Moreover, Pacific purchased the shares of
stock of Insular Farms as the highest bidder at an auction sale held at
the instance of a bank to which said shares had been pledged as
security for an obligation of Insular Farms in favor of said bank. It has,
also, been established that the it had paid P285,126.99 for said shares
of stock, apart from the sum of P10,000.00 it, likewise, paid for the
other assets of Insular Farms.
No.
It appears that the board of directors of the corporation authorized the
purchase of 330 shares of the capital stock of the corporation at the
agreed price of P3,300 and at the time the purchase was made, the
corporation was indebted in the sum of P13,807.50. According to its
books, it had accounts receivable in the sum of P19,126.02. When the
petition was filed for its dissolution upon the ground that it was
insolvent, its accounts payable amounted to P9,241.19, and its accounts
receivable P12,512.47, or an apparent asset of P3,271.28 over and above
its liabilities.
But it will be noted that there is no stipulation or finding of facts as to
what was the actual cash value of its accounts receivable. Neither is
there any stipulation that those accounts or any part of them ever have
been or will be collected, and it does appear that after his appointment
Steinberg made a diligent effort to collect them, and that he was unable
to do so.
If in truth and in fact the corporation had an actual bona fide surplus
of P3,000 over and above all of its debt and liabilities, the payment of
the P3,000 in dividends would not in the least impair the financial
condition of the corporation or prejudice the interests of its creditors.
In the purchase of its own stock to the amount of P3,300 and in
declaring the dividends to the amount of P3,000, the real assets of the
corporation were diminished P6,300. It also appears from paragraph 4
of the stipulation that the corporation had a "surplus profit" of
P3,314.72 only. It is further stipulated that the dividends should "be
made in installments so as not to effect financial condition of the
corporation." In other words, that the corporation did not then have an
actual bona fide surplus from which the dividends could be paid, and
that the payment of them in full at the time would "affect the financial
condition of the corporation."
It is, indeed, peculiar that the action of the board in purchasing the
stock from the corporation and in declaring the dividends on the stock
was all done at the same meeting of the board of directors, and it
appears in those minutes that the both Ganzon and Mendaros were
formerly directors and resigned before the board approved the
purchase and declared the dividends, and that out of the whole 330
shares purchased, Ganzon, sold 100 and Mendaros 200, or a total of
300 shares out of the 330, which were purchased by the corporation,
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and for which it paid P3,300. In other words, the directors were
permitted to resign so that they could sell their stock to the
corporation. As stated, the authorized capital stock was P20,000
divided into 2,000 shares of the par value of P10 each, which only
P10,030 was subscribed and paid. Deducting the P3,300 paid for the
purchase of the stock, there would be left P7,000 of paid up stock, from
which deduct P3,000 paid in dividends, there would be left P4,000
only. In this situation and upon this state of facts, it is very apparent
that the directors did not act in good faith or that they were grossly
ignorant of their duties.
Section 42
Power to invest corporate funds in another corporation or
business or for any other purpose. - Subject to the provisions of
this Code, a private corporation may invest its funds in any other
corporation or business or for any purpose other than the primary
purpose for which it was organized when approved by a majority of the
board of directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called for
the purpose. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in
the articles of incorporation, the approval of the stockholders or
members shall not be necessary.
De la Rama Vs. Ma-ao Sugar Central (27 SCRA 247)
Facts:
This was a representative or derivative suit commenced on October 20,
1953, in the Court of First Instance of Manila by four minority
stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado
Araneta and three other directors of the corporation.
The complaint comprising the period November, 1946 to October,
1952, stated five causes of action, to wit: (1) for alleged illegal and ultravires acts consisting of self-dealing irregular loans, and unauthorized
investments; (2) for alleged gross mismanagement; (3) for alleged
forfeiture of corporate rights warranting dissolution; (4) for alleged
damages and attorney's fees; and (5) for receivership.
Sums were taken out of the funds of the Ma-ao Sugar Central Co., Inc.
and delivered to these affiliated companies, and vice versa, without the
approval of the Ma-ao Board of Directors, in violation of Sec. III, Art.
6-A of the by-laws.
The Lower Court dismisses the petition for dissolution but condemns J.
Amado Araneta to pay unto Ma-ao Sugar Central Co., Inc. the amount
of P46,270.00 with 8% interest from the date of the filing of this
complaint, plus the costs; the Court reiterates the preliminary
injunction restraining the Ma-ao Sugar Central Co., Inc. management
to give any loans or advances to its officers and orders that this
injunction be as it is hereby made, permanent; and orders it to refrain
from making investments in Acoje Mining, Mabuhay Printing, and any
other company whose purpose is not connected with the Sugar Central
business; costs of plaintiffs to be borne by the Corporation and J.
Amado Araneta.
Issue:
W/N the investment of corporate funds of the Ma-ao Sugar Central
Co., Inc., in the Philippine Fiber Processing Co., Inc. was not a
violation of section 17-1/2 of the Corporation Law
Ruling:
As to the Philippine Fiber, Ma-ao admits having invested P655,000.00
in shares of stock of this company but that this was ratified by the
Board of Directors, more than that, Ma-ao contends that since said
company was engaged in the manufacture of sugar bags it was perfectly
legitimate for Ma-ao Sugar either to manufacture sugar bags or invest
in another corporation engaged in said manufacture, and they quote
authorities for the purpose.
The Court is persuaded to believe that Ma-ao on this point is correct,
because while Sec. 17-1/2 of the Corporation Law provides that:
No corporation organized under this act shall invest its funds
in any other corporation or business or for any purpose other
than the main purpose for which it was organized unless its
board of directors has been so authorized in a resolution by
the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of
the voting power on such proposal at the stockholders'
meeting called for the purpose.
The Court is convinced that that law should be understood to mean as
the authorities state, that it is prohibited to the Corporation to invest in
shares of another corporation unless such an investment is authorized
by two-thirds of the voting power of the stockholders, if the purpose of
the corporation in which investment is made is foreign to the purpose
of the investing corporation because surely there is more logic in the
stand that if the investment is made in a corporation whose business is
important to the investing corporation and would aid it in its purpose,
to require authority of the stockholders would be to unduly curtail the
Power of the Board of Directors.
The only trouble here is that the investment was made without any
previous authority of the Board of Directors but was only ratified
afterwards; this of course would have the effect of legalizing the
unauthorized act but it is an indication of the manner in which
corporate business is transacted by the Ma-ao Sugar administration,
the fact that off and on, there would be passed by the Board of
Directors, resolutions ratifying all acts previously done by the
management.
Section 43
Power to declare dividends. - The board of directors of a stock
corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held by them: Provided,
That any cash dividends due on delinquent stock shall first be applied
to the unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the approval of
stockholders representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for
the purpose.
Stock corporations are prohibited from retaining surplus profits in
excess of one hundred (100%) percent of their paid-in capital stock,
except: (1) when justified by definite corporate expansion projects or
programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation,
such as when there is need for special reserve for probable
contingencies.
PLDT Vs. NTC (539 SCRA 365)
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Facts:
This case pertains to Section 40 (e) of the Public Service Act (PSA), as
amended on March 15, 1984, pursuant to Batas Pambansa Blg. 325,
which authorized the NTC to collect from public telecommunications
companies Supervision and Regulation Fees (SRF) of PhP 0.50 for
every PhP 100 or a fraction of the capital and stock subscribed or paid
for of a stock corporation, partnership or single proprietorship of the
capital invested, or of the property and equipment, whichever is higher.
Under Section 40 (e) of the PSA, the NTC sent SRF assessments to
Philippine Long Distance Telephone Company (PLDT) starting
sometime in 1988. The SRF assessments were based on the market
value of the outstanding capital stock, including stock dividends, of
PLDT. PLDT protested the assessments contending that the SRF ought
to be based on the par value of its outstanding capital stock. Its protest
was denied by the NTC and likewise, its motion for reconsideration.
PLDT appealed before the CA. The CA modified the disposition of the
NTC by holding that the SRF should be assessed at par value of the
outstanding capital stock of PLDT, excluding stock dividends.
With the denial of the NTCs partial reconsideration of the CA
Decision, the issue of the basis for the assessment of the SRF was
brought before this Court wherein we ruled that the SRF should be
based neither on the par value nor the market value of the outstanding
capital stock but on the value of the stocks subscribed or paid including
the premiums paid therefor, that is, the amount that the corporation
receives, inclusive of the premiums if any, in consideration of the
original issuance of the shares. We added that in the case of stock
dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account, that is, the amount the
stock dividends represent is equivalent to the value paid for its original
issuance.
PLDT argues that in our Decision in G.R. No. 127937 we have excluded
from the coverage of the SRF the capital stocks issued as stock
dividends. Petitioner argues that G.R. No. 127937 clearly delineates
between capital subscribed and stock dividends to the effect that the
latter are not included in the concept of capital stock subscribed
because subscribers or shareholders do not pay for their subscriptions
as no amount is received by the corporation in consideration of such
issuances since these are effected as mere book entries, that is, the
transfer from the retained earnings account to the capital or stock
account. To bolster its position, PLDT repeatedly used the phrase
actual payments received by a corporation as a consideration for
issuances of shares which do not apply to stock dividends.
Issue:
W/N stock dividends are part of the outstanding capital stocks of a
corporation insofar as it is subject to the SRF so that all the stock
dividends that are part of the outstanding capital stock of PLDT are
subject to the SRF
Ruling:
In National Telecommunications Commission v. Honorable Court of
Appeals, which we quote:
The term capital and other terms used to describe the capital
structure of a corporation are of universal acceptance and their usages
have long been established in jurisprudence. Briefly, capital refers to
the value of the property or assets of a corporation. The capital
subscribed is the total amount of the capital that persons
(subscribers or shareholders) have agreed to take and pay
for, which need not necessarily by, and can be more than, the par
value of the shares. In fine, it is the amount that the corporation
receives, inclusive of the premiums if any, in consideration
of the original issuance of the shares. In the case of stock
dividends, it is the amount that the corporation transfers
from its surplus profit account to its capital account. It is the
same amount that can be loosely termed as the trust fund of the
corporation. The Trust Fund doctrine considers this subscribed
capital as a trust fund for the payment of the debts of the corporation,
to which the creditors may look for satisfaction. Until the liquidation
of the corporation, no part of the subscribed capital may be returned or
released to the stockholder (except in the redemption of redeemable
shares) without violating this principle. Thus, dividends must never
impair the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares
using the subscribed capital as the considerations therefor.
Two concepts can be gleaned from the above. First, what constitutes
capital stock that is subject to the SRF. Second, such capital stock is
equated to the trust fund of a corporation held in trust as security for
satisfaction to creditors in case of corporate liquidation.
PLDTs contention, that stock dividends are not similarly situated as
the subscribed capital stock because the subscribers or shareholders do
not pay for their issuances as no amount was received by the
corporation in consideration of such issuances since these are effected
as a mere book entry, is erroneous.
Dividends, regardless of the form these are declared, that is, cash,
property or stocks, are valued at the amount of the declared dividend
taken from the unrestricted retained earnings of a corporation. Thus,
the value of the declaration in the case of a stock dividend is the actual
value of the original issuance of said stocks. In the case of stock
dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account or it is the amount that
the corporation receives in consideration of the original issuance of the
shares. It is the distribution of current or accumulated earnings to
the shareholders of a corporation pro rata based on the number of
shares owned. Such distribution in whatever form is valued at the
declared amount or monetary equivalent.
Thus, it cannot be said that no consideration is involved in the issuance
of stock dividends. In fact, the declaration of stock dividends is akin to
a forced purchase of stocks.
By declaring stock dividends, a
corporation ploughs back a portion or its entire unrestricted retained
earnings either to its working capital or for capital asset acquisition or
investments. It is simplistic to say that the corporation did not receive
any actual payment for these. When the dividend is distributed, it
ceases to be a property of the corporation as the entire or portion of its
unrestricted retained earnings is distributed pro rata to corporate
shareholders.
When stock dividends are distributed, the amount declared ceases to
belong to the corporation but is distributed among the shareholders.
Consequently, the unrestricted retained earnings of the corporation are
diminished by the amount of the declared dividend while the
stockholders equity is increased. Furthermore, the actual payment is
the cash value from the unrestricted retained earnings that each
shareholder foregoes for additional stocks/shares which he would
otherwise receive as required by the Corporation Code to be given to
the stockholders subject to the availability and conditioned on a certain
level of retained earnings. Elsewise put, where the unrestricted
retained earnings of a corporation are more than 100% of the paid-in
capital stock, the corporate Board of Directors is mandated to declare
dividends which the shareholders will receive in cash unless otherwise
declared as property or stock dividends, which in the latter case the
stockholders are forced to forego cash in lieu of property or stocks.
In essence, therefore, the stockholders by receiving stock dividends are
forced to exchange the monetary value of their dividend for capital
stock, and the monetary value they forego is considered the actual
payment for the original issuance of the stocks given as dividends.
Therefore, stock dividends acquired by shareholders for the monetary
value they forego are under the coverage of the SRF and the basis for
the latter is such monetary value as declared by the board of directors.
Anent stock dividends, the value transferred from the unrestricted
retained earnings of PLDT to the capital stock account pursuant to the
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issuance of stock dividends is the proper basis for the assessment of the
SRF, which the NTC correctly assessed.
CIR Vs. CA (301 SCRA 154)
Facts:
Don Andres Soriano, a citizen and resident of the United States,
formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR,
with a P1,000,000.00 capitalization divided into 10,000 common
shares at a par value of P100/share. ANSCOR is wholly owned and
controlled by the family of Don Andres, who are all non-resident aliens.
Don Andres subscribed to 4,963 shares of the 5,000 shares originally
issued.
By 1947, ANSCOR declared stock dividends. Then, Don Andres died.
As of that date, the records revealed that he has a total shareholdings of
185,154 shares 50,495 of which are original issues and the balance of
134,659 shares as stock dividend declarations. Correspondingly, onehalf of that shareholdings or 92,577 shares were transferred to his wife,
Doa Carmen Soriano, as her conjugal share. The other half formed
part of his estate.
Pursuant to a Board Resolution, ANSCOR redeemed 28,000 common
shares from the Don Andres' estate. The Board further increased
ANSCOR's capital stock to P75M divided into 150,000 preferred shares
and 600,000 common shares. About a year later, ANSCOR again
redeemed 80,000 common shares from the Don Andres' estate, further
reducing the latter's common shareholdings to 19,727. As stated in the
Board Resolutions, ANSCOR's business purpose for both redemptions
of stocks is to partially retire said stocks as treasury shares in order to
reduce the company's foreign exchange remittances in case cash
dividends are declared.
Subsequently, the Revenue examiners issued a report proposing that
ANSCOR be assessed for deficiency withholding tax-at-source pursuant
to Sections 53 and 54 of the 1939 Revenue Code, for the year 1968 and
the second quarter of 1969 based on the transactions of exchange and
redemption of stocks. The Bureau of Internal Revenue (BIR) made the
corresponding assessments despite the claim of ANSCOR that it
availed of the tax amnesty under Presidential Decree (P.D.) 23 which
were amended by P.D.'s 67 and 157. However, petitioner ruled that the
invoked decrees do not cover Sections 53 and 54 in relation to Article
83(b) of the 1939 Revenue Act under which ANSCOR was assessed.
ANSCOR's subsequent protest on the assessments was denied in 1983
by petitioner.
Subsequently, ANSCOR filed a petition for review with the CTA
assailing the tax assessments on the redemptions and exchange of
stocks. In its decision, the Tax Court reversed petitioner's ruling, after
finding sufficient evidence to overcome the prima facie correctness of
the questioned assessments. In a petition for review the CA as
mentioned, affirmed the ruling of the CTA. Hence, this petition.
Issue:
W/N ANSCOR's redemption of stocks from its stockholder as well as
the exchange of common with preferred shares can be considered as
"essentially equivalent to the distribution of taxable dividend" making
the proceeds thereof taxable
Ruling:
The redemption converts into money the stock dividends which
become a realized profit or gain and consequently, the stockholder's
separate property. Profits derived from the capital invested cannot
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Issue:
W/N the loan of P500,000.00 procured byVitaliado Arrieta and Lilia
Perez is a corporate liability of Intertrade and that Aguenza is liable
thereon under the "Continuing Suretyship Agreement"
Ruling:
The only document to evidence the subject transaction was the
promissory note signed by Arrieta and Lilia Perez. There is no
indication in said document as to what capacity the two signatories had
in affixing their signatures thereon.
The subject transaction is a loan contract for P500,000.00 under terms
and conditions which are stringent, if not onerous. The power to
borrow money is one of those cases where even a special power of
attorney is required. In the instant case, there is invariably a need of an
enabling act of the corporation to be approved by its Board of
Directors. The records of this case is bereft of any evidence that
Intertrade through its Board of Directors, conferred upon Arrieta and
Lilia Perez the authority to contract a loan with Metrobank and execute
the promissory note as a security therefor. Neither a board resolution
nor a stockholder's resolution was presented by Metrobank to show
that Arrieta and Lilia Perez were empowered by Intertrade to execute
the promissory note.
The bank may argue that the actuation of Arrieta and Lilia Perez was in
accordance with the ordinary course of business usages and practices
of Intertrade. However, this contention is devoid of merit because the
prevailing practice in Intertrade was to explicitly authorize an officer to
contract loans in behalf of the corporation. This is evidenced by the fact
that previous to the controversy, the Intertrade Board of Directors,
through a board resolution, jointly empowered and authorized
Aguenza and Arrieta to negotiate, apply for, and open credit lines with
Metrobank's. The participation of these two was mandated to be joint
and not separate and individual.
In the case at bench, only respondent Arrieta, together with a
bookkeeper of the corporation, signed the promissory notes, without
the participation and approval of Aguenza. Moreover, the enabling
corporate act on this particular transaction has not been obtained.
Neither has it been shown that any provision of the charter or any
other act of the Board of Directors exists to confer power on the
Executive Vice President acting alone and without the concurrence of
its President, to execute the disputed document.
Thus, preceding from the premise that the subject loan was not the
responsibility of Intertrade, it follows that the undertaking of Arrieta
and the bookkeeper was not an undertaking covered by the Continuing
Suretyship Agreement. The rule is that a contract of surety is never
presumed; it must be express and cannot extend to more than what is
stipulated, It is strictly construed against the creditor, every doubt
being resolved against enlarging the liability of the surety.
The present obligation incurred in subject contract of loan, as secured
by the Arrieta and Perez promissory note, is not the obligation of the
corporation and petitioner Aguenza, but the individual and personal
obligation of private respondents Arrieta and Lilia Perez.
100
On August 17, 1981, except for Asuncion Lopez Gonzales who was then
abroad, the remaining members of the Board of Directors, namely:
Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a
special meeting and passed a resolution which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the
employees be given as follows:
(a) Those who will be laid off be given the full amount of gratuity; (b)
Those who will be retained will receive 25% of their gratuity (pay) due
on September 1 , 1981, and another 25% on January 1, 1982, and 50%
to be retained by the office in the meantime .
Private respondents were the retained employees of the corporation.
The private respondents requested for the full payment of their gratuity
pay. Their request was granted in a special meeting held on September
1, 1981.
At that, time, however, Asuncion Lopez Gonzales was still abroad.
Allegedly, while she was still out of the country, she sent a cablegram to
the corporation, objecting to certain matters taken up by the board in
her absence, such as the sale of some of the assets of the corporation.
Upon her return, she flied a derivative suit with the Securities and
Exchange Commission (SEC) against majority shareholder Arturo F.
Lopez.
Notwithstanding the "corporate squabble" between petitioner
Asuncion Lopez Gonzales and Arturo Lopez, the first two (2)
installments of the gratuity pay of private respondents Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were
paid by petitioner corporation.
The vouchers for the third installments of gratuity pay of said private
respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril
and Perfecto Bautista) were cancelled by petitioner Asuncion Lopez
Gonzales. Likewise, the first, second and third installments of gratuity
pay of the rest of private respondents, particularly, Edward Mamaril,
Marissa Pascual and Allan Pimentel, were prepared but cancelled by
petitioner Asuncion Lopez Gonzales. Despite private respondents'
repeated demands for their gratuity pay, corporation refused to pay the
same.
Issue:
W/N the board resolutions granting gratuity pay to their retained
employees, are ultra vires on the ground that Asuncion Lopez Gonzales
was not duly notified of the said special meetings
Ruling:
The general rule is that a corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed
by its charter or by the general law. Thus, directors must act as a body
in a meeting called pursuant to the law or the corporation's by-laws,
otherwise, any action taken therein may be questioned by any objecting
director or shareholder.
Be that as it may, jurisprudence tells us that an action of the board of
directors during a meeting, which was illegal for lack of notice, may be
ratified either expressly, by the action of the directors in subsequent
legal meeting, or impliedly, by the corporation's subsequent course of
conduct.
In the case at bench, it was established that petitioner corporation did
not issue any resolution revoking nor nullifying the board resolutions
granting gratuity pay to private respondents. Instead, they paid the
gratuity pay, particularly, the first two (2) installments thereof, of
private respondents Florentina Fontecha, Mila Refuerzo, Marcial
Mamaril and Perfecto Bautista.
Section 46
Adoption of by-laws. - Every corporation formed under this Code
must, within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities and
Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code. For the adoption of by-laws by the
corporation the affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or of at least a
majority of the members in case of non-stock corporations, shall be
necessary. The by-laws shall be signed by the stockholders or members
voting for them and shall be kept in the principal office of the
corporation, subject to the inspection of the stockholders or members
during office hours. A copy thereof, duly certified to by a majority of
the directors or trustees countersigned by the secretary of the
corporation, shall be filed with the Securities and Exchange
Commission which shall be attached to the original articles of
incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws
may be adopted and filed prior to incorporation; in such case, such bylaws shall be approved and signed by all the incorporators and
submitted to the Securities and Exchange Commission, together with
the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the
Securities and Exchange Commission of a certification that the by-laws
are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the
by-laws or any amendment thereto of any bank, banking institution,
building and loan association, trust company, insurance company,
public utility, educational institution or other special corporations
governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or
amendments are in accordance with law.
101
Facts:
Sappari K. Sawadjaan was among the first employees of the Philippine
Amanah Bank (PAB) when it was created by virtue of Presidential
Decree No. 264 on 02 August 1973. He rose through the ranks,
working his way up from his initial designation as security guard, to
settling clerk, bookkeeper, credit investigator, project analyst,
appraiser/ inspector, and eventually, loans analyst.
While still designated as appraiser/investigator, Sawadjaan was
assigned to inspect the properties offered as collaterals by Compressed
Air Machineries and Equipment Corporation (CAMEC) for a credit line
of Five Million Pesos (P5,000,000.00). The properties consisted of
two parcels of land. On the basis of his Inspection and Appraisal
Report, the PAB granted the loan application.
In the meantime, Sawadjaan was promoted to Loans Analyst I on 01
July 1989.
Issue:
W/N LGVHAI's failure to file its by-laws within the period prescribed
by Section 46 of the Corporation Code resulted in the automatic
dissolution of LGVHAI
Ruling:
Section 46 aforequoted reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word "must" in the first
sentence thereof. Note should be taken of the second paragraph of the
law which allows the filing of the by-laws even prior to incorporation.
This provision in the same section of the Code, rules out mandatory
compliance with the requirement of filing the by-laws "within one (1)
month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission." It
necessarily follows that failure to file the by-laws within that period
does not imply the "demise" of the corporation. By-laws may be
necessary for the "government" of the corporation but these are
subordinate to the articles of incorporation as well as to the
Corporation Code and related statutes. There are in fact cases where
by-laws are unnecessary to corporate existence or to the valid exercise
of corporate powers.
Non-filing of the by-laws will not result in automatic dissolution of the
corporation. Under Section 6(I) of PD 902-A, the SEC is empowered to
"suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of a corporation" on the ground inter alia of
"failure to file by-laws within the required period." It is clear from this
provision that there must first of all be a hearing to determine the
existence of the ground, and secondly, assuming such finding, the
penalty is not necessarily revocation but may be only suspension of the
charter. In fact, under the rules and regulations of the SEC, failure to
file the by-laws on time may be penalized merely with the imposition of
an administrative fine without affecting the corporate existence of the
erring firm.
It should be stressed in this connection that substantial compliance
with conditions subsequent will suffice to perfect corporate personality.
Subsequently, Congress passed Republic Act 6848 creating the AlAmanah Islamic Investment Bank (AIIBP) and repealing P.D. No. 264
(which created the PAB). All assets, liabilities and capital accounts of
the PAB were transferred to the AIIBP, and the existing personnel of
the PAB were to continue to discharge their functions unless
discharged. In the ensuing reorganization, Sawadjaan was among the
personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the Islamic
Bank, discovered that the title to one of the property was spurious, the
property described therein non-existent, and that the other property
had a prior existing mortgage in favor of one Divina Pablico.
The Board of Directors of the AIIBP created an Investigating
Committee to look into the CAMEC transaction, which had cost the
bank Six Million Pesos (P6,000,000.00) in losses. Sawadjaan received
a memorandum from Islamic Bank [AIIBP] Chairman Roberto F. De
Ocampo charging him with Dishonesty in the Performance of Official
Duties. Upon recommendation of the Investigating Committee, the
Board of Directors of the Islamic Bank finds Sawadjaan guilty of
Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and imposing the penalty
of Dismissal from the Service. On reconsideration, the Board of
Directors reduced the penalty imposed on petitioner from dismissal to
suspension for a period of six (6) months and one (1) day.
Sawadjaan, by himself, filed a Motion for New Trial in the Court of
Appeals based on the following grounds: fraud, accident, mistake or
excusable negligence and newly discovered evidence. He claimed that
he had recently discovered that at the time his employment was
terminated, the AIIBP had not yet adopted its corporate by-laws. He
attached a Certification by the Securities and Exchange Commission
(SEC) that it was only on 27 May 1992 that the AIIBP submitted its
draft by-laws to the SEC, and that its registration was being held in
abeyance pending certain corrections being made thereon. Sawadjaan
argued that since the AIIBP failed to file its by-laws within 60 days
from the passage of Rep. Act No. 6848, as required by Sec. 51 of the
said law, the bank and its stockholders had already forfeited its
franchise or charter, including its license to exist and operate as a
102
103
W/N the dismissal of Salafranca is valid on the theory that the latter's
position is coterminus with that of the Village's Board of Directors, as
provided for in its amended by-laws
Ruling:
Admittedly, the right to amend the by-laws lies solely in the discretion
of the employer, this being in the exercise of management prerogative
or business judgment. However this right, extensive as it may be,
cannot impair the obligation of existing contracts or rights.
Prescinding from these premises, Philam's insistence that it can legally
dismiss petitioner on the ground that his tenure has expired is
untenable. To reiterate, petitioner, being a regular employee, is entitled
to security of tenure, hence, his services may only be terminated for
causes provided by law. A contrary interpretation would not find
justification in the laws or the Constitution. If we were to rule
otherwise, it would enable an employer to remove any employee from
his employment by the simple expediency of amending its by-laws and
providing that his/her position shall cease to exist upon the occurrence
of a specified event.
If private respondent wanted to make the petitioner's position coterminus with that of the Board of Directors, then the amendment
must be effective after petitioner's stay with the private respondent, not
during his term. Obviously, the measure taken by the private
respondent in amending its by-laws is nothing but a devious, but
crude, attempt to circumvent petitioner's right to security of tenure as a
regular employee guaranteed under the Labor Code.
TITLE VI
MEETINGS
Section 49
Kinds of meetings. - Meetings of directors, trustees, stockholders, or
members may be regular or special. (n)
Section 50
Regular and special meetings of stockholders or members. Regular meetings of stockholders or members shall be held annually on
a date fixed in the by-laws, or if not so fixed, on any date in April of
every year as determined by the board of directors or trustees:
104
Ruling:
Section 3, Article III, of the Constitution and By-laws of the association
provides:
Notice of the time and place of holding of any annual
meeting, or any special meeting, the members, shall be given
either by posting the same in a postage prepaid envelope,
addressed to each member on the record at the address left
by such member with the Secretary of the Association, or at
his known post-office address or by delivering the same
person at least (5) days before the date set for such meeting. .
. . In lieu of addressing or serving personal notices to the
members, notice of the members, notice of a regular annual
meeting or of a special meeting of the members may be given
by posting copies of said notice at the different departments
and plants of the San Miguel Brewery Inc., not less than five
(5) days prior to the date of the meeting.
Notice of a special meeting of the members should be given at leasts
five days before the date of the meeting. Therefore, the five days
previous notice required would not be complied with.
As regards the creation of a committee of three vested with the
authority to call, conduct and supervise the election, and the
appointment thereto of Candido C. Viernes as chairman and the
representative of the court and one representative each from the
parties, the Court in the exercise of its equity jurisdiction may
appointment such committee, it having been shown that the Election
Committee provided for in section 7 of the By-laws of the association
that conducted the election annulled by the respondent court if allowed
to act as such may jeopardise the rights of the respondents.
In a proper proceeding a court for equity may direct the holding of a
stockholders' meeting under the control of a special master, and the
action taken at such a meeting will not be set aside because of a
wrongful use of the court' interlocutory decree, where not brought to
the attention of the court prior to the meeting.
A court of equity may, on showing of good reason, appoint a master to
conduct and supervise an election of directors when it appears that a
fair election cannot make directions contrary to statute and public
policy with respect to the conduct of such election.
Section 51
Place and time of meetings of stockholders or members. Stockholders' or members' meetings, whether regular or special, shall
be held in the city or municipality where the principal office of the
corporation is located, and if practicable in the principal office of the
corporation: Provided, That Metro Manila shall, for purposes of this
section, be considered a city or municipality.
Notice of meetings shall be in writing, and the time and place thereof
stated therein.
All proceedings had and any business transacted at any meeting of the
stockholders or members, if within the powers or authority of the
corporation, shall be valid even if the meeting be improperly held or
called, provided all the stockholders or members of the corporation are
present or duly represented at the meeting.
Section 52
Quorum in meetings. - Unless otherwise provided for in this Code
or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of
the members in the case of non-stock corporations.
Lanuza Vs. CA (454 SCRA 54)
105
Facts:
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was
incorporated, with seven hundred (700) founders shares and seventysix (76) common shares as its initial capital stock subscription reflected
in the articles of incorporation. However, Onrubia et. al. and their
predecessors who were in control of PMMSI registered the companys
stock and transfer book for the first time in 1978, recording thirty-three
(33) common shares as the only issued and outstanding shares of
PMMSI. In 1979, a special stockholders meeting was called and held
on the basis of what was considered as a quorum of twenty-seven (27)
common shares, representing more than two-thirds (2/3) of the
common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan,
filed a petition with the Securities and Exchange Commission (SEC) for
the registration of their property rights over one hundred (120)
founders shares and twelve (12) common shares owned by their
father. The SEC hearing officer held that the heirs of Acayan were
entitled to the claimed shares and called for a special stockholders
meeting to elect a new set of officers. The SEC En Banc affirmed the
decision. As a result, the shares of Acayan were recorded in the stock
and transfer book.
On 06 May 1992, a special stockholders meeting was held to elect a
new set of directors. Private respondents thereafter filed a petition with
the SEC questioning the validity of the 06 May 1992 stockholders
meeting, alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and
transfer book, but on the initial subscribed capital stock of seven
hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation. The petition was dismissed. Appeal was made to the
SEC En Banc, which granted said appeal, holding that the shares of the
deceased incorporators should be duly represented by their respective
administrators or heirs concerned. The SEC directed the parties to call
for a stockholders meeting on the basis of the stockholdings reflected
in the articles of incorporation for the purpose of electing a new set of
officers for the corporation.
interest of the said shares. This case is one instance where resort to
documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares
which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
At the time the corporation was set-up, there were already seven
hundred seventy-six (776) issued and outstanding shares as reflected in
the articles of incorporation. No proof was adduced as to any
transaction effected on these shares from the time PMMSI was
incorporated up to the time the instant petition was filed, except for the
thirty-three (33) shares which were recorded in the stock and transfer
book in 1978, and the additional one hundred thirty-two (132) in 1982.
But obviously, the shares so ordered recorded in the stock and transfer
book are among the shares reflected in the articles of incorporation as
the shares subscribed to by the incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote by
the corporation merely because the corporate officers failed to keep its
records accurately. A corporations records are not the only evidence of
the ownership of stock in a corporation. In an American case, persons
claiming shareholders status in a professional corporation were listed
as stockholders in the amendment to the articles of incorporation. On
that basis, they were in all respects treated as shareholders. In fact, the
acts and conduct of the parties may even constitute sufficient evidence
of ones status as a shareholder or member. In the instant case, no less
than the articles of incorporation declare the incorporators to have in
their name the founders and several common shares. Thus, to
disregard the contents of the articles of incorporation would be to
pretend that the basic document which legally triggered the creation of
the corporation does not exist and accordingly to allow great injustice
to be caused to the incorporators and their heirs.
Section 53
Issue:
Regular and special meetings of directors or trustees. Regular meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide
otherwise.
W/N the basis the outstanding capital stock and accordingly also for
determining the quorum at stockholders meetings it should be the
1978 stock and transfer book or it should be the 1952 articles of
incorporation
Ruling:
Sec. 52. Quorum in meetings.- Unless otherwise provided for in this
Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or majority of
the members in the case of non-stock corporation.
Outstanding capital stock, on the other hand, is defined by the Code as:
Sec. 137. Outstanding capital stock defined. The term outstanding
capital stock as used in this code, means the total shares of stock
issued to subscribers or stockholders whether or not fully or partially
paid (as long as there is binding subscription agreement) except
treasury shares.
Thus, quorum is based on the totality of the shares which have been
subscribed and issued, whether it be founders shares or common
shares. In the instant case, two figures are being pitted against each
other those contained in the articles of incorporation, and those
listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient, if
not inaccurate stock and transfer book, and completely disregarding
the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in
106
file the complaint and execute the required certification against forum
shopping.
It is settled that the requirement to file a certificate of non-forum
shopping is mandatory and that the failure to comply with this
requirement cannot be excused. The certification is a peculiar and
personal responsibility of the party, an assurance given to the court or
other tribunal that there are no other pending cases involving basically
the same parties, issues and causes of action. Hence, the certification
must be accomplished by the party himself because he has actual
knowledge of whether or not he has initiated similar actions or
proceedings in different courts or tribunals. Even his counsel may be
unaware of such facts. Hence, the requisite certification executed by
the plaintiffs counsel will not suffice.
In a case where the plaintiff is a private corporation, the certification
may be signed, for and on behalf of the said corporation, by a
specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the
documents.
The records show that the petitioner filed a motion to dismiss the
complaint on the ground that the respondent failed to comply with
Section 5, Rule 7 of the Rules of Court. The respondent opposed the
motion on December 1, 1999, on its contention that Atty. Aguinaldo, its
resident agent, was duly authorized to sue in its behalf. The
respondent, however, failed to establish its claim that Atty. Aguinaldo
was its resident agent in the Philippines. Even the identification card
of Atty. Aguinaldo which the respondent appended to its pleading
merely showed that he is the company lawyer of the respondents
Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding of
the teleconference only during the hearing of January 28, 2000; Atty.
Aguinaldo then prayed for ten days, or until February 8, 2000, within
which to submit the board resolution purportedly authorizing him to
file the complaint and execute the required certification against forum
shopping. The respondent, however, failed to comply to submit the
said board resolution authorizing him to verify and sign the certificate
of NFS.
Ruling:
A teleconference represents a unique alternative to face-to-face (FTF)
meetings. It was first introduced in the 1960s with American
Telephone and Telegraphs Picturephone. At that time, however, no
demand existed for the new technology. Travel costs were reasonable
and consumers were unwilling to pay the monthly service charge for
using the picturephone, which was regarded as more of a novelty than
as an actual means for everyday communication. In time, people found
it advantageous to hold teleconferencing in the course of business and
corporate governance, because of the money saved, among other
advantages
Indeed, teleconferencing can only facilitate the linking of people; it
does not alter the complexity of group communication. Although it
may be easier to communicate via teleconferencing, it may also be
easier to miscommunicate. Teleconferencing cannot satisfy the
individual needs of every type of meeting.
In the Philippines, teleconferencing and videoconferencing of members
of board of directors of private corporations is a reality, in light of
Republic Act No. 8792. The Securities and Exchange Commission
issued SEC Memorandum Circular No. 15, on November 30, 2001,
providing the guidelines to be complied with related to such
conferences. Thus, the Court agrees with the RTC that persons in the
Philippines may have a teleconference with a group of persons in South
Korea relating to business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents Board of
Directors, the Court is not convinced that one was conducted; even if
there had been one, the Court is not inclined to believe that a board
resolution was duly passed specifically authorizing Atty. Aguinaldo to
Section 54
Who shall preside at meetings. - The president shall preside at all
meetings of the directors or trustee as well as of the stockholders or
members, unless the by-laws provide otherwise.
Section 55
Right to vote of pledgors, mortgagors, and administrators. In case of pledged or mortgaged shares in stock corporations, the
pledgor or mortgagor shall have the right to attend and vote at
meetings of stockholders, unless the pledgee or mortgagee is expressly
given by the pledgor or mortgagor such right in writing which is
recorded on the appropriate corporate books.
Executors, administrators, receivers, and other legal representatives
duly appointed by the court may attend and vote in behalf of the
stockholders or members without need of any written proxy.
Republic Vs. Sandiganbayan (402 SCRA 84)
Facts:
The Presidential Commission on Good Government conducted an ETPI
(Eastern Telecommunications, Phil. Inc.) stockholders meeting during
which a PCGG controlled board of directors was elected. A special
stockholders meeting was later convened by the registered ETPI
stockholders wherein another set of board of directors was elected, as a
result of which two sets of such board and officers were elected.
107
proxy shall be valid and effective for a period longer than five (5) years
at any one time.
Section 59
Voting trusts. - One or more stockholders of a stock corporation may
create a voting trust for the purpose of conferring upon a trustee or
trustees the right to vote and other rights pertaining to the shares for a
period not exceeding five (5) years at any time: Provided, That in the
case of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding five (5)
years but shall automatically expire upon full payment of the loan. A
voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy of such
agreement shall be filed with the corporation and with the Securities
and Exchange Commission; otherwise, said agreement is ineffective
and unenforceable. The certificate or certificates of stock covered by
the voting trust agreement shall be canceled and new ones shall be
issued in the name of the trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or trustees is made
pursuant to said voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors
voting trust certificates, which shall be transferable in the same
manner and with the same effect as certificates of stock.
The voting trust agreement filed with the corporation shall be subject
to examination by any stockholder of the corporation in the same
manner as any other corporate book or record: Provided, That both the
transferor and the trustee or trustees may exercise the right of
inspection of all corporate books and records in accordance with the
provisions of this Code.
Any other stockholder may transfer his shares to the same trustee or
trustees upon the terms and conditions stated in the voting trust
agreement, and thereupon shall be bound by all the provisions of said
agreement.
No voting trust agreement shall be entered into for the purpose of
circumventing the law against monopolies and illegal combinations in
restraint of trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed period,
and the voting trust certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be deemed canceled and
new certificates of stock shall be reissued in the name of the
transferors.
The voting trustee or trustees may vote by proxy unless the agreement
provides otherwise.
National Investment Vs. Aquino (163 SCRA 153)
Facts:
Section 57
Voting right for treasury shares. - Treasury shares shall have no
voting right as long as such shares remain in the Treasury.
Section 58
Proxies. - Stockholders and members may vote in person or by proxy
in all meetings of stockholders or members. Proxies shall in writing,
signed by the stockholder or member and filed before the scheduled
meeting with the corporate secretary. Unless otherwise provided in the
proxy, it shall be valid only for the meeting for which it is intended. No
108
need for additional operating capital to place the three (3) cocoprocessing mills at their optimum capacity and maximum efficiency
and to settle, pay or otherwise liquidate pending financial obligations
with the different private banks, Batjak applied to PNB for additional
financial assistance. On 5 October 1965, a Financial Agreement was
submitted by PNB to Batjak for acceptance.
The terms and conditions of the Financial Agreement were duly
accepted by Batjak. Under said Agreement, NIDC would, as it actually
did, invest P6,722,500.00 in Batjak in the form of preferred shares of
stock convertible within five (5) years at par into common stock, to
liquidate Batjak's obligations to Republic Bank (RB), Manufacturers
Bank and Trust Company (MBTC) and Philippine Commercial &
Industrial Bank (PCIB), and the balance of the investment was to be
applied to Batjak's past due account of P 5 million with the PNB.
Upon receiving payment, RB, PCIB, and MBTC released in favor of
PNB the first and any mortgages they held on the properties of Batjak.
Next, a Voting Trust Agreement was executed on 26 October 1965 in
favor of NIDC by the stockholders representing 60% of the outstanding
paid-up and subscribed shares of Batjak. This agreement was for a
period of five (5) years and, upon its expiration, was to be subject to
negotiation between the parties.
In July 1967, forced by the insolvency of Batjak, PNB instituted
extrajudicial foreclosure proceedings against the oil mills of Batjak
located in Tanauan, Leyte and Jimenez, Misamis Occidental. The
properties were sold to PNB as the highest bidder. One year thereafter,
or in September 1968, final Certificates of Sale were issued by the
provincial sheriffs of Leyte 6 and Misamis Occidental 7 for the two (2)
oil mills in Tanauan and Jimenez in favor of PNB, after Batjak failed to
exercise its right to redeem the foreclosed properties within the
allowable one year period of redemption. Subsequently, PNB
transferred the ownership of the two (2) oil mills to NIDC which, as
aforestated, was a wholly-owned PNB subsidiary.
As regards the oil mill located at Sasa, Davao City, the same was
similarly foreclosed extrajudicial by NIDC. It was sold to NIDC as the
highest bidder. After Batjak failed to redeem the property, NIDC
consolidated its ownership of the oil mill.
Three (3) years thereafter, Batjak represented by majority
stockholders, through Atty. Amado Duran, legal counsel of private
respondent Batjak, wrote a letter to NIDC inquiring if the latter was
still interested in negotiating the renewal of the Voting Trust
Agreement. Batjak wrote another letter to NIDC informing the latter
that Batjak would now safely assume that NIDC was no longer
interested in the renewal of said Voting Trust Agreement and, in view
thereof, requested for the turn-over and transfer of all Batjak assets,
properties, management and operations.
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60
Subscription contract. - Any contract for the acquisition of
unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or
some other contract.
Issue:
Section 61
Ruling:
PNB acquired ownership of two (2) of the three (3) oil mills by virtue of
mortgage foreclosure sales. NIDC acquired ownership of the third oil
mill also under a mortgage foreclosure sale. Certificates of title were
issued to PNB and NIDC after the lapse of the one (1) year redemption
period. Subsequently, PNB transferred the ownership of the two (2) oil
mills to NIDC. There can be no doubt, therefore, that NIDC not only
has possession of, but also title to the three (3) oil mills formerly owned
by Batjak. The interest of Batjak over the three (3) oil mills ceased
upon the issuance of the certificates of title to PNB and NIDC
confirming their ownership over the said properties. More so, Batjak
does not impugn the validity of the foreclosure proceedings. Neither
Section 62
Consideration for stocks. - Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration
for the issuance of stock may be any or a combination of any two or
more of the following:
109
Ruling:
110
Facts:
Pacific Basin Securities, Inc. (Pacific Basin), through the stock
brokerage firm First Resources Management and Securities
Corporation (FRMSC), purchased 308,300,000 Class A shares of
Oriental Petroleum and Minerals Corporation (OPMC). Pacific Basin
fully paid for the OPMC shares in the total amount of P17,727,000.00
or P.05750 per share. The shares were listed and traded in the Makati
Stock Exchange.
The OPMC shares turned out to be owned by Piedras Petroleum
Mining Corporation (Piedras Petroleum), a sequestered company
controlled by the nominees of the Presidential Commission on Good
Government (PCGG). PCGG sent a letter to Equitable Banking
Corporation (EBC), OPMCs stock and transfer agent, confirming
Piedras Petroleums sale of the OPMC shares in favor of Pacific Basin
through FRMSC. In the same letter, PCGG requested EBC to record
the acquisition of said shares and to issue the corresponding
certificates of stock in favor of Pacific Basin.
The requests were left unheeded. EBC informed FRMSC that it cannot
effect the transfer of the OPMC s hares to Pacific Basin on the following
grounds: first, that the endorser of the stock certificate, a certain Mr.
Clemente Madarang, was not among the authorized signatories of
Piedras Petroleum; and second, there was no board resolution from
Piedras Petroleum which authorized the sale of the OPMC shares.
OPMC and EBC argue that the OPMC shares are government-owned
and, as government property, these can be disposed of only through
public bidding. Hence, the sale by Piedras Petroleum of the OPMC
shares to Pacific Basin through the stock market is not valid, since it
does not comply with the public bidding requirement.
Issue:
W/N the sale between Pacific and OPMC is valid
Ruling:
The sale of the subject shares through the stock exchange is valid and
binding, as there is no law which mandates that listed shares which are
owned by the government be sold only through public bidding.
As conceded by both Pacific Basin and OPMC, the subject OPMC
shares are listed and traded in the stock exchange. OPMC is a listed
corporation in the Philippine Stock Exchange (PSE). As a listed
corporation, it shall be bound by the provisions of the Revised Listing
Rules of the PSE the objective of which is to provide a fair, orderly,
efficient, and transparent market for the trading of securities.
Moreover, even if the law indeed requires that the sale of the subject
shares undergo public bidding, the Court finds that sale through the
stock exchange is already a substantial compliance with the public
bidding requirement.
It is beyond dispute that OPMC holds no unpaid claim against Pacific
Basin for the value of the shares acquired by the latter. The Court sees
no reason why OPMC and EBC consistently and continuously refused
to record the transfer in the stock and transfer books of OPMC and
issue new certificates in favor of Pacific Basin.
Section 63 of the Corporation Code provides:
Sec. 63. x x x Shares of stock so issued are personal
property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally
authorized to make the transfer. No transfer,
111
Atty. Montecillo also wrote on the lower portion of the promissory note
executed by Atty. Mendoza the words Paid May 15, 1985 (signed) M.G.
Montecillo, Executor of the Estate of Hans M. Menzi.
Issue:
Facts:
W/N the sale between Menzi and US Automotive was valid
The late Fausto G. Gaid was an incorporator of Victory Cement
Corporation (VCC), having subscribed to and fully paid 239,500 shares
of said corporation.
Ruling:
The absence of a deed of sale evidencing the sale is allegedly not
irregular because the law itself does not require any deed for the
validity of the transfer of shares of stock, it being sufficient that such
transfer be effected by delivery of the stock certificates duly indorsed.
At any rate, a duly notarized Receipt covering the sale was executed.
Moreover, the BIR certified that the Estate of Menzi paid the final tax
on capital gains derived from the sale of the 154 block and authorized
the Corporate Secretary to register the transfer of the said shares in the
name of US Automotive. Further, a stock certificate covering the 154
block was issued to US Automotive by Quimson himself as Corporate
Secretary.
112
113
a.
b.
c.
d.
the transfer shall be sufficient to effect the transfer of shares only if the
same is coupled with delivery. The delivery of the stock certificate duly
endorsed by the owner is the operative act of transfer of shares from
the lawful owner to the new transferee.
Thus, for a valid transfer of stocks, the requirements are as follows: (a)
There must be delivery of the stock certificate; (b) The certificate must
be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and, (c) to be valid against
third parties, the transfer must be recorded in the books of the
corporation. At most, in the instant case, petitioner has satisfied only
the third requirement. Compliance with the first two requisites has not
been clearly and sufficiently shown.
Considering that the requirements provided under Sec. 63 of The
Corporation Code should be mandatorily complied with, the rule on
presumption of regularity cannot apply. The regularity and validity of
the transfer must be proved. As it is, even the credibility of the stock
and transfer book and the entries thereon relied upon by petitioner to
show compliance with the third requisite to prove that she was a
stockholder since 1983 is highly doubtful.
Lim Tay Vs. CA (293 SCRA 634)
Facts:
Sy Guiok and Sy Lim secured a loan from the Lim Tay in the amount of
P40,000 payable within six (6) months. To secure the payment of the
aforesaid loan and interest thereon, each of them executed a Contract
of Pledge in favor of the petitioner whereby they respectively pledged
three hundred (300) shares of stock in the Go Fay & Company Inc.,
each. Guiok and Lim obliged themselves to pay interest on said loan at
the rate of 10% per annum from the date of said contract of pledge.
Under said "Contracts of Pledge," Guiok and Sy Lim covenanted, inter
alia , that:
3. In the event of the failure of the PLEDGOR to pay the amount within
a period of six (6) months from the date hereof, the PLEDGEE is
hereby authorized to foreclose the pledge upon the said shares of stock
hereby created by selling the same at public or private sale with or
without notice to the PLEDGOR, at which sale the PLEDGEE may be
the purchaser at his option; and the PLEDGEE is hereby authorized
and empowered at his option to transfer the said shares of stock on the
books of the corporation to his own name and to hold the certificate
issued in lieu thereof under the terms of this pledge, and to sell the said
shares to issue to him and to apply the proceeds of the sale to the
payment of the said sum and interest, in the manner hereinabove
provided;
4. In the event of the foreclosure of this pledge and the sale of the
pledged certificate, any surplus remaining in the hands of the
PLEDGEE after the payment of the said sum and interest, and the
expenses, if any, connected with the foreclosure sale, shall be paid by
the PLEDGEE to the PLEDGOR;
5. Upon payment of the said amount and interest in full, the PLEDGEE
will, on demand of the PLEDGOR, redeliver to him the said shares of
stock by surrendering the certificate delivered to him by the PLEDGOR
or by retransferring each share to the PLEDGOR, in the event that the
PLEDGEE, under the option hereby granted, shall have caused such
shares to be transferred to him upon the books of the issuing
company."
Guiok and Sy Lim endorsed their respective shares of stock in blank
and delivered the same to the [p]etitioner.
However, Guiok and Sy Lim failed to pay their respective loans and the
accrued interests thereon to the petitioner. In October, 1990, the
petitioner filed a "Petition for Mandamus" against Respondent
Corporation, praying that an order be issued directing the corporate
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115
petitioners, Nicanor Martin and Leoncio Tan, and in recording the said
transfers in dispute in the Stock and Transfer book of NEUGENE.
Thus, the transfer of the subject certificate made by Dico to Garcia was
not valid as to the spouses Atinon, the judgment creditors, as the same
still stood in the name of Dico, the judgment debtor, at the time of the
levy on execution. In addition, the entry in the minutes of the meeting
of the Club's board of directors noting the resignation of Dico as
proprietary member thereof does not constitute compliance with
Section 63 of the Corporation Code. Said provision of law strictly
requires the recording of the transfer in the books of the corporation,
and not elsewhere, to be valid as against third parties.
Facts:
These cases involve the Batangas Laguna Tayabas Bus Company, Inc.,
which has been owned by four generations of the Potenciano family.
Immediately prior to the events leading to this controversy, the
Potencianos owned 87.5% of the outstanding capital stock of BLTB.
Facts:
Dico, was employed as manager of his Young Auto Supply. In order to
assist him in entertaining clients, Garcia "lent" his Proprietary
Ownership Certificate (POC), in the Cebu Country Club to Dico so the
latter could enjoy the "signing" privileges of its members. The Club
then issued POC in the name of Dico. Thereafter, Dico resigned as
manager of Garcia's business. Upon demand Dico returned their POC.
Dico then executed a Deed of Transfer covering the subject certificate
in favor of petitioner. The Club was furnished with a copy of said deed
but the transfer was not recorded in the books of the Club because
Garcia failed to present proof of payment of the requisite capital gains
tax.
In the meantime, the spouses Atinon filed a case for collection of sum
of money against Jaime Dico. The trial court rendered judgment
ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus
interests. After said judgment became final and executory, Sheriff
Jomouad proceeded with its execution. In the course thereof, the
Proprietary Ownership Certificate in the Cebu Country Club, which was
in the name of Dico, was levied on and scheduled for public auction.
Claiming ownership over the subject certificate, Garcia filed the
aforesaid action for injunction with prayer for preliminary injunction
to enjoin respondents from proceeding with the auction.
The trial court dismissed petitioner's complaint for injunction for lack
of merit. On appeal, the CA affirmed in toto the decision of the RTC
upon finding that it committed no reversible error in rendering the
same.
Hence, this petition.
Issue:
W/N whether a bona fide transfer of the shares of a corporation, not
registered or noted in the books of the corporation, is valid as against a
subsequent lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not.
Ruling:
116
Issue:
Facts:
The instant controversy arose from a dispute between the Rural Bank
of Lipa City, Incorporated (hereinafter referred to as the Bank),
represented by its officers and members of its Board of Directors, and
certain stockholders of the said bank.
Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as well
as those of eight (8) other shareholders under his control with a total of
10,467 shares, in favor of the stockholders of the Bank represented by
its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak.
Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina,
executed an Agreement wherein they acknowledged their indebtedness
to the Bank in the amount of P4,000,000.00, and stipulated that said
debt will be paid out of the proceeds of the sale of their real property
described in the Agreement.
At a meeting of the Board of Directors of the Bank the Villanueva
spouses assured the Board that their debt would be paid on or before
We have uniformly held that for a valid transfer of stocks, there must
be strict compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate:
(b) The certificate must be endorsed by the owner or his attorney-infact or other persons legally authorized to make the transfer; and (c) To
be valid against third parties, the transfer must be recorded in the
books of the corporation. As it is, compliance with any of these
requisites has not been clearly and sufficiently shown.
It may be argued that despite non-compliance with the requisite
endorsement and delivery, the assignment was valid between the
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118
should not collect any more from the defendants the balance of their
subscriptions to the capital stock of the Philippine Lumber Distributing
Agency, Inc.
Section 67
Issue:
Ruling:
Payment of any unpaid subscription or any percentage thereof,
together with the interest accrued, if any, shall be made on the date
specified in the contract of subscription or on the date stated in the call
made by the board. Failure to pay on such date shall render the entire
balance due and payable and shall make the stockholder liable for
interest at the legal rate on such balance, unless a different rate of
interest is provided in the by-laws, computed from such date until full
payment. If within thirty (30) days from the said date no payment is
made, all stocks covered by said subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter provided, unless
the board of directors orders otherwise.
PNB Vs. Bitulok Sawmill (23 SCRA 1366)
Facts:
The Philippine Lumber Distributing Agency, Inc., was organized
sometime in the early part of 1947 upon the initiative and insistence of
the late President Manuel Roxas who had called several conferences
between him and the subscribers and organizers of the Philippine
Lumber Distributing Agency, Inc. to insure a steady supply of lumber,
which could be sold at reasonable prices to enable the war sufferers to
rehabilitate their devastated homes. He convinced the lumber
producers to form a lumber cooperative and to pool their sources
together in order to wrest, particularly, the retail trade from aliens who
were acting as middlemen in the distribution of lumber. As an
inducement he promised and agreed to finance the agency by making
the Government invest P9.00 by way of counterpart for every peso that
the members would invest therein.
The amount thus contributed by such lumber producers was not
enough for the operation of its business especially having in mind the
primary purpose of putting an end to alien domination in the retail
trade of lumber products. Nor was there any appropriation by the
legislature of the counterpart fund to be put up by the Government,
namely, P9.00 for every peso invested by defendant lumber producers.
Accordingly, the late President Roxas instructed the Hon. Emilio
Abello, then Executive Secretary and Chairman of the Board of
Directors of the Philippine National Bank, for the latter to grant said
agency an overdraft in the original sum of P250,000.00 which was
later increased to P350,000.00, which was approved by said Board of
Directors of the Philippine National Bank with interest at the rate of
6% per annum, and secured by the chattel mortgages on the stock of
lumber of said agency." The Philippine Government did not invest the
P9.00 for every peso coming from defendant lumber producers.
The loan extended to the Philippine Lumber Distributing Agency by the
Philippine National Bank was not paid.
The lower court with full recognition that the case for the plaintiff
creditor, Philippine National Bank, "is meritorious strictly from the
legal standpoint" but apparently unable to "close its eyes to the equity
of the case" dismissed nine (9) cases filed by it, seeking "to recover
from the defendant lumber producers. Consequently, viewing from all
considerations of equity in the case, the Court finds that plaintiff bank
Section 68
119
Notice of said sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally or by registered mail. The
same shall furthermore be published once a week for two (2)
consecutive weeks in a newspaper of general circulation in the province
or city where the principal office of the corporation is located.
120
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74
Books to be kept; stock transfer agent. - Every corporation shall
keep and carefully preserve at its principal office a record of all
business transactions and minutes of all meetings of stockholders or
members, or of the board of directors or trustees, in which shall be set
forth in detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting was regular or
special, if special its object, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of any
director, trustee, stockholder or member, the time when any director,
trustee, stockholder or member entered or left the meeting must be
noted in the minutes; and on a similar demand, the yeas and nays must
be taken on any motion or proposition, and a record thereof carefully
made. The protest of any director, trustee, stockholder or member on
any action or proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and the
minutes of any meetings shall be open to inspection by any director,
trustee, stockholder or member of the corporation at reasonable hours
on business days and he may demand, writing, for a copy of excerpts
from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any
director, trustees, stockholder or member of the corporation to
examine and copy excerpts from its records or minutes, in accordance
with the provisions of this Code, shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of
an offense which shall be punishable under Section 144 of this Code:
Provided, That if such refusal is made pursuant to a resolution or order
of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted
for such refusal: and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine and
copy excerpts from the corporation's records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any
other corporation, or was not acting in good faith or for a legitimate
purpose in making his demand.
Stock corporations must also keep a book to be known as the "stock
and transfer book", in which must be kept a record of all stocks in the
names of the stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription has been made,
and the date of payment of any installment; a statement of every
alienation, sale or transfer of stock made, the date thereof, and by and
to whom made; and such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be open
for inspection by any director or stockholder of the corporation at
reasonable hours on business days.
121
These being the obtaining circumstances, any entries made in the stock
and transfer book on March 8, 1987 by respondent Torres of an alleged
transfer of nominal shares to Pabalan and Co. cannot therefore be
given any valid effect. Where the entries made are not valid, Pabalan
and Co. cannot therefore be considered stockholders of record of
TORMIL. Because they are not stockholders, they cannot therefore be
elected as directors of TORMIL. To rule otherwise would not only
encourage violation of clear mandate of Sec. 74 of the Corporation
Code that stock and transfer book shall be kept in the principal office of
the corporation but would likewise open the flood gates of confusion in
the corporation as to who has the proper custody of the stock and
transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not
the corporate secretary, at pleasure would make entries therein.
122
123
TITLE IX
Section 76
Plan or merger of consolidation. - Two or more corporations may
merge into a single corporation which shall be one of the constituent
corporations or may consolidate into a new single corporation which
shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the
merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying
the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of
the surviving corporation in case of merger; and, with respect to the
consolidated corporation in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations
organized under this Code; and
4. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.
Section 77
Stockholder's or member's approval. - Upon approval by
majority vote of each of the board of directors or trustees of the
constituent corporations of the plan of merger or consolidation, the
same shall be submitted for approval by the stockholders or members
of each of such corporations at separate corporate meetings duly called
for the purpose. Notice of such meetings shall be given to all
stockholders or members of the respective corporations, at least two
(2) weeks prior to the date of the meeting, either personally or by
registered mail. Said notice shall state the purpose of the meeting and
shall include a copy or a summary of the plan of merger or
consolidation. The affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital stock of each
corporation in the case of stock corporations or at least two-thirds
(2/3) of the members in the case of non-stock corporations shall be
necessary for the approval of such plan. Any dissenting stockholder in
stock corporations may exercise his appraisal right in accordance with
the Code: Provided, That if after the approval by the stockholders of
such plan, the board of directors decides to abandon the plan, the
appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made,
provided such amendment is approved by majority vote of the
respective boards of directors or trustees of all the constituent
corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members of each of the constituent
corporations. Such plan, together with any amendment, shall be
considered as the agreement of merger or consolidation.
Section 78
Articles of merger or consolidation. - After the approval by the
stockholders or members as required by the preceding section, articles
of merger or articles of consolidation shall be executed by each of the
constituent corporations, to be signed by the president or vicepresident and certified by the secretary or assistant secretary of each
corporation setting forth:
124
125
Issue:
Issue:
W/N PNB should be held liable for the unpaid obligations of PASUMIL
by virtue of LOI Nos. 189-A and 311, which expressly authorized
PASUMIL and PNB to merge or consolidate
Ruling:
Ruling:
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. The procedure to be
followed is prescribed under the Corporation Code. Section 79 of said
Code requires the approval by the Securities and Exchange
Commission (SEC) of the articles of merger which, in turn, must have
been duly approved by a majority of the respective stockholders of the
constituent corporations. The same provision further states, that the
merger shall be effective only upon the issuance by the SEC of a
certificate of merger. The effectivity date of the merger is crucial for
determining when the merged or absorbed corporation ceases to exist;
and when its rights, privileges, properties as well as liabilities pass on
to the surviving corporation.
Consistent with the aforementioned Section 79, the September 16, 1975
Agreement of Merger, which Associated Banking Corporation (ABC)
and Citizens Bank and Trust Company (CBTC) entered into, provided
that its effectivity "shall, for all intents and purposes, be the date when
the necessary papers to carry out this [m]erger shall have been
approved by the Securities and Exchange Commission."
The records do not show when the SEC approved the merger. Private
respondent's theory is that it took effect on the date of the execution of
the agreement itself, which was September 16, 1975. Private
respondent contends that, since he issued the promissory note to CBTC
on September 7, 1977 two years after the merger agreement had
been executed CBTC could not have conveyed or transferred to
petitioner its interest in the said note, which was not yet in existence at
the time of the merger. Therefore, petitioner, the surviving bank, has
no right to enforce the promissory note on private respondent; such
right properly pertains only to CBTC.
Assuming that the effectivity date of the merger was the date of its
execution, we still cannot agree that petitioner no longer has any
interest in the promissory note. A closer perusal of the merger
agreement leads to a different conclusion. The provision quoted earlier
has this other clause:
126
Upon the effective date of the [m]erger, all references to [CBTC] in any
deed, documents, or other papers of whatever kind or nature and
wherever found shall be deemed for all intents and purposes,
references to [ABC], the SURVIVING BANK, as if such references
were direct references to [ABC] . . . .
Thus, the fact that the promissory note was executed after the
effectivity date of the merger does not militate against petitioner. The
agreement itself clearly provides that all contracts irrespective of the
date of execution entered into in the name of CBTC shall be
understood as pertaining to the surviving bank, herein petitioner.
Since, in contrast to the earlier aforequoted provision, the latter clause
no longer specifically refers only to contracts existing at the time of the
merger, no distinction should be made. The clause must have been
deliberately included in the agreement in order to protect the interests
of the combining banks; specifically, to avoid giving the merger
agreement a farcical interpretation aimed at evading fulfillment of a
due obligation.
Thus, although the subject promissory note names CBTC as the payee,
the reference to CBTC in the note shall be construed, under the very
provisions of the merger agreement, as a reference to petitioner bank,
"as if such reference was a direct reference to" the latter "for all intents
and purposes."
Section 80
Effects or merger or consolidation.
consolidation shall have the following effects:
- The
merger
or
The letters of credit, on the other hand, were opened for ELISCON by
CBTC using the credit facilities of Pacific Multi-Commercial
Corporation (MULTI) with the said bank, pursuant to the Resolution of
the Board of Directors of MULTI adopted that since at least 90% of the
Company's gross sales is generated by the sale of tin-plates
manufactured by Elizalde Steel Consolidated, Inc. it is to the best
interests of the Company to continue handling said tin-plate line and
because Elizalde Steel Consolidated, Inc. has requested the assistance
of the Company in obtaining credit facilities to enable it to maintain the
present level of its tin-plate manufacturing output and the Company is
willing to extend said requested assistance, MULTI allow and authorize
ELICON to avail and make use of the Credit Line of MULTI with CBCT.
MULTI likewise guarantee, solidarily, the payment of the
corresponding Letters of Credit upon maturity of the same.
Subsequently, Antonio Roxas Chua and Chester G. Babst executed a
Continuing Suretyship, whereby they bound themselves jointly and
severally liable to pay any existing indebtedness of MULTI to CBTC to
the extent of P8,000,000.00 each.
CBTC opened for ELISCON in favor of National Steel Corporation
three (3) domestic letters of credit which ELISCON used to purchase
tin black plates from National Steel Corporation. ELISCON defaulted
in its obligation to pay the amounts of the letters of credit, leaving an
outstanding account in the total amount of P3,963,372.08.
On December 22, 1980, the Bank of the Philippine Islands (BPI) and
CBTC entered into a merger, wherein BPI, as the surviving corporation,
acquired all the assets and assumed all the liabilities of CBTC.
Meanwhile, ELISCON encountered financial difficulties and became
heavily indebted to the Development Bank of the Philippines (DBP). In
order to settle its obligations, ELISCON proposed to convey to DBP by
way of dacion en pago all its fixed assets mortgaged with DBP, as
payment for its total indebtedness in the amount of P201,181,833.16.
On December 28, 1978, ELISCON and DBP executed a Deed of Cession
of Property in Payment of Debt.
DBP formally took over the assets of ELISCON, including its
indebtedness to BPI. Thereafter, DBP proposed formulas for the
settlement of all of ELISCON's obligations to its creditors, but BPI
expressly rejected the formula submitted to it for not being acceptable.
Consequently, BPI, as successor-in-interest of CBTC, instituted a
complaint for sum of money against ELISCON, MULTI and Babst.
ELISCON argued that the complaint was premature since DBP had
made serious efforts to settle its obligations with BPI.
Babst also alleged that he signed the Continuing Suretyship on the
understanding that it covers only obligations which MULTI incurred
solely for its benefit and not for any third party liability, and he had no
knowledge or information of any transaction between MULTI and
ELISCON.
MULTI, for its part, denied knowledge of the merger between BPI and
CBTC, and averred that the guaranty under its board resolution did not
cover purchases made by ELISCON in the form of trust receipts. It set
up a cross-claim against ELISCON alleging that the latter should be
held liable for any judgment which the court may render against it in
favor of BPI.
Issue:
W/N BPI has legal capacity to recover the obligations of ELISCON,
MULTI and Babst to CBTC
Ruling:
127
There is no question that there was a valid merger between BPI and
CBTC. It is settled that in the merger of two existing corporations, one
of the corporations survives and continues the business, while the
other is dissolved and all its rights, properties and liabilities are
acquired by the surviving corporation. Hence, BPI has a right to
institute the case a quo.
Notwithstanding such right, BPI cannot recover from the petitioner.
Article 1293 of the Civil Code provides:
Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment
by the new debtor gives him the rights mentioned in articles 1236 and
1237.
BPI contends that in order to have a valid novation, there must be an
express consent of the creditor. However, there exist clear indications
that BPI was aware of the assumption by DBP of the obligations of
ELISCON. Due to the failure of BPI to register its objection to the takeover by DBP of ELISCON's assets, at the creditors' meeting held in
June 1981 and thereafter, it is deemed to have consented to the
substitution of DBP for ELISCON as debtor.
In the case at bar, there was no indication that the principal debtor will
default in payment. In fact, DBP, which had stepped into the shoes of
ELISCON, was capable of payment. Its authorized capital stock was
increased by the government. More importantly, the National
Development Company took over the business of ELISCON and
undertook to pay ELISCON's creditors, and earmarked for that
purpose the amount of P4,015,534.54 for payment to BPI.
Here, PMI transferred its assets to SRTI to settle its obligation to SRTI
in the sum of P210,000,000. We are not convinced that PMI
fraudulently transferred these assets to escape its liability for any of its
debts. PMI had already paid its employees, except McLeod, their
money claims.
128
TITLE X
APPRAISAL RIGHT
Section 81
Instances of appraisal right. - Any stockholder of a corporation
shall have the right to dissent and demand payment of the fair value of
his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect
of changing or restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or shortening the term
of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and
assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82
How right is exercised. - The appraisal right may be exercised by
any stockholder who shall have voted against the proposed corporate
action, by making a written demand on the corporation within thirty
(30) days after the date on which the vote was taken for payment of the
fair value of his shares: Provided, That failure to make the demand
within such period shall be deemed a waiver of the appraisal right. If
the proposed corporate action is implemented or affected, the
corporation shall pay to such stockholder, upon surrender of the
certificate or certificates of stock representing his shares, the fair value
thereof as of the day prior to the date on which the vote was taken,
excluding any appreciation or depreciation in anticipation of such
corporate action.
If within a period of sixty (60) days from the date the corporate action
was approved by the stockholders, the withdrawing stockholder and
the corporation cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation,
and the third by the two thus chosen. The findings of the majority of
the appraisers shall be final, and their award shall be paid by the
corporation within thirty (30) days after such award is made: Provided,
That no payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its books to cover
such payment: and Provided, further, That upon payment by the
corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation.
Section 83
TITLE XI
NON-STOCK CORPORATIONS
Section 87
Definition. - For the purposes of this Code, a non-stock corporation is
one where no part of its income is distributable as dividends to its
members, trustees, or officers, subject to the provisions of this Code on
dissolution: Provided, That any profit which a non-stock corporation
may obtain as an incident to its operations shall, whenever necessary
or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized, subject to the provisions of this
Title.
The provisions governing stock corporation, when pertinent, shall be
applicable to non-stock corporations, except as may be covered by
specific provisions of this Title.
129
Section 88
Purposes. - Non-stock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal,
literary, scientific, social, civic service, or similar purposes, like trade,
industry, agricultural and like chambers, or any combination thereof,
subject to the special provisions of this Title governing particular
classes of non-stock corporations.
Republic Vs. Sunlife (473 SCRA 129)
Facts:
Sun Life is a mutual life insurance company organized and existing
under the laws of Canada. It is registered and authorized by the
Securities and Exchange Commission and the Insurance Commission
to engage in business in the Philippines as a mutual life insurance
company.
Sun Life filed with the Commissioner of Internal Revenue (CIR) its
insurance premium tax return for the third quarter of 1997 and paid
the premium tax in the amount of P31,485,834.51. For the period
covering August 21 to December 18, 1997, it filed with the CIR its
documentary stamp tax (DST) declaration returns and paid the total
amount of P30,000,000.00.
Meanwhile, the Court of Tax Appeals (CTA) rendered its decision in
Insular Life Assurance Co. Ltd. v. CIR, which held that mutual life
insurance companies are purely cooperative companies and are exempt
from the payment of premium tax and DST. This pronouncement was
later affirmed by this court in CIR v. Insular Life Assurance Company,
Ltd.
Sun Life surmised that being a mutual life insurance company, it was
likewise exempt from the payment of premium tax and DST. Hence,
Sun Life filed with the CIR an administrative claim for tax credit of its
alleged erroneously paid premium tax and DST for the aforestated tax
periods.
For failure of the CIR to act upon the administrative claim for tax credit
and with the 2-year period to file a claim for tax credit or refund
dwindling away and about to expire, Sun Life filed with the CTA a
petition for review. In its petition, it prayed for the issuance of a tax
credit certificate in the amount of P61,485,834.51 representing
P31,485,834.51 of erroneously paid premium tax for the third quarter
of 1997 and P30,000,000.00 of DST on policies of insurance from
August 21 to December 18, 1997. Sun Life stood firm on its contention
that it is a mutual life insurance company vested with all the
characteristic features and elements of a cooperative company or
association as defined in Section 121 of the Tax Code. Primarily, the
management and affairs of Sun Life were conducted by its members;
secondly, it is operated with money collected from its members; and,
lastly, it has for its purpose the mutual protection of its members and
not for profit or gain.
Issue:
W/N Sunlife is a purely cooperative company or association under
Section 121 of the National Internal Revenue Code and a fraternal or
beneficiary society, order or cooperative company on the lodge system
or local cooperation plan and organized and conducted solely by the
members thereof for the exclusive benefit of each member and not for
profit under Section 199 of the National Internal Revenue Code.
Ruling:
The Tax Code defines a cooperative as an association conducted by the
members thereof with the money collected from among themselves and
solely for their own protection and not for profit. Without a doubt,
Sunlife is a cooperative engaged in a mutual life insurance business.
First, it is managed by its members. Both the CA and the CTA found
that the management and affairs of Sunlife were conducted by its
member-policyholders.
A stock insurance company doing business in the Philippines may
alter its organization and transform itself into a mutual insurance
company. Sunlife has been mutualized or converted from a stock life
insurance company to a nonstock mutual life insurance corporation
pursuant to Section 266 of the Insurance Code of 1978. On the basis of
its bylaws, its ownership has been vested in its member-policyholders
who are each entitled to one vote; and who, in turn, elect from among
themselves the members of its board of trustees. Being the governing
body of a nonstock corporation, the board exercises corporate powers,
lays down all corporate business policies, and assumes responsibility
for the efficiency of management.
Second, it is operated with money collected from its members. Since
respondent is composed entirely of members who are also its
policyholders, all premiums collected obviously come only from them.
The member-policyholders constitute both insurer and insured who
contribute, by a system of premiums or assessments, to the creation of
a fund from which all losses and liabilities are paid. The premiums
pooled into this fund are earmarked for the payment of their indemnity
and benefit claims.
Third, it is licensed for the mutual protection of its members, not for
the profit of anyone.
As early as October 30, 1947, the director of commerce had already
issued a license to Sunlife -- a corporation organized and existing
under the laws of Canada -- to engage in business in the Philippines.
Pursuant to Section 225 of Canadas Insurance Companies Act, the
Canadian Minister of State (for finance and privatization) also declared
in its Amending Letters Patent that Sunlife would be a mutual
company effective June 1, 1992. In the Philippines, the Insurance
Commissioner also granted it annual Certificates of Authority to
transact life insurance business, the most relevant of which were dated
July 1, 1997 and July 1, 1998.
A mutual life insurance company is conducted for the benefit of its
member-policyholders, who pay into its capital by way of premiums.
To that extent, they are responsible for the payment of all its losses.
The cash paid in for premiums and the premium notes constitute their
assets x x x. In the event that the company itself fails before the terms
of the policies expire, the member-policyholders do not acquire the
status of creditors. Rather, they simply become debtors for whatever
premiums that they have originally agreed to pay the company, if they
have not yet paid those amounts in full, for mutual companies x x x
depend solely upon x x x premiums. Only when the premiums will
have accumulated to a sum larger than that required to pay for
company losses will the member-policyholders be entitled to a pro
rata division thereof as profits.
Contributing to its capital, the member-policyholders of a mutual
company are obviously also its owners. Sustaining a dual relationship
inter se, they not only contribute to the payment of its losses, but are
also entitled to a proportionate share and participate alike in its profits
and surplus.
Sharing in the common fund, any member-policyholder may choose to
withdraw dividends in cash or to apply them in order to reduce a
subsequent premium, purchase additional insurance, or accelerate the
payment period. Although the premium made at the beginning of a
year is more than necessary to provide for the cost of carrying the
insurance, the member-policyholder will nevertheless receive the
benefit of the overcharge by way of dividends, at the end of the year
when the cost is actually ascertained. The declaration of a dividend
upon a policy reduces pro tanto the cost of insurance to the holder of
the policy. That is its purpose and effect.
130
Facts:
Unless otherwise provided in the articles of incorporation or the bylaws, a member may vote by proxy in accordance with the provisions of
this Code. (n)
Voting by mail or other similar means by members of non-stock
corporations may be authorized by the by-laws of non-stock
corporations with the approval of, and under such conditions which
may be prescribed by, the Securities and Exchange Commission.
Sec. 90. Non-transferability of membership. - Membership in a
non-stock corporation and all rights arising therefrom are personal and
non-transferable, unless the articles of incorporation or the by-laws
otherwise provide. (n)
131
Facts:
The principal adversaries in this controversy are respondent Vicente
Josefa of the Manila Traders Lions Club and petitioner James L. So of
the Manila Centrum Lions Club, which Lions clubs are duly organized,
chartered, and affiliated with Lions Clubs International having its
International offices at 300 22nd Street, Oakbrook, Illinois 60570,
U.S.A. The Manila Traders Lions Club and the Manila Centrum Lions
Club, together with other Lions clubs, are embraced and constituted
into the newly organized District 301-Al. The Lions districts in the
country form the so-called Multiple District 301,Philippines. All clubs
so organized and chartered under the Constitution of Lions Clubs
International are under the exclusive supervision of the International
Board of Directors.
Josefa and So were properly nominated candidates for the office of
District Governor, District 301-Al, for the fiscal year 1982-83. One hour
after the designated convening time, District Governor Huang
transferred the election meeting from the designated site to the
Admiral Royal Hotel. After the announcement of District Governor
Huang transferring the election meeting, a majority of the delegates of
the newly authorized District 301-Al remained at the designated site
and convened an election for District Governor between the two
candidates, Lion So and Lion Josefa. So that there were two elections
held on June 6, 1982 for the office of District Governor of District 301Al.
One election was held as a part of the official District Convention at the
designated election meeting site, the Little Theater Olongapo National
High School, at which Lion So received 147 votes and Lion Josefa
received 3 votes. And the other election was held at the Admiral Royale
Hotel at which Lion Josefa received 115 votes.
The action of District Governor Huang in transferring the election
meeting away from the convention site was without approval of a
majority of the delegates and was without any clear authority and
justification. The said election meeting held at the Little Theatre
Olongapo National High School was properly conducted and resulted
in the election of Lion So. Said election of Lion So was duly certified by
the official Election Committee Chairman Lion Ernesto Castaeda,
appointed by District Governor Huang and District Governor Beleno of
District 301-E, the official Multiple District Council representative.
Vicente Josefa filed a complaint for Quo Warranto, Injunction,
Damages with writ of preliminary injunction and prayer for temporary
restraining order in the Court of First Instance of Manila against Lions
Clubs International and James L. So.
Finding the foregoing allegations of the complaint to be sufficient in
form and substance, the Court of First Instance on the same date, July
1, 1982, issued a temporary restraining order enjoining So from
assuming the powers and prerogatives of the office of Governor of
District 301-Al, and Lions Clubs International, represented by Antonio
Ramos, from recognizing and proclaiming So as the Governor of
District 301-Al for the fiscal year 1982- 1983.
On July 8, 1982, defendants So and Lions Club International filed a
Motion to Dismiss and to Lift Restraining Order.
The Court of First Instance issued an Order denying defendants'
motion to dismiss. Finding the Motion to lift restraining order to be
meritorious, the Court set aside said restraining order.
Herein petitioners Lions Clubs International and James L. So now
come to this Court attributing grave abuse of discretion to the Court of
First Instance of Manila for the denial of their Motion to Dismiss dated
July 6, 1982, and contending that the Court of Appeals acted in excess
of its jurisdiction in issuing its temporary restraining order of July 29,
1982. As prayed for by said petitioners, We issued on August 4, 1982 a
temporary restraining order enjoining the enforcement of the assailed
temporary restraining order of the Court of Appeals.
132
Ruling:
The general rule is that "... the courts will not interfere with the
internal affairs of an unincorporated association so as to settle disputes
between the members, or questions of policy, discipline, or internal
government, so long as the government of the society is fairly and
honestly administered in conformity with its laws and the law of the
land, and no property or civil rights are invaded. Under such
circumstances, the decision of the governing body or established
private tribunal of the association is binding and conclusive and not
subject to review or collateral attack in the courts. "
The general rule of non-interference in the internal affairs of
associations is, however, subject to exceptions, but the power of review
is extremely limited. Accordingly, the courts have and will exercise
power to interfere in the internal affairs of an association where law
and justice so require, and the proceedings of the association are
subject to judicial review where there is fraud, oppression, or bad faith,
or where the action complained of is capricious, arbitrary, or unjustly
discriminatory. Also, the courts will usually entertain jurisdiction to
grant relief in case property or civil rights are invaded, although it has
also been held that the involvement of property rights does not
necessarily authorize judicial intervention, in the absence of
arbitrariness, fraud or collusion. Moreover, the courts will intervene
where the proceedings in question are violative of the laws of the
society, or the law of the land, as by depriving a person of due process
of law. Similarly, judicial intervention is warranted where there is a
lack of jurisdiction on the part of the tribunal conducting the
proceedings, where the organization exceeds its powers, or where the
proceedings are otherwise illegal.
In accordance with the general rules as to judicial interference cited
above, the decision of an unincorporated association on the question of
an election to office is a matter peculiarly and exclusively to be
determined by the association, and, in the absence of fraud, is final and
binding on the courts. (7 C.J.S., p. 44).
The instant controversy between petitioner So and respondent Josefa
falls squarely within the ambit of the rule of judicial non-intervention
or non- interference. The elections in dispute, the manner by which it
was conducted and the results thereof, is strictly the internal affair that
concerns only the Lions association and/or its members, and We find
from the records that the same was resolved within the organization of
Lions Clubs International in accordance with the Constitution and ByLaws which are not immoral, unreasonable, contrary to public policy,
or in contravention of the laws of the land.
It is of judicial notice that a Lions club is a voluntary association of
civic-minded men whose general purpose and aim is to serve the
people and the community. It appears from the records that duly
organized and chartered Lions clubs all over the world are under the
supervision of the mother club known as The International Association
of Lions Clubs for Lions Clubs International) which holds international
offices in Illinois, U.S.A., and is governed by its constitution and bylaws.
The records disclose that the election dispute between petitioner James
L. So and respondent Vicente Josefa was brought before and elevated
133
134
7. The provisions of this section shall not impair any right which the
transferee may have to rescind the transfer or to recover under any
applicable warranty, express or implied.
135
136
65686; and more than 39 years with respect to the fourth parcel
described in plan PSU-112592 (at least from the date of the survey in
1940) have been open, public, continuous, peaceful, adverse against the
whole world, and in the concept of owner.
Accordingly, the court ordered the registration of the four parcels
together with the improvements thereon "in the name of the ROMAN
CATHOLIC BISHOP OF LUCENA, INC., a religious corporation sole
duly registered and existing under the laws of the Republic of the
Philippines."
Issue:
137
Ruling:
The Iglesia Ni Cristo, as a corporation sole or a juridical person, is
disqualified to acquire or hold alienable lands of the public domain,
like the two lots in question, because of the constitutional prohibition
already mentioned and because the said church is not entitled to avail
itself of the benefits of section 48(b) which applies only to Filipino
citizens or natural persons. A corporation sole has no nationality
(Roman Catholic Apostolic Adm. of Davao, Inc. vs. Land Registration
Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si
Temple, 97 Phil. 58 and sec. 49 of the Public Land Law).
The contention in the comments of the Iglesia Ni Cristo that the two
lots are private lands, following the rule laid down in Susi vs. Razon
and Director of Lands, 48 Phil. 424, is not correct. What was
considered private land in the Susi case was a parcel of land possessed
by a Filipino citizen since time immemorial, as in Cario vs. Insular
Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132.
The lots sought to be registered in this case do not fall within that
category. They are still public lands. A land registration proceeding,
under section 48(b), "presupposes that the land is public" (Mindanao
vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
As held in Oh Cho vs. Director of Lands , 75 Phil. 890, "all lands that
were not acquired from the Government, either by purchase or by
grant, belong to the public domain. An exception to the rule would be
any land that should have been in the possession of an occupant and of
his predecessors-in-interest since time immemorial, for such
possession would justify the presumption that the land had never been
part of the public domain or that it had been a private property even
before the Spanish conquest. "
In Uy Un vs. Perez , 71 Phil. 508, it was noted that the right of an
occupant of public agricultural land to obtain a confirmation of his title
under section 48(b) of the Public Land Law is a "derecho dominical
incoativo" and that before the issuance of the certificate of title the
occupant is not in the juridical sense the true owner of the land since it
still pertains to the State.
Roman Catholic Vs. LRC (102 Phil 595)
Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of
the City of Davao, executed a deed of sale of a parcel of land located in
the same city, in favor of the Roman Catholic Apostolic Administrator
of Davao Inc., a corporation sole organized and existing in accordance
with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen,
as actual incumbent. When the deed of sale was presented to Register
of Deeds of Davao for registration, the latter, having in mind a previous
resolution of the Fourth Branch of the Court of First Instance of Manila
wherein the Carmelite Nuns of Davao were made to prepare an
affidavit to the effect that 60 per cent of the members of their
corporation were Filipino citizens when they sought to register in favor
of their congregation of deed of donation of a parcel of land required
said corporation sole to submit a similar affidavit declaring that 60 per
cent of the members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to
submit an affidavit, both not in the same tenor as that made the
Progress of the Carmelite Nuns because the two cases were not similar,
for whereas the congregation of the Carmelite Nuns had five
incorporators, the corporation sole has only one; that according to
their articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at bar,
the totality of the Catholic population of Davao would become the
owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the
registerability if the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution. A resolution
was rendered on September 21, 1954, holding that in view of the
138
139
In Ung Siu Si Temple case, the fact that the appellant religious
organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of
foreign nationality. The purpose of the sixty per centum requirement is
obviously to ensure that corporation or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled by
Filipinos; and the spirit of the Constitution demands that in the
absence of capital stock, the controlling membership should be
composed of Filipino citizens
In that case respondent-appellant Ung Siu Si Temple was not a
corporation sole but a corporation aggregate, i.e., an unregistered
organization operating through 3 trustees, all of Chinese nationality,
and that is why this Court laid down the doctrine just quoted. With
regard to petitioner, which likewise is a non-stock corporation, the case
is different, because it is a registered corporation sole, evidently of no
nationality and registered mainly to administer the temporalities and
manage the properties belonging to the faithful of said church residing
in Davao. But even if we were to go over the record to inquire into the
composing membership to determine whether the citizenship
requirement is satisfied or not, we would find undeniable proof that the
members of the Roman Catholic Apostolic faith within the territory of
Davao are predominantly Filipino citizens. As indicated before,
petitioner has presented evidence to establish that the clergy and lay
members of this religion fully cover the percentage of Filipino citizens
required by the Constitution. These facts are not controverted by
respondents and our conclusion in this point is sensibly obvious.
Sec. 111. Articles of incorporation. - In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination, sect or church must file
with the Securities and Exchange Commission articles of incorporation
setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and that
he desires to become a corporation sole;
2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his becoming a
corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or
presiding elder, he is charged with the administration of the
temporalities and the management of the affairs, estate and properties
of his religious denomination, sect or church within his territorial
jurisdiction, describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi of presiding elder is
required to be filled, according to the rules, regulations or discipline of
the religious denomination, sect or church to which he belongs; and
5. The place where the principal office of the corporation sole is to be
established and located, which place must be within the Philippines.
140
Uy Siu Si Temple has appealed to this Court, claiming: (1) that the
acquisition of the land in question, for religious purposes, is authorized
and permitted by Act No. 271 of the old Philippine Commission,
providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever
sort or denomination, whether incorporated in the Philippine Islands
or in the name of other country, or not incorporated at all, to hold land
in the Philippine Islands upon which to build churches, parsonages, or
educational or charitable institutions.
Issue:
Ruling:
141
Ruling:
A mere resolution by the stockholders or by the Board of Directors of a
corporation to dissolve the same does not effect the dissolution but that
some other step, administrative or judicial, is necessary. Furthermore,
under section 77 of the Corporation Law, a corporation dissolved will
continue in existence as a judicial entity for a period of three years after
the declaration of its dissolution, to windup its affairs and protect its
interests during the period of liquidation.
Vesagas Vs. CA (371 S 508)
Facts:
The respondent spouses Delfino and Helenda Raniel are members in
good standing of the Luz Villaga Tennis Clud, Inc. (club). They alleged
that petitioner Teodoro B. Vesagas, who claims to be the club's duly
elected president, in conspiracy with petitioner Wilfred D. Asis, who, in
turn, claims to be its duly elected vice-president and legal counsel,
summarily stripped them of their lawful membership, without due
process of law. Thereafter, respondent spouses filed a Complaint with
the Securities and Exchange Commission (SEC) on March 26, 1997
against the petitioners. In this case, respondents asked the
Commission to declare as illegal their expulsion from the club as it was
allegedly done in utter disregard of the provisions of its by-laws as well
as the requirements of due process. They likewise sought the
annulment of the amendments to the by-laws made on December 8,
1996, changing the annual meeting of the club from the last Sunday of
January to November and increasing the number of trustees from nine
to fifteen. Finally, they prayed for the issuance of a Temporary
Restraining Order and Writ of Preliminary Injunction. The application
for TRO was denied by SEC Hearing Officer Soller in an Order dated
April 29, 1997.
The petioners claim in gratia argumenti that while the club may have
been considered a corporation during a brief spell, still, at the time of
the institution of this case with the SEC, the club was already dissolved
by virtue of a Board resolution.
Issue:
W/N the club was already dissolved by virtue of a Board resolution
Ruling:
The Corporation Code establishes the procedure and other formal
requirements a corporation needs to follow in case it elects to dissolve
and terminate its structure voluntarily and where no rights of creditors
may possibly be prejudiced, thus:
Sec. 118. Voluntary dissolution where no creditors are affected. - If
dissolution of a corporation does not prejudice the rights of any
creditor having a claim against it, the dissolution may be effected by
majority vote of the board of directors or trustees and by a resolution
duly adopted by the affirmative vote of the stockholders owning at least
two-thirds (2/3) of the outstanding capital stock or at least two-thirds
(2/3) of the members at a meeting to be held upon call of the directors
or trustees after publication of the notice of time, place and object of
the meeting for three (3) consecutive weeks in a newspaper published
in the place where the principal office of said corporation is located;
and if no newspaper is published in such place, then in a newspaper of
general circulation in the Philippines, after sending such notice to each
stockholder or member either by registered mail or by personal
delivery at least 30 days prior to said meeting. A copy of the resolution
authorizing the dissolution shall be certified by a majority of the board
of directors or trustees and countersigned by the secretary of the
corporation. The Securities and Exchange Commission shall thereupon
issue the certificate of dissolution.
We note that to substantiate their claim of dissolution, petitioners
submitted only two relevant documents: the Minutes of the First Board
142
143
to acquire priority, or to enforce his claim against the property held for
distribution as against the rights of other creditors.
The decree of dissolution in the case at bar having been entered on
August 22, 1930, and the motion of the appellant, China Banking
Corporation , appearing to have been filed on September 30, 1931, or
about thirteen months later, it follows that the motion was filed on
time to have the appellee's claim reviewed by the court under the
provisions of the said section of the Corporation Law, and the trial
court, therefore, erred in finding that the order of November 8, 1930
allowing appellee's claim was final and unappealable under the
provisions of section 133 of the Code of Civil Procedure.
The record in this case shows that Gaston O' Farrell, the receiver
herein, besides being the principal promoter of the corporation and the
holder of the largest number of shares was elected president and
general manager and that he held the said offices ever since the
organization of the corporation and his conduct in executing a
mortgage on his own house and giving a pledge on his shares of stock
and on those of Rosario Sanchez represented by him as attorney in fact,
in favor of the appellee to guarantee the latter's claim, lends itself to a
serious suspicion. The facts appearing of record leave no room for
doubt that his administration of the business of the corporation left
much to be desired and that he alone ought to be blamed for the
shortage claimed by the appellee, but to save himself from personal
liability he made the corporation shoulder the burden of the obligation
in exchange for a simulated conveyance of his house to the corporation.
No sooner had the corporation become delinquent in the payment of
the obligation under the terms of the written agreement than he
resorted to a judicial proceeding of voluntary dissolution in an attempt
to settle appellee's claim and to free himself from all harm, but fearing
that the alleged preference of appellee's claim might be defeated, in
collusion with the appellee they had the claim allowed summarily as a
preferred claim ignoring the rest of the world.
Appellants' contention that appellee's claim cannot be lowed as a
preferred claim is well taken for even admitting for the sake of
argument that the merchandise which sale price is the subject of
appellee's claim was shipped to the corporation under a commission
agreement or any other agreement carrying the obligation to return
either the goods on its price, the fact is that the merchandise in the case
at bar was no longer in the corporation's possession nor could the
appellee trace the proceeds from its sale, and this is made manifest by
the very fact of the written agreement entered into between the
appellee and the corporation whereby the appellee accepted payment
of the obligation by installments duly secured with a mortgaged of
property to guarantee its payment. But such is not the case, however,
for the very agreement of May 31, 1930 mentioned in paragraph 5 of
the appellee's claim, shows that the rubber tires consigned to the
corporation were to be sold by the latter "por orden, cuenta y riesgo de
los Sres. M. Michelin & Cie." and that the customers' accounts were
opened "por orden, cuenta y riesgo de M. Michelin & Cie." , and so
much is this true that the uncollected accounts were turned over to and
received by the appellee, M. Michelin & Cie. Under such circumstances
the amount of the appellee's claim appears to be in the nature of a
balance of a current account between the two firms more than anything
else.
The order appealed from is reversed, and the appellee's claim is hereby
declared to be an ordinary claim. The appellee is ordered to refund to
the corporation the sum of P5,000 erroneously paid by the receiver,
with costs against the appellee.
144
P55,000.00 with interest at the legal rate from January 1982 with costs
against defendants-appellees.
It appears that prior to the promulgation of the decision of the trial
court, Pepsi Cola has amended its articles of incorporation to shorten
its term of existence to July 8, 1983. The amended articles of
incorporation was approved by the Securities and Exchange
Commission on March 2, 1984. The trial court was not notified of this
fact.
Petitioners moved to quash the writ of execution alleging that when the
decision was rendered by this Honorable Court, when the said decision
was appealed to the Court of Appeals, and when the Court of Appeals
rendered its decision, Pepsi Cola was no longer in existence and had no
more juridical personality and so, as such, it no longer had the capacity
to sue and be sued.
Pepssi Cola argued that the jurisdiction of the court as well as the
respective parties capacity to sue had already been established during
the initial stages of the case; and that when the complaint was filed in
1982, private respondent was still an existing corporation so that the
mere fact that it was dissolved at the time the case was yet to be
resolved did not warrant the dismissal of the case or oust the trial court
of its jurisdiction. Private respondent further claimed that its
dissolution was effected in order to transfer its assets to a new firm of
almost the same name and was thus only for convenience.
Issue:
W/N a dissolved and non-existing corporation could no longer be
represented by a lawyer and concomitantly a lawyer could not appear
as counsel for a non-existing judicial person
Ruling:
Sec. 122 of the Corporation Code provides in part:
122. Corporate Liquidation. Every Corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for
three (3) years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized
the empowered to convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and
others in interests, all interests which the corporation had in the
property in terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other
persons in interest.
Petitioners argue that while private respondent Pepsi Cola Bottling
Company of the Philippines, Inc. undertook a voluntary dissolution on
July 3, 1983 and the process of liquidation for three (3) years
thereafter, there is no showing that a trustee or receiver was ever
appointed. They contend that 122 of the Corporation Code does not
authorize a corporation, after the three-year liquidation period, to
continue actions instituted by it within said period of three years.
It is to be noted that the time during which the corporation, through its
own officers, may conduct the liquidation of its assets and sue and be
sued as a corporation is limited to three years from the time the period
of dissolution commences: but there is no time limit within which the
trustees must complete a liquidation placed in their hands. It is
provided only that the conveyance to the trustees must be made within
145
corporation on July 24, 1989 and that it has winded up its corporate
affairs in accordance with law. It also averred that it was now owned by
PCPPI.
On February 11, 1992, the NLRC issued a Resolution dismissing the
complaint of the PCEWU for the reason that, with the cessation and
dissolution of the corporate existence of the PCDP, rendering any
judgment against it is incapable of execution and satisfaction.
146
147
title to the corporate assets. The court, even then, expressed some
reservations on the corporation's being able to still validly pursue such
a claim.
Issue:
W/N the petitioners can be held to have succeeded in establishing for
themselves a firm title to the property in question
Ruling:
Petitioners' evidence is direly wanting; all that appear to be certain are
that the "Sociedad Popular Calambea," believed to be a "sociedad
anonima" and for a while engaged in the operation and management of
a cockpit, has existed some time in the past; that it has acquired the
parcel of land here involved; and that the plaintiffs' predecessors,
Mariano Elepao and Pablo Clemente, had been original stockholders
of the sociedad . Except in showing that they are the successors-ininterest of Elepao and Clemente, petitioners have been unable to
come up with any evidence to substantiate their claim of ownership of
the corporate asset.
If, indeed, the sociedad has long become defunct, it should behoove
petitioners, or anyone else who may have any interest in the
corporation, to take appropriate measures before a proper forum for a
peremptory settlement of its affairs. We might invite attention to the
various modes provided by the Corporation Code (see Sees. 117-122)
for dissolving, liquidating or winding up, and terminating the life of the
corporation. Among the causes for such dissolution are when the
corporate term has expired or when, upon a verified complaint and
after notice and hearing, the Securities and Exchange Commission
orders the dissolution of a corporation for its continuous inactivity for
at least five (5) years. The corporation continues to be a body corporate
for three (3) years after its dissolution for purposes of prosecuting and
defending suits by and against it and for enabling it to settle and close
its affairs, culminating in the disposition and distribution of its
remaining assets. It may, during the three-year term, appoint a trustee
or a receiver who may act beyond that period. The termination of the
life of a juridical entity does not by itself cause the extinction or
diminution of the rights and liabilities of such entity (see Gonzales vs.
Sugar Regulatory Administration, 174 SCRA 377) nor those of its
owners and creditors. If the three-year extended life has expired
without a trustee or receiver having been expressly designated by the
corporation within that period, the board of directors (or trustees)
itself, following the rationale of the Supreme Court's decision in
Gelano vs. Court of Appeals (103 SCRA 90) may be permitted to so
continue as "trustees" by legal implication to complete the corporate
liquidation. Still in the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not only the
shareholders but likewise the creditors of the corporation, acting for
and in its behalf, might make proper representations with the
Securities and Exchange commission, which has primary and
sufficiently broad jurisdiction in matters of this nature, for working out
a final settlement of the corporate concerns.
TITLE XV
FOREIGN CORPORATIONS
condition of its license, subject to the provisions of this Code and other
special laws. (n)
Sec. 125. Application for a license. - A foreign corporation
applying for a license to transact business in the Philippines shall
submit to the Securities and Exchange Commission a copy of its
articles of incorporation and by-laws, certified in accordance with law,
and their translation to an official language of the Philippines, if
necessary. The application shall be under oath and, unless already
stated in its articles of incorporation, shall specifically set forth the
following:
1. The date and term of incorporation;
2. The address, including the street number, of the principal office of
the corporation in the country or state of incorporation;
3. The name and address of its resident agent authorized to accept
summons and process in all legal proceedings and, pending the
establishment of a local office, all notices affecting the corporation;
4. The place in the Philippines where the corporation intends to
operate;
5. The specific purpose or purposes which the corporation intends to
pursue in the transaction of its business in the Philippines: Provided,
That said purpose or purposes are those specifically stated in the
certificate of authority issued by the appropriate government agency;
6. The names and addresses of the present directors and officers of the
corporation;
7. A statement of its authorized capital stock and the aggregate number
of shares which the corporation has authority to issue, itemized by
classes, par value of shares, shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the aggregate
number of shares which the corporation has issued, itemized by
classes, par value of shares, shares without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or appropriate in
order to enable the Securities and Exchange Commission to determine
whether such corporation is entitled to a license to transact business in
the Philippines, and to determine and assess the fees payable.
Attached to the application for license shall be a duly executed
certificate under oath by the authorized official or officials of the
jurisdiction of its incorporation, attesting to the fact that the laws of the
country or state of the applicant allow Filipino citizens and
corporations to do business therein, and that the applicant is an
existing corporation in good standing. If such certificate is in a foreign
language, a translation thereof in English under oath of the translator
shall be attached thereto.
148
149
Under Section 3(d) of Republic Act No. 7042 (RA 7042) or The
Foreign Investments Act of 1991, the phrase doing business
includes:
150
Delfin Enriquez, Jr., doing business under the name and style of
Delrene EB Controls Center and/or EB Karmine Commercial, ordered
and received from petitioner various elements used in sealing pumps,
valves, pipes and control equipment, PVC pipes and fittings. The
ordered materials were delivered via airfreight.
Facts:
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged
in the manufacture and sale of elements used in sealing pumps, valves
and pipes for industrial purposes, valves and control equipment used
for industrial fluid control and PVC pipes and fittings for industrial
uses. It is a corporation duly organized and existing under the laws of
the Republic of Singapore. It is not licensed to do business in the
Philippines and is not so engaged.
151
its business in the country. The number and quantity are merely
evidence of such intention. The phrase "isolated transaction" has a
definite and fixed meaning, i.e. a transaction or series of transactions
set apart from the common business of a foreign enterprise in the sense
that there is no intention to engage in a progressive pursuit of the
purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the
frequency of its transactions, but more upon the nature and character
of the transactions.
Given the facts of this case, we cannot see how petitioner's business
dealings will fit the category of "isolated transactions" considering that
its intention to continue and pursue the corpus of its business in the
country had been clearly established. It has not presented any
convincing argument with equally convincing evidence for us to rule
otherwise.
Accordingly and ineluctably, petitioner must be held to be
incapacitated to maintain the action a quo against private respondent.
It was never the intent of the legislature to bar court access to a foreign
corporation or entity which happens to obtain an isolated order for
business in the Philippines. Neither, did it intend to shield debtors
from their legitimate liabilities or obligations. But it cannot allow
foreign corporations or entities which conduct regular business any
access to courts without the fulfillment by such corporations of the
necessary requisites to be subjected to our government's regulation and
authority. By securing a license, the foreign entity would be giving
assurance that it will abide by the decisions of our courts, even if
adverse to it.
Avon Insurance Vs. CA (278 S 312)
Facts:
Yupangco Cotton Mills engaged to secure with Worldwide Security and
Insurance Co. Inc., several of its properties for the periods July 6, 1979
to July 6, 1980 for a coverage of P100,000,000.00 and from October 1,
1980 to October 1, 1981, also for P100,000,000.00. Both contracts
were covered by reinsurance treaties between Worldwide Surety and
Insurance and several foreign reinsurance companies, including Avon
Insurance. The reinsurance arrangements had been made through
international broker C.J. Boatwright and Co. Ltd., acting as agent of
Worldwide Surety and Insurance.
On December 16, 1979 and May 2, 1981, within the respective
effectivity periods of the two policies, the properties therein insured
were razed by fire, thereby giving rise to the obligation of the insurer to
indemnify the Yupangco Cotton Mills. Partial payments were made by
Worldwide Surety and Insurance and some of the reinsurance
companies.
On May 2, 1983, Worldwide Surety and Insurance, in a Deed of
Assignment, acknowledged a remaining balance of P19,444,447.75 still
due Yupangco Cotton Mills, and assigned to the latter all reinsurance
proceeds still collectible from all the foreign reinsurance companies.
Thus, in its interest as assignee and original insured, Yupangco Cotton
Mills instituted this collection suit against the petitioners.
Issue:
W/N the petitioners were determined to be "doing business in the
Philippines" or not
Ruling:
There is no exact rule or governing principle as to what constitutes
doing or engaging in or transacting business. Indeed, such case must
be judged in the light of its peculiar circumstances, upon its peculiar
facts and upon the language of the statute applicable. The true test,
however, seems to be whether the foreign corporation is continuing the
152
While the case before the trial court was pending litigation, on August
4, 1997, the SBMA sent notices to plaintiff HPPL, ICTSI and RPSI
requesting them to declare their interest in participating in a rebidding
of the proposed project. On October 20, 1997, plaintiff HPPL received a
copy of the minutes of the pre-bid conference which stated that the
winning bidder would be announced on December 5, 1997. Then on
November 4, 1997, plaintiff HPPL learned that the SBMA had accepted
the bids of ICTSI and RPSI who were the only bidders who qualified.
Hence, this petition filed by petitioner (plaintiff below) HPPL against
respondents SBMA, ICTSI, RPSI and the Executive Secretary seeking
to obtain a prohibitory injunction.
Issue:
W/N HPPL has the legal capacity to even seek redress from this Court
Ruling:
153
Ruling:
In a number of cases, however, we have held that an unlicensed foreign
corporation doing business in the Philippines may bring suit in
Philippine courts against a Philippine citizen or entity who had
contracted with and benefited from said corporation. Such a suit is
premised on the doctrine of estoppel. A party is estopped from
challenging the personality of a corporation after having acknowledged
the same by entering into a contract with it. This doctrine of estoppel
to deny corporate existence and capacity applies to foreign as well as
domestic corporations. The application of this principle prevents a
154
the
the
the
the
Facts:
Lorenzo Shipping Corporation, a domestic corporation engaged in
coastwise shipping, was the carrier of 581 bundles of black steel pipes,
the subject shipment, from Manila to Davao City. From Davao City,
Gearbulk, Ltd., a foreign corporation licensed as a common carrier
under the laws of Norway and doing business in the Philippines
through its agent, Philippine Transmarine Carriers, Inc., a domestic
corporation, carried the goods on board its vessel M/V San Mateo
Victory to the United States, for the account of Sumitomo Corporation.
The latter, the consignee, is a foreign corporation organized under the
laws of the United States of America. It insured the shipment with
Chubb and Sons, Inc., a foreign corporation organized and licensed to
engage in insurance business under the laws of the United States of
America.
Due to its heavily rusted condition, the consignee Sumitomo rejected
the damaged steel pipes and declared them unfit for the purpose they
were intended. It then filed a marine insurance claim with respondent
Chubb and Sons, Inc. which the latter settled in the amount of
US$104,151.00.
On December 2, 1988, Chubb and Sons, Inc. filed a complaint for
collection of a sum of money against Lorenzo Shipping, Gearbulk, and
Transmarine. Chubb and Sons, Inc. alleged that it is not doing
business in the Philippines, and that it is suing under an isolated
transaction.
Issue:
W/N Chubb and Sons has capacity to sue before the Philippine courts
Ruling:
In the first place, petitioner failed to raise the defense that Sumitomo is
a foreign corporation doing business in the Philippines without a
license. It is therefore estopped from litigating the issue on appeal
especially because it involves a question of fact which this Court cannot
resolve. Secondly, assuming arguendo that Sumitomo cannot sue in
the Philippines, it does not follow that respondent, as subrogee, has
also no capacity to sue in our jurisdiction.
In the instant case, the rights inherited by the insurer, Chubb and Sons,
pertain only to the payment it made to the insured Sumitomo as
stipulated in the insurance contract between them, and which amount
it now seeks to recover from petitioner Lorenzo Shipping which caused
the loss sustained by the insured Sumitomo. The capacity to sue of
Chubb and Sons could not perchance belong to the group of rights,
remedies or securities pertaining to the payment insurer made for the
loss which was sustained by the insured Sumitomo and covered by the
contract of insurance. Capacity to sue is a right personal to its holder.
It is conferred by law and not by the parties.
155
Lack of legal capacity to sue means that the plaintiff is not in the
exercise of his civil rights, or does not have the necessary qualification
to appear in the case, or does not have the character or representation
he claims. It refers to a plaintiffs general disability to sue, such as on
account of minority, insanity, incompetence, lack of juridical
personality, or any other disqualifications of a party. Respondent
Chubb and Sons who was plaintiff in the trial court does not possess
any of these disabilities. On the contrary, respondent Chubb and Sons
has satisfactorily proven its capacity to sue, after having shown that it
is not doing business in the Philippines, but is suing only under an
isolated transaction, i.e., under the one (1) marine insurance policy
issued in favor of the consignee Sumitomo covering the damaged steel
pipes.
Attached to the letter was a copy of the letter of the CDC, stating that
the German Consortiums assignment of an eighty-five percent (85%)
majority interest to another party violated its representation to
undertake both the financial and technical aspects of the project. The
dilution of the Consortiums interest in ERTI is a substantial
modification of the Consortiums representations which were used as
bases for the award of the project to it.
The law does not prohibit foreign corporations from performing single
acts of business. A foreign corporation needs no license to sue before
Philippine courts on an isolated transaction.
Facts:
Before CDC could act upon petitioner ERTIs letter, the German
Consortium filed a complaint for injunction against herein petitioners.
The German Consortium claimed that ERTIs continued
misrepresentation as to their right to accept solid wastes from third
parties for processing at the waste management center will cause
irreparable damage to the Consortium and its exclusive right to operate
the waste management center at the CSEZ. Moreover, petitioner
ERTIs acts destroy the Consortiums credibility and undermine
customer confidence in it. Hence, the German Consortium prayed that
a writ of temporary restraining order be issued against petitioner ERTI
and, after hearing, a writ of preliminary injunction be likewise issued
ordering petitioner ERTI to cease and desist from misrepresenting to
third parties or the public that it has any right or interest in the waste
management center at CSEZ.
The German Consortium tendered and submitted its bid to the Clark
Development Corporation to construct, operate and manage the
Integrated Waste Management Center at the Clark Special Economic
Zone (CSEZ). CDC accepted the German Consortiums bid and
awarded the contract to it. On October 6, 1999, CDC and the German
Consortium executed the Contract for Services which embodies the
terms and conditions of their agreement.
Issue:
The Contract for Services provides that the German Consortium shall
be empowered to enter into a contract or agreement for the use of the
integrated waste management center by corporations, local
government units, entities, and persons not only within the CSEZ but
also outside.
Article VIII, Section 7 of the Contract for Services provides that the
German Consortium shall undertake to organize a local corporation as
its representative for this project. Pursuant to this, petitioner
European Resources and Technologies, Inc. was incorporated. The
parties likewise agreed to prepare and finalize a Shareholders
Agreement within one (1) month from the execution of the MOU,
which shall provide that the German Consortium shall own fifteen
percent (15%) of the equity in the joint venture corporation, DMWAI
shall own seventy percent (70%) and LBV&A shall own fifteen percent
(15%). In the event that the parties fail to execute the Shareholders
Agreement, the MOU shall be considered null and void.
On December 11, 2000, ERTI received a letter from BN Consultants
Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the
W/N ERTI are estopped from assailing the capacity of the German to
institute the suit for injunction
Ruling:
156
157
Facts:
Rose Packing Company, Inc., a domestic corporation, owns three (3)
parcels of land with a total area of 31, 842 square meters situated in
Sto. Domingo, Cainta, Rizal. The largest among these parcels w/ an
area of 31,447 square meters is mortgaged with the Philippine
Commercial and Industrial Bank (PCIB). The other two remaining
parcels are unregistered.
On October 26, 1965, Rose Packing, through its President Rene Knecht,
sold to the United Cigarette Corporation (UCC), a domestic
corporation, the said parcels of land, with all the buildings and
improvements thereon, for P800,000.00. Rose Packing made a
warranty that the lots are free from all liens and encumbrances, except
the real estate mortgage constituted over one area covered by TCT No.
73620. For its part, UCC promised to pay the purchase price under the
following terms and conditions: (a) a P250,000.00 down payment
must be made upon signing of the deed of sale with mortgage; (b) it
will assume Rose Packings P250,000.00 overdraft line obligation with
the PCIB, subject to the latters approval; and (c) the balance of
P300,000.00 shall be paid in two annual installments at P150,000.00
each (within 12 and 14 months) from the date of sale, with 10% annual
interest. To secure the deal, UCC initially paid Rose Packing
P80,000.00 as earnest money.
Before the deed of sale could be executed, the parties found that Rose
Packings actual obligation with the PCIB far exceeded the
P250,000.00 which UCC assumed to pay under their agreement. So
the PCIB demanded additional collateral from UCC as a condition
precedent for the approval of the sale of the mortgaged property.
However, UCC did not comply.
Meanwhile, Rose Packing again offered to sell the same lots to other
prospective buyers without the knowledge of UCC and without
returning to the latter the earnest money it earlier paid.
Aggrieved, UCC, filed a complaint against Rose Packing and Rene
Knecht for specific performance and recovery of damages.
Eventually, on July 19, 1990, UCC, through its liquidator Alberto
Wong, filed with the CFI, Branch 2 a motion for leave to intervene and
to admit its complaint-in-intervention. Rose Packing, through its
liquidator/trustee, Knecht, Inc., opposed the motion claiming that the
Decision in Civil Case No. 9165 which became final on March 23, 1977
can no longer be enforced since more than ten (10) years had elapsed
from its finality.
While it nullified the Orders dated December 10, 1990 and October 10,
1991, the CA nonetheless stressed that UCCs right to execute the
judgment in Civil Case No. 9165 has not yet prescribed
insofar as the parcel of land covered by TCT No. 73620 is
concerned because this land was involved in Civil Case No. 11015.
Its execution can be availed of in Branch 151, not in Branch 152, of the
RTC, Pasig City. As regards the two other unregistered parcels of
land, the judgment has already prescribed because these
properties were not involved in Civil Case No. 11015, hence,
UCC should have then sought the execution of the judgment
with respect to said properties.
Issue:
W/N UCCs right to enforce that judgment had already prescribed
Ruling:
There is no doubt that the judgment in Civil Case No. 9165 became
final and executory on March 23, 1977. That this judgment is still
enforceable was decided with finality by this Court in G.R. No. 109385.
In Reburiano vs. Court of Appeals, a case with similar facts, this Court
held:
the trustee (of a dissolved corporation) may commence a
suit which can proceed to final judgment even beyond
the three-year period (of liquidation) x x x, no
reason can be conceived why a suit already
commenced by the corporation itself during its
existence, not by a mere trustee who, by fiction, merely
continues the legal personality of the dissolved
158
INTRA-CORPORATE DISPUTE
159
160
No. 902-A. They further assert that the RTC is empowered to act and
put a stop to misappropriation of a corporations funds and thus
prevent business operations from being paralyzed. According to the
petitioners, for the Court to idly wait and watch as assets of the
corporation are plundered until the business is paralyzed, would
render inutile Section 1, Rule 9 of the Interim Rules.
Issue:
W/N the RTC committed grave abuse of its discretion amounting to
excess or lack of jurisdiction in creating a management committee
Ruling:
Section 1, Rule 9 of the Interim Rules provides:
(2)
Rules are shown. It is a drastic course for the benefit of the minority
stockholders, the parties-litigants or the general public are allowed
only under pressing circumstances and, when there is inadequacy,
ineffectual or exhaustion of legal or other remedies. The power to
intervene before the legal remedy is exhausted and misused when it is
exercised in aid of such a purpose. The power of the court to continue a
business of a corporation, partnership or association must be exercised
with the greatest care and caution. There should be a full consideration
of all the attendant facts, including the interest of all the parties
concerned.
Neither Presidential Decree No. 902-A and Republic Act No. 8799 nor
the Interim Rules of Procedure define imminent danger. Danger is
a general term, including peril, jeopardy, hazard and risk; as used in
the Rule, it refers to exposure or liability to injury. Imminent refers
to something which is threatening to happen at once, something close
at hand, something to happen upon the instant, close although not yet
happening, and on the verge of happening.
In the present case, petitioners failed to make a strong showing that
there was an imminent danger of dissipation, loss, wastage or
destruction of assets or other properties of respondent corporation
and paralysis of its business operations which may be prejudicial to
the interest of the parties-litigants, petitioners, or the general public.
The RTC thus committed grave abuse of its discretion amounting to
excess of jurisdiction in creating a management committee and the
subsequent appointment of a comptroller.
The bone of contention between the parties is whether there was a
shortage or unaccounted funds of the corporation, including
P67,117,230.30 allegedly incurred from 1993 (when petitioner Sy Chim
assumed office as President, Felicidad Chan Sy as Assistant Treasurer,
Sy Tiong Shiou as General Manager, and Juanita Tan Sy as Corporate
Treasurer); and who should be held accountable therefor. Petitioners
blame Sy Tiong Shiou and Juanita Tan Sy, while the latter pin liability
on petitioners based on the financial report of the Banaria Banaria and
Company and the claim of Juanita Tan Sy. However, these issues of
fact have yet to be determined by the trial court after due proceedings.
Petitioners failed to adduce a shred of evidence during the hearing of
their motion to prove their claim that there was imminent danger of
dissipation, loss, wastage or destruction of the assets or other
properties of respondent ever since Sy Tiong Shiou became president
and Juanita Tan Sy continued discharging her duties as corporate
treasurer; nor is there proof that there was imminent danger of
paralyzing the business operations of the corporation.
We have reviewed the records and find that, contrary to the findings of
the RTC, there is no imminent danger of dissipation or total loss of the
assets, funds, properties and records of respondent corporation, or
paralysis of business operations. In fact, records show that there has
been no slack in the business operations of respondent corporation.
Petitioners were divested of their corporate positions, and thus
stockholdings in the corporation were reduced. Petitioners claim that
Sy Tiong Shiou and Juanita Tan Sy (third-party defendants below) and
their children unlawfully ousted them from their positions and reduced
their shareholdings in the corporation. They posit that the formers
claim that they (petitioners) misappropriated the funds and assets of
respondent was designed to justify the unlawful ouster of petitioners
from the management of respondent corporation. Such claims,
however, have yet to be proven.
While the allegation that Sy Tiong Shiou and Juanita Tan Sy abused
their positions and mismanaged the affairs of respondent corporation
is a distinct possibility, petitioners failed to adduce proof thereon.
Mere possibility without proof of abusing corporate positions and
dissipation of assets and properties of the corporation is not a valid
ground for the appointment of a management committee/receiver.
We agree that past conduct and condition of the corporation may be
considered in determining the present situation and what the future
will be. However, a management committee or receiver will not be
161
162
Issue:
W/N the dispute between the respondents and petitioners is a
corporate matter within the exclusive competence of the SEC to decide
Ruling:
In order that the commission can take cognizance of a case, the
controversy must pertain to any of the following relationship: a)
between the corporation, partnership or association and its
stockholders, partners, members, or officers; c) between the
corporation, partnership, or association and the state as far as its
franchise, permit or license to operate is concerned; and d) among the
stockholders, partners or associates themselves. The fact that the
parties involved in the controversy are all stockholders or that the
parties involved are the stockholders and the corporation, does not
necessarily place the dispute within the loop of jurisdiction of the SEC.
Jurisdiction should be determined by considering not only the status or
relationship of the parties but also the nature of the question that is the
subject of their controversy.
We rule that the present dispute is intra-corporate in character. In the
first place, the parties here involved are officers and members of the
club. Respondents claim to be members of good standing of the club
until they were purportedly stripped of their membership in illegal
fashion. Petitioners, on the other hand, are its President and VicePresident, respectively. More significantly, the present conflict relates
to, and in fact arose from, this relation between the parties. The subject
of the complaint, namely, the legality of the expulsion from
membership of the respondents and the validity of the amendments in
the club's by-laws are, furthermore, within the Commission's
jurisdiction.
CORPORATE REHABILITATION
Well to underscore is the date when the original complaint was filed at
the SEC, which was March 26, 1997. On that date, the SEC still
exercised quasi-judicial functions over this type of suits. It is axiomatic
that jurisdiction is conferred by the Constitution and by the laws in
force at the time of the commencement of the action. In particular, the
Commission was thereupon empowered, under Sec. 5 of P.D. 902-A, to
hear and decide cases involving intra-corporate disputes, thus:
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition
for rehabilitation in the Regional Trial Court (RTC) of Quezon City,
Branch 90 (Quezon City RTC). It disclosed that it had been
experiencing a decline in sales for the three preceding years and a
staggering loss in 2002.
163
Because the petition was sufficient in form and substance, a stay order
was issued on September 28, 2003. However, the proposed
rehabilitation plan for JAPRL and RFC was eventually rejected by the
Quezon City RTC in an order dated May 9, 2005.
Because JAPRL ignored its demand for payment, petitioner filed a
complaint for sum of money with an application for the issuance of a
writ of preliminary attachment against respondents in the RTC of
Makati City, Branch 145 (Makati RTC) on August 21, 2003. Petitioner
essentially asserted that JAPRL was guilty of fraud because it (JAPRL)
altered and falsified its financial statements.
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition
for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba
RTC). Finding JAPRLs petition sufficient in form and in substance, the
Calamba RTC issued a stay order on March 13, 2006.
In view of the said order, respondents hastily moved to suspend the
proceedings in Civil Case No. 03-991 pending in the Makati RTC.
On July 7, 2006, the Makati RTC granted the motion with regard to
JAPRL and RFC but ordered Arollado to file an answer. It ruled that,
because he was jointly and solidarily liable with JAPRL and RFC, the
proceedings against him should continue. Respondents moved for
reconsideration but it was denied.
Issue:
W/N JAPRLs petition for corporate rehabilitation may prosper
Ruling:
We withhold judgment for the moment on the July 7, 2006 order of the
Makati RTC suspending the proceedings in Civil Case No. 03-991
insofar as JAPRL and RFC are concerned.
Under the Interim Rules of Procedure on Corporate Rehabilitation, a
stay order defers all actions or claims against the corporation seeking
rehabilitation from the date of its issuance until the dismissal of the
petition or termination of the rehabilitation proceedings.
The Makati RTC may proceed to hear Civil Case No. 03-991 only
against Arollado if there is no ground to go after JAPRL and RFC (as
will later be discussed). A creditor can demand payment from the
surety solidarily liable with the corporation seeking rehabilitation.
On July 13, 2004, the RTC issued a Stay Order directing that: all
claims against petitioner be deferred; the initial hearing of the petition
for rehabilitation be set on September 1, 2004; and all creditors and
interested parties should file their respective comments/oppositions to
the petition. In the same Order, the RTC then appointed Gener T.
Mendoza as Rehabilitation Receiver.
Protecting the integrity of the banking system has become, by large, the
responsibility of banks. The role of the public, particularly individual
borrowers has not been emphasized. Nevertheless, we are not unaware
of the rampant and unscrupulous practice of obtaining loans without
intending to pay the same.
On September 13, 2004, the RTC give due course to the petition.
Upon petition for review, the Court of Appeals rendered its Decision
granting respondents petition and reversing the assailed Orders of the
RTC.
Issue:
164
Ruling:
Facts:
Section 6 of the Interim Rules of Procedure on Corporate
Rehabilitation provides:
SEC. 6. Stay Order. If the court finds the petition to be
sufficient in form and substance, it shall, not later than five (5)
days from the filing of the petition, issue an Order (a) appointing a
Rehabilitation Receiver and fixing his bond; (b) staying enforcement of
all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its
guarantors and sureties not solidarily liable with the debtor; (c)
prohibiting the debtor from selling, encumbering, transferring, or
disposing in any manner any of its properties except in the ordinary
course of business; (d) prohibiting the debtor from making any
payment of its liabilities outstanding as of the date of filing of the
petition; (e) prohibiting the debtors suppliers of goods or services from
withholding supply of goods and services in the ordinary course of
business for as long as the debtor makes payments for the services and
goods supplied after the issuance of the stay order; (f) directing the
payment in full of all administrative expenses incurred after the
issuance of the stay order; (g) fixing the initial hearing on the
petition not earlier than forty five (45) days but not later
than sixty (60) days from the filing thereof; (h) directing the
petitioner to publish the Order in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks; (i) directing
all creditors and all interested parties (including the Securities and
Exchange Commission) to file and serve on the debtor a verified
comment on or opposition to the petition, with supporting
affidavits and documents, not later than ten (10) days before the date
of the initial hearing and putting them on notice that their failure to do
so will bar them from participating in the proceedings; and (j)
directing the creditors and interested parties to secure from
the court copies of the petition and its annexes within such time
as to enable themselves to file their comment on or opposition to the
petition and to prepare for the initial hearing of the petition.
Section 6 provides that the petition must be sufficient in form and
substance.
In Rizal Commercial Banking Corporation v.
Intermediate Appellate Court, this Court held that under Section 6(c)
of P.D. No. 902-A, receivers may be appointed whenever: (1)
necessary in order to preserve the rights of the partieslitigants; and/or (2) protect the interest of the investing public and
creditors. The situations contemplated in these instances are
serious in nature. There must exist a clear and imminent
danger of losing the corporate assets if a receiver is not
appointed. Absent such danger, such as where there are sufficient
assets to sustain the rehabilitation plan and both investors and
creditors are amply protected, the need for appointing a receiver does
not exist. Simply put, the purpose of the law in directing the
appointment of receivers is to protect the interests of the
corporate investors and creditors.
We agree with the Court of Appeals that the petition for rehabilitation
does not allege that there is a clear and imminent danger that
petitioner will lose its corporate assets if a receiver is not appointed.
In other words, the serious situation test laid down by Rizal
Commercial Banking Corporation has not been met or at least
substantially complied with. Significantly, the Stay Order dated July
13, 2004 issued by the RTC does not state any serious situation
affecting petitioners corporate assets. We observe that in appointing
Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of
the lower court was its finding that the petition is sufficient
in form and substance. However, it did not specify any reason or
ground to sustain such finding. Clearly, the petition failed to
comply with the serious situation test.
In determining whether petitioners financial situation is serious and
whether there is a clear and imminent danger that it will lose its
corporate assets, the RTC, acting as commercial court, should conduct
a hearing wherein both parties can present their respective evidence.
165
On appeal to the NLRC, the assailed decision of the Labor Arbiter was
reversed.
On 30 April 1999, the Court of Appeals promulgated its Decision
dismissing the petition filed by PAL. It affirmed the 28 January 1998
NLRC Resolution.
Hence, this Petition for Review on Certiorari filed under Rule 45 of the
Rules of Court, as amended.
Te Securities and Exchange Commission (SEC) had mandated the
rehabilitation of PAL. On 17 May 1999, the SEC approved the
Amended and Restated Rehabilitation Plan of PAL and appointed a
permanent rehabilitation receiver for the latter. To date, PAL is still
undergoing rehabilitation.
Issue:
W/N the suspension of claims pending rehabilitation proceedings is
proper
Ruling:
The pertinent law concerning the suspension of actions for claims
against corporations is Presidential Decree No. 902-A, as amended.
Particularly, Section 5(d) provides:
Facts:
This case arose from a labor Complaint, filed by herein PALEA against
herein PAL and one Mary Anne del Rosario, Director of Personnel,
PAL, on 1 March 1989, charging them with unfair labor practice for the
non-payment of 13th month pay of employees who had not been
regularized as of the 30 th of April 1988, as allegedly stipulated in the
Collective Bargaining Agreement (CBA) entered into by herein parties.
SECTION 5.
In
addition
to
the
regulatory
adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and decide cases
involving:
xxx
d)
Petitions of corporations, partnerships or
associations to be declared in the state of suspension of
payments in cases where the corporation, partnership or
association possesses property to cover all its debts but
foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its
liabilities, but is under the [management of a rehabilitation
receiver or] management committee created pursuant to this
Decree.
Likewise, Section 6(c), to wit:
SECTION 6.
In order to effectively exercise such jurisdiction,
the Commission shall possess the following:
xxxx
c)
To appoint one or more receivers of the property,
real or personal, which is the subject of the action pending
before the Commission in accordance with the pertinent
provisions of the Rules of Court in such other cases
whenever necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the investing
public and creditors: x x x Provided, finally, That upon
appointment of a management committee, the rehabilitation
receiver, board or body, pursuant to this Decree, all actions
for claims against corporations, partnerships or
associations under management or receivership pending
before any court, tribunal, board or body shall be suspended
accordingly. (Emphasis supplied.)
166
Ruling:
There is no dispute that petitioner was the owner of the CSPI shares.
However, private respondents, as liquidators of Philfinance, illegally
withdrew said certificates of stock without the knowledge and consent
of petitioner and authority of the SEC. After selling the CSPI shares,
private respondents added the proceeds of the sale to the assets of
167
Bank, PNB, DBP, GSIS, AFP-RSBS and the Republic of the Philippines,
praying that they be released from the obligation to buy the PAL shares
of petitioner and other defendants therein at P5.00 per share, as earlier
agreed upon under the Stockholders' Agreement, on ground of alleged
radical change in the conditions prevailing at the time the said
agreement was entered and the present.
Land Bank and the other defendants in Civil Case No. 02-843
contended that the events or circumstances cited by the respondents
were not valid grounds for the latter to be released from their
obligation under the doctrine of rebus sic stantibus.
The trial court rendered judgment in favor of the plaintiffs and against
the defendants, declaring plaintiffs released from the obligation to
comply with defendants' option to sell their shares in Philippine
Airlines, Inc.
On July 4, 2006, the trial court denied Land Bank's motion for
reconsideration. Therefrom, Land Bank decided to go to the CA on a
petition for review. For the purpose, it filed with the CA, on July 25,
2006, a motion for extension of time to file the intended petition
for review.
Unfortunately, the motion was denied by the CA.
On August 16, 2006, petitioner Land Bank filed a motion for
reconsideration of the above resolution urging that even though a
motion for reconsideration of the March 15, 2006 Judgment of the
trial court is not allowed under the Interim Rules of Procedure
Governing Intra-Corporate Controversies under R.A. No. 8799,
nonetheless it implored the appellate court to consider the filing
thereof as sufficient, in the interest of substantial justice, to suspend
the running of the reglementary period to appeal. Petitioner hastens to
add that the March 15, 2006 Judgment and the July 4, 2006 Order of
the trial court had created a dangerous precedent when said court
upheld respondents' contention that the occurrence of the fleet
expansion and re-equiptment of PAL, pilot strike, Asian economic
downturn, the devaluation of the peso and the purported reduced
demand for air travel have absolved them from their obligation to
comply with the Stockholders Agreement.
With its motion for reconsideration having been denied by the CA in its
equally challenged resolution of September 11, 2006, petitioner is now
with this Court via the present recourse, urging the Court to compel the
CA to approve its motion for extension of time to file petition for
review, and, ultimately, to give due course to its intended petition for
review.
Ruling:
It is beyond quibbling that the assailed Judgment in Civil Case No.
02-843 was issued by the RTC in the exercise of its special jurisdiction
over intra-corporate controversies under R.A. No. 8799. Civil Case No.
02-843 was, therefore, governed by the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing IntraCorporate Controversies under R.A. No. 8799, as well as A.M. No. 049-07-SC of this Court prescribing the mode of appeal from decisions of
the RTC in intra-corporate controversies.
168
169
On February 5, 2002, the trial court issued a Stay Order. In the same
Stay Order, the trial court appointed Marilou Adea, also a respondent,
as Rehabilitation Receiver.
On July 28, 2003, the trial court issued an Order approving the
Rehabilitation Plan.
The trial court issued an Order denying the Motion for Extension of
Time to File Record on Appeal filed by Leca Realty on the ground that
under Rule 3, Section 1 of the Interim Rules of Procedure on
Corporate Rehabilitation, a motion for extension is a prohibited
pleading.
Issue:
1. W/N the trial court erred in ruling that a motion for extension of
time to file record on appeal is a prohibited pleading under Section 1 of
the Interim Rules of Procedure on Corporate Rehabilitation
2. W/N Manuelas Rehabilitation Plan violates petitioners
constitutional right to non-impairment of contract and the Interim
Rules of Procedure on Corporate Rehabilitation
Ruling:
1.
Section 1. Nature of Proceedings. Any proceeding initiated under
these Rules shall be considered in rem. Jurisdiction over all those
affected by the proceedings shall be considered as acquired upon
publication of the notice of the commencement of the proceedings in
any newspaper of general circulation in the Philippines in the manner
prescribed by these Rules.
The proceedings shall also be summary and non-adversarial in nature.
The following pleadings are prohibited: a) Motion to Dismiss; b)
Motion for Bill of Particulars; c) Motion for New Trial or For
170
Moreover, the Stay Order issued by the trial court directed respondent
Manuela to pay in full, after the issuance of such Order, all
administrative expenses incurred. Administrative expenses are costs
associated with the general administration of an organization and
include such items as utilities, rents, salaries, postages, furniture, and
housekeeping charges.
Inasmuch as rents are considered administrative expenses and
considering that the Stay Order directed respondent Manuela to pay
the rents in full, then it must comply at the rates agreed upon.
Respondent Manuela, therefore, must update its payment of rental
arrears and continue to pay current rentals at the rate stipulated in the
lease contract.
Ruling:
171
172
Facts:
The interim rules must likewise be read and applied along with Section
6(c) of P.D. 902-A, as so amended, directing that upon the
appointment of a management committee, rehabilitation receiver,
board or body pursuant to the decree, all actions for claims against
the distressed corporation pending before any court, tribunal, board
or body shall be suspended accordingly.
173
Issue:
xxx
x x x.
k.
A Certificate attesting, under oath, that (a)
the filing of the petition has been duly authorized; and (b)
the directors and stockholders have irrevocably approved
and/or consented to, in accordance with existing laws, all
actions or matters necessary and desirable to rehabilitate
the debtor including, but not limited to, amendments to
the articles of incorporation and by-laws or articles of
partnership; increase or decrease in the authorized capital
stock; issuance of bonded indebtedness; alienation,
transfer, or encumbrance of assets of the debtor; and
modification of shareholders rights.
Observe that Rule 4, Section 2(k), prescribes the need for a
certification; one, to state that the filing of the petition has been duly
authorized, and two, to confirm that the directors and stockholders
have irrevocably approved and/or consented to, in accordance with
existing laws, all actions or matters necessary and desirable to
rehabilitate the corporate debtor, including, as and when called for,
such extraordinary corporate actions as may be marked out. The
phrase, in accordance with existing laws, obviously would refer to
that which is, or to those that are, intended to be done by the
corporation in the pursuit of its plan for rehabilitation. Thus, if any
extraordinary corporate action (mentioned in Rule 4, Section 2(k), of
the Interim Rules on Corporate Rehabilitation) are to be done under
the proposed rehabilitation plan, the petitioner would be bound to
make it known that it has received the approval of a majority of the
directors and the affirmative votes of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock of the corporation.
Where no such extraordinary corporate acts (or one that under the law
would call for a two-thirds (2/3) vote) are contemplated to be done in
carrying out the proposed rehabilitation plan, then the approval of
stockholders would only be by a majority, not necessarily a two-thirds
(2/3), vote, as long as, of course, there is a quorum a fact which is not
here being disputed.
Nowhere in the aforequoted paragraph can it be inferred that an
affirmative vote of stockholders representing at least two-thirds (2/3)
of the outstanding stock is invariably necessary for the filing of a
petition for rehabilitation regardless of the corporate action that the
plan envisions. Just to the contrary, it only requires in the filing of the
petition that the corporate actions therein proposed have been duly
approved or consented to by the directors and stockholders in
consonance with existing laws. The requirement is designed to avoid
a situation where a rehabilitation plan, after being developed and
judicially sanctioned, cannot ultimately be seen through because of the
refusal of directors or stockholders to cooperate in the full
implementation of the plan. In fine, a certification on the approval of
stockholders is required but the question, whether such approval
should be by a majority or by a two-thirds (2/3) vote of the outstanding
174
capital stock, would depend on the existing law vis--vis the corporate
act or acts proposed to be done in the rehabilitation of the distressed
corporation.
in its audited financial statements. The banks do not hold any assets of
Maynilad that would be material to the rehabilitation proceedings nor
is Maynilad liable to the banks at this point.
175
with Alternative
Corporations.
Prayer
for
Liquidation
and
Dissolution
of
that the petition with respect to EYCO shall subsist and may be validly
acted upon by the SEC. The Yutingcos, on the other hand, shall be
dropped from the petition and be required to pursue their remedies in
the regular courts of competent jurisdiction.
Petitioner's allegations of fraudulent dispositions of private
respondents' assets and the supposed insolvency of the latter are
hardly of any consequence to the assumption of jurisdiction by the SEC
over the nature or subject matter of the petition for suspension of
payments. Aside from the fact that these allegations are evidentiary in
nature and still remains to be proved, we have likewise consistently
ruled that what determines the nature of an action, as well as which
court or body has jurisdiction over it, are the allegations of the
complaint, or a petition as in this case, and the character of the relief
sought. That the merits of the case after due proceedings are later
found to veer away from the claims asserted by EYCO in its petition, as
when it is shown later that it is actually insolvent and may not be
entitled to suspension of payments, does not divest the SEC at all of its
jurisdiction already acquired at its inception through the allegations
made in the petition.
Neither are we convinced by petitioner's reasoning that the Yutingcos
and the corporate entities making up the EYCO Group, on the basis of
the footnote that the former were filing the petition because they
bound themselves as surety to the corporate obligations, should be
considered as mere individuals who should file their petition for
suspension of payments with the regular courts pursuant to Section 2
of the Insolvency Law. We do not see any legal ground which should
lead one to such conclusion. The doctrine of piercing the veil of
corporate fiction heavily relied upon by petitioner is entirely misplaced,
as said doctrine only applies when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime.
176
body has jurisdiction over a case would be to consider not only [1] the
status or relationship of the parties but also [2] the nature of the
question that is the subject of their controversy.
However, Section 5 of PD No. 902-A does not apply in the instant case.
The LSFSIPI is neither an officer nor a stockholder of BF Homes, and
this case does not involve intra-corporate proceedings. In addition, the
seller, petitioner Orendain, is being sued in his individual capacity for
the unauthorized sale of the property in controversy. Hence, we find
no cogent reason to sustain petitioners manifestation that the
resolution of the instant controversy depends on the ratification by the
SEC of the acts of its agent or the receiver because the act of Orendain
was allegedly not within the scope of his authority as receiver.
Furthermore, the determination of the validity of the sale to LSFSIPI
will necessitate the application of the provisions of the Civil Code on
obligations and contracts, agency, and other pertinent provisions.
TIME SHARES
Ruling:
In the case at bench, the BF Homes Complaint for reconveyance was
filed on January 23, 1996 against LSFSIPI and Florencio B. Orendain,
in Civil Case No. LP-96-002.
In 1996, Section 5 of PD No. 902-A, which was approved on March 11,
1976, was still the law in forcewhereby the SEC still had original and
exclusive jurisdiction to hear and decide cases involving:
b) controversies arising out of intra-corporate or
partnership relations, between and among
stockholders, members, or associates; between any
and/or all of them and the corporation,
partnership, or association of which they are
stockholders, members or associates, respectively;
and between such corporation, partnership or
association and the state insofar as it concerns
their individual franchise or right to exist as such
entity.
Clearly, the controversy involves matters purely civil in character and is
beyond the ambit of the limited jurisdiction of the SEC. As held in
Viray v. Court of Appeals, [t]he better policy in determining which
177
extension of 30 days, counted from July 19, 2002, or until August 19,
2002, within which to appeal. The CA partly granted the motion in an
Order dated July 24, 2002, to wit:
As prayed for, but conditioned on the timeliness of its filing, the
Motion for Extension to File Petition for Review dated 09 July 2002
and filed before this Court on 10 July 2002 is GRANTED and
petitioners are given a non-extendible period of fifteen (15) days from
10 July 2002 or until 25 July 2002 within which to file the desired
petition, otherwise, the above-entitled case will be dismissed.
Petitioner purportedly received the July 24, 2002 CA Order on July 29,
2002, but filed a Petition for Review with the CA on August 19, 2002.
In the assailed October 30, 2002 Resolution, the CA dismissed the
Petition for Review and denied petitioner's Motion for Reconsideration
in the assailed Resolution dated July 4, 2003.
Petitioner filed the present petition.
Issue:
Whether or not the eventual approval or issuance of license has
retroactive effect and therefore ratifies all earlier transactions
Ruling:
Section 70 of Republic Act No. 8799, which was enacted on July 19,
2000, is the law which governs petitioners appeal from the orders of
the SEC En Banc. It prescribes that such appeal be taken to the CA by
petition for review in accordance with the pertinent provisions of the
Rules of Court, specifically Rule 43.
Section 4 of Rule 43 is restrictive in its treatment of the period within
which a petition may be filed:
Section 4. Period of appeal. - The appeal shall be taken within fifteen
(15) days from notice of the award, judgment, final order or resolution,
or from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioners motion for new trial or
reconsideration duly filed in accordance with the governing law of the
court or agency a quo. Only one (1) motion for reconsideration shall be
allowed. Upon proper motion and the payment of the full amount of
the docket fee before the expiration of the reglementary period, the
Court of Appeals may grant an additional period of fifteen (15) days
only within which to file the petition for review. No further extension
shall be granted except for the most compelling reason and in no case
to exceed fifteen (15) days.
Petitioners Motion for Extension of Time to File Petition for Review
flouted the foregoing restriction: it sought, not a 15-day, but a 30-day
extension of the appeal period; and it did not even bother to cite a
compelling reason for such extension, other than its counsels caseload
which, as we have repeatedly ruled, hardly qualifies as an imperative
cause for moderation of the rules.
Its motion for extension being inherently flawed, petitioner should not
have presumed that the CA would fully grant the same. Instead, it
should have exercised due diligence by filing the proper petition within
the allowable period, or at the very least, ascertaining from the CA
whether its motion for extension had been acted upon. As it were,
petitioners counsel left the country, unmindful of the possibility that
his clients period to appeal was about to lapse - as it indeed lapsed on
July 25, 1999, after the CA allowed them a 15-day extension only, in
view of the restriction under Section 4, Rule 43. Thus, petitioner has
only itself to blame that the Petition for Review it filed on August 19,
1999 was late by 25 days. The CA cannot be faulted for dismissing it.
The Court notes that the CA reckoned the 15-day extension it granted
to petitioner from July 10, 1999, the date petitioner filed its Motion for
Extension, rather than from July 19, 1999, the date of expiration of
(36) Unless previously filed and registered with the Commission and
brought up to date:
(a)A copy of its articles of incorporation with all amendments thereof
and its existing by-laws or instruments corresponding thereto,
whatever the name, if the issuer be a corporation.
Prior to fulfillment of all the other requirements of Section 8, petitioner
is absolutely proscribed under Section 4 from dealing with
unregistered timeshares, thus:
178
INVESTMENT CONTRACT
Facts:
Elvira Petralba was convicted for violating Sections 4, 19 and 29 of
Batas Pambansa Bilang (B.P. Blg.) 178, otherwise known as The
Revised Securities Act.
Under the three Informations, appellant is charged with conniving and
confederating together with her three co-accused, and mutually
helping one another, with deliberate intent to gain and defraud
complainant by: (1) offering for sale, together with her co-accused,
securities which were not registered in violation of Section 4 of the law;
(2) representing and acting as broker or dealer to induce complainant
as in fact she delivered the subject amount, not having been registered
with the Securities and Exchange Commission, in violation of Section
19 of the same law; and (3) assuring the complainant that Lansdale is
duly licensed to engage in foreign exchange trading when in fact said
company is not duly-licensed, as a consequence of which complainant
invested the amount of $6,000.00, thereby engaging in fraudulent
transactions in foreign exchange trading, in violation of Section 29 of
the law.
Moreover, the receipt merely shows that Dr. Bailey remitted the
amount of US$6,000.00 to Lansdale through appellant, as account
executive. It contained a request for appellant to follow-up proper
remittance and credit of her trading account as well as the issuance of
the receipt of said amount which is confirmed by appellant as shown by
her signature. The receipt did not prove that appellant committed any
of the offenses charged against her. The receipt merely established
that appellant received the amount from Dr. Bailey for the purpose of
remitting the same to Lansdale and to follow-up the crediting thereof
to her trading account. The brochure, given by appellant to Dr. Bailey,
does not prove appellants guilt beyond reasonable doubt in the
absence of direct and specific proof on the (1) actual participation of
appellant in the alleged offer and sale of securities to the public within
the Philippines which were not registered in violation of Section 4 of
B.P. Blg. 178; (2) manner by which appellant misrepresented to Dr.
Bailey that Lansdale is duly licensed to engage in foreign exchange
trading in violation of Section 29 of said law; and (3) manner by
which appellant misrepresented to Dr. Bailey that she was a licensed
broker, dealer or salesperson of securities when in fact she was not,
thereby inducing Dr. Bailey to invest and deliver the amount of
US$6,000.00, in violation of Section 19 of said law.
Issue:
W/N the prosecution has established the guilt of appellant beyond
reasonable doubt for violating Sections 4, 19 and 29 of B.P. Blg. 178
Ruling:
After a careful examination of the prosecution evidence, we find that
the findings of both lower courts were grounded on mere surmises or
conjectures; the inferences they made were manifestly mistaken,
bordering on absurdity; and the judgment of the appellate court was
based on misapprehension of facts or mere conclusions without
citation of specific, competent evidence.
The Court of Appeals erred in affirming the RTCs decision. The
prosecution failed to establish the guilt of appellant beyond reasonable
doubt.
Appellant claims that the transaction that transpired between
complainant and her employer Lansdale was a mere foreign exchange
trading which is not covered by the term securities of B.P. Blg. 178,
the prevailing law at the time of the commission of the alleged crimes.
179
3.
PONZI SCHEME
180
to invest more than P5,000.00, provided that the excess was deposited
under the name of others. She assured the depositors that this was safe
because as long as the depositor was holding the slots, he was the
"owner" of the amount deposited. Most investors then deposited
amounts in the names of their relatives.
At the outset, the foundation's operations proceeded smoothly, as
satisfied investors collected their investments upon maturity. On
November 29, 1989, however, the foundation did not open. Depositors
whose investments were to mature on said date demanded payments
but none was forthcoming. On December 2, 1989, Priscilla Balasa
announced that since the foundation's money had been invested in the
stock market, it would resume operations on December 4, 1989. On
that date, the foundation remained closed. Depositors began to
demand reimbursement of their deposits, but the foundation was
unable to deliver.
Consequently, sixty-four informations, all charging the offense of
estafa, as defined in Presidential Decree No. 1689, were filed against
Priscilla Balasa, Normita Visaya, Norma Francisco, Guillermo
Francisco, Analina Francisco and eight other persons, mostly
incorporators and employees of the Panata Foundation, before the
Regional Trial Court of Palawan. Fourteen cases, including Criminal
Case Nos. 8429 and 8751, were raffled off to Branch 52. Two more
cases, Criminal Case Nos. 8704 and 8749, were similarly assigned to it.
Of the sixteen casts assigned to Branch 52, eight were, with the consent
of the accused, provisionally dismissed for lack of evidence.
Ruling:
It has been held that where one states that the future profits or income
of an enterprise shall be a certain sum, but he actually knows that there
will be none, or that they will be substantially less than he represents,
the statement constitutes actionable fraud where the hearer believes
him and relies on the statement to his injury. That there was no profit
forthcoming can be clearly deduced from the fact that the foundation
was not engaged nor authorized to engage in any lucrative business to
finance its operation. It was not shown that it was the recipient of
donations or bequest with which to finance its "double or triple your
money" scheme, nor did it have any operating capital to speak of when
it started operations.
Parenthetically, what appellants offered the public was a "Ponzi
scheme," an investment program that offers impossibly high returns
and pays these returns to early investors out of the capital contributed
by later investors. Named after Charles Ponzi who promoted the
scheme in the 1920s, the original scheme involved the issuance of
bonds which offered 50% interest in 45 days or a 100% profit if held for
90 days. Basically, Ponzi used the money he received from later
investors to pay extravagant rates of return to early investors, thereby
inducing more investors to place their money with him in the false
hope of realizing this same extravagant rate of return themselves. This
was the very same scheme practiced by the Panata Foundation.
However, the Ponzi scheme works only as long as there is an everincreasing number of new investors joining the scheme. To pay off the
50% bonds Ponzi had to come up with a one-and-a-half times increase
with each round. To pay 100% profit he had to double the number of
investors at each stage, and this is the reason why a Ponzi scheme is a
scheme and not an investment strategy. The progression it depends
upon is unsustainable. The pattern of increase in the number of
participants in the system explains how it is able to succeed in the short
run and, at the same time, why it must fail in the long run. This game is
difficult to sustain over a long period of time because to continue
paying the promised profits to early investors, the operator needs an
ever larger pool of later investors. The idea behind this type of swindle
is that the "con-man" collects his money from his second or third
round of investors and then absconds before anyone else shows up to
collect. Necessarily, these schemes only last weeks, or months at most.
Note should also be taken of the fact that appellants used "slots" in
their operation. These slots are actually securities, the issuance of
which needs the approval of the Securities and Exchange Commission.
181
Knowing fully well that the S.E.C. would not approve the issuance of
securities by a non-stock, non-profit organization, the operators of the
Ponzi scheme, nevertheless, applied for registration as a foundation, an
entity not allowed to engage in securities.
4.
VIOLATION OF SRC
Issue:
W/N the petitioners complaint for violation of Securities Regulation
Code with the DOJ is proper
Ruling:
Section 53.1 of the Securities Regulation Code provides:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
53. 1. The Commission may, in its discretion, make such investigation
as it deems necessary to determine whether any person has violated or
is about to violate any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and
may require or permit any person to file with it a statement in writing,
under oath or otherwise, as the Commission shall determine, as to all
facts and circumstances concerning the matter to be investigated. The
Commission may publish information concerning any such violations
and to investigate any fact, condition, practice or matter which it may
deem necessary or proper to aid in the enforcement of the provisions of
this Code, in the prescribing of rules and regulations thereunder, or in
securing information to serve as a basis for recommending further
legislation concerning the matters to which this Code relates:
Provided, however, That any person requested or subpoenaed to
produce documents or testify in any investigation shall simultaneously
be notified in writing of the purpose of such investigation: Provided,
further, That all criminal complaints for violations of this
Code and the implementing rules and regulations enforced
or administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and
prosecution before the proper court: Provided, furthermore,
That in instances where the law allows independent civil or criminal
proceedings of violations arising from the act, the Commission shall
take appropriate action to implement the same: Provided, finally; That
the investigation, prosecution, and trial of such cases shall be given
priority.
The Court of Appeals held that under the above provision, a criminal
complaint for violation of any law or rule administered by the SEC
must first be filed with the latter. If the Commission finds that there is
probable cause, then it should refer the case to the DOJ. Since
petitioner failed to comply with the foregoing procedural requirement,
the DOJ did not gravely abuse its discretion in dismissing his
complaint in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a
specialized dispute.
Hence, it must first be referred to an
administrative agency of special competence, i.e., the SEC. Under the
doctrine of primary jurisdiction, courts will not determine a
controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the specialized knowledge
and expertise of said administrative tribunal to determine technical
and intricate matters of fact. The Securities Regulation Code is a
special law. Its enforcement is particularly vested in the SEC. Hence,
all complaints for any violation of the Code and its implementing rules
and regulations should be filed with the SEC. Where the complaint is
criminal in nature, the SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as provided in Section 53.1
earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a
fatal procedural lapse when he filed his criminal complaint directly
182
FUTURES TRADING
183
After considering all the evidence in this case, it appears that petitioner
and private respondent did not intend, in the deals of purchasing and
selling for future delivery, the actual or constructive delivery of the
goods/commodity, despite the payment of the full price therefor. The
contract between them falls under the definition of what is called
"futures". The payments made under said contract were payments of
difference in prices arising out of the rise or fall in the market price
above or below the contract price thus making it purely gambling and
declared null and void by law.
Under Article 2018, the private respondent is entitled to refund from
the petitioner what she paid. There is no evidence that the orders of
private respondent were actually transmitted to the petitioner's
principal in Hongkong and Tokyo. There was no arrangement made by
petitioner with the Central Bank for the purpose of remitting the
money of its customers abroad. The money which was supposed to be
remitted to Frankwell Enterprises of Hongkong was kept by petitioner
in a separate account in a local bank. Having received the money and
orders of private respondent under the trading contract, petitioner has
the burden of proving that said orders and money of private
184
TENDER OFFER
provided that the result of the bidding is subject to the right of BDO
Capital to match the highest bid. October 20, 2004 was the date set
for determining the winning bid.
The records do not show whether or not any interested group/s
submitted bids. The bottom line, however, is that even before the bid
envelopes, if any, could be opened, the herein petitioners commenced
the instant special civil action for certiorari, setting their sights
primarily on the legality of the Swiss Challenge angle and a provision
in the Instruction to Bidders under which the SSS undertakes to offer
the Shares to BDO should no bidder or prospective bidder qualifies.
And as earlier mentioned, the Court, via a status quo order, effectively
suspended the proceedings on the proposed sale.
Under the Swiss Challenge format, one of the bidders is given the
option or preferential right to match the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss Challenge
component is contrary to COA Circular No. 89-296 and public policy
which requires adherence to competitive public bidding in a
government-contract award to assure the best price possible for
government assets. Accordingly, the petitioners urge that the planned
disposition of the Shares through a Swiss Challenge method be
scrapped. As argued, the Swiss Challenge feature tends to discourage
would-be-bidders from undertaking the expense and effort of bidding
if the chance of winning is diminished by the preferential right to
match clause. Pushing the point, petitioners aver that the Shares are
in the nature of long-term or non-current assets not regularly traded or
held for sale in the regular course of business. As such, their
disposition must be governed by the aforementioned COA circular
which, subject to several exceptions, prescribes public auction as a
primary mode of disposal of GFIs assets. And obviously finding the
proposed purchase price to be inadequate, the petitioners expressed
the belief that if properly bidded out in accordance with [the] COA
Circular , the Shares could be sold at a price of at least Sixty Pesos
(P60.00) per share. Other supporting arguments for allowing
certiorari are set forth in some detail in the basic petition.
Pending consideration of the petition, supervening events and
corporate movements transpired that radically altered the factual
complexion of the case. Some of these undisputed events are: BDO
made public its intent to merge with EPCIB, the GSIS publicly
announced receiving from an undisclosed entity an offer to buy its
stake in EPCIB 12% of the banks outstanding capital stock at
P92.00 per share, and SM Investments Corporation, an affiliate of
BDO and BDO Capital, a mandatory tender offer (Tender Offer)
covering the purchase of the entire outstanding capital stock of
EPCIB at P92.00 per share.
Owing to the foregoing developments, the Court, on October 3, 2006,
issued a Resolution requiring the parties to CONFIRM news reports
that price of subject shares has been agreed upon at P92; and if so, to
MANIFEST whether this case has become moot.
First to comply with the above were public respondents SSS et al., by
filing their Compliance and Manifestation, therein essentially stating
that the case is now moot in view of the SM-BDO Groups Tender Offer
at P92.00 @ unit share, for the subject EPCIB common shares,
inclusive of the SSS shares subject of the petition. They also stated the
observation that the petitioners Manifestation and Motion to Take
Judicial Notice, never questioned the Tender Offer, thus confirming
the dispensability of a competitive public bidding in the disposition of
subject Shares.
Ruling:
The case, with the view we take of it, has indeed become moot and
academic for interrelated reasons.
We start off with the core subject of this case. As may be noted, the
Letter-Agreement, the SPA, the SSC resolutions assailed in this
recourse, and the Invitation to Bid sent out to implement said
185
IMPOSITION OF FINES
The Commission rendered its decision finding both Cualoping
Securities Corporation and Fidelity Stock Transfers, Inc. equally
186
Issue:
W/N SECs imposition of fines on Fidelity and Cualoping is proper
Ruling:
The Revised Securities Act (Batas Pambansa Blg. 178) is designed, in
main, to protect public investors from fraudulent schemes by
regulating the sale and disposition of securities, creating, for this
purpose, a Securities and Exchange Commission to ensure proper
compliance with the law. Here, the SEC has aptly invoked the
provisions of Section 29, in relation to Section 46, of the Revised
Securities Act. This law provides:
Sec. 29. Fraudulent transactions. (a) It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or sale of
any securities
xxx xxx xxx (3) To engage in any act, transaction practice, or course
of business which operates or would operate as a fraud or deceit upon
any person
Sec. 46. Administrative sanctions. If, after proper notice and
hearing, the Commission finds that there is a violation of this Act, its
rules, or its orders or that any registrant has, in a registration
statement and its supporting papers and other reports required by law
or rules to be filed with the Commission, made any untrue statement of
a material fact, or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or refused to permit any unlawful examination into its
affairs, it shall, in its discretion, impose any or all of the following
sanctions :
xxx xxx xxx d. From transfer agent back to clearing house and/or
broker not longer than ten (10) days from receipt of documents
provided there is a "good delivery," where there is no " good delivery ,"
the certificate and the accompanying documents shall be returned to
the clearing house or broker not later than two (2) days after receipt
thereof, except when defects can be readily remedied, in which case the
clearing house or the broker shall instead be notified of the
requirements within the same period. The notice to the clearing house
or broker shall indicate that the Securities and Exchange Commission
has been notified of such defective delivery.
FIDELITY is candid enough to admit that it has truly failed to promptly
notify CUALOPING and the clearing house of the pilferage of the
certificates of stock. FIDELITY strongly asserts, however, that it has
been fined by the SEC not by virtue of Memorandum Circular No. 9 but
for a violation of Section 29(a)(3) of the Revised Securities Act, and
that the memorandum circular is only now being raised for the first
time in the instant petition.
In Insular Life Assurance Co., Ltd. , Employees Association-NATU vs.
Insular Life Assurance Co. , Ltd. , this Court has ruled that when issues
are not specifically raised but they bear relevance and close relation to
those properly raised, a court has the authority to include all such
issues in passing upon and resolving the controversy. In Bank of
America , NT & SA vs. Court of Appeals , 228 SCRA 357, we have said
that "the rule that only issues or theories raised in the initial
proceedings may be taken up by a party thereto on appeal should only
refer to independent, not concomitant matters, to support or oppose
the cause of action or defense." In this case at bench, particularly, it is
not a new issue that is being raised but a memorandum-circular having
the force and effect of law that has been cited to support a position that
relates to the very subject matter of the controversy. On this point,
accordingly, we must rule in favor of petitioner SEC.
8.
187
After hearing, the trial court (through then Presiding Judge Marivic T.
Balisi-Umali) issued an order granting the issuance of a writ of
preliminary injunction. The injunctive writ was issued on August 8,
2003.
Meanwhile, summons and alias summons to Glasgow was returned
"unserved" as it could no longer be found at its last known address.
On October 27, 2005, the trial court issued the assailed order. It
dismissed the case on the following grounds: (1) improper venue as it
should have been filed in the RTC of Pasig where CSBI, the depository
bank of the account sought to be forfeited, was located; (2)
insufficiency of the complaint in form and substance and (3) failure to
prosecute. It lifted the writ of preliminary injunction and directed CSBI
to release to Glasgow or its authorized representative the funds in CA005-10-000121-5.
Issue:
W/N the complaint for civil forfeiture was correctly dismissed on
grounds of improper venue, insufficiency in form and substance and
failure to prosecute
Ruling:
1. At any rate, the trial court was a proper venue.
The order dismissing the Republics complaint for civil forfeiture of
Glasgows account in CSBI has not yet attained finality on account of
the pendency of this appeal. Thus, the Rule of Procedure in Cases of
Civil Forfeiture applies to the Republics complaint. Moreover, Glasgow
itself judicially admitted that the Rule of Procedure in Cases of Civil
Forfeiture is "applicable to the instant case."
Under Section 3, Title II of the Rule of Procedure in Cases of Civil
Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of
the judicial region where the monetary instrument, property or
proceeds representing, involving, or relating to an unlawful activity or
to a money laundering offense are located. Pasig City, where the
account sought to be forfeited in this case is situated, is within the
National Capital Judicial Region (NCJR). Clearly, the complaint for
civil forfeiture of the account may be filed in any RTC of the NCJR.
Since the RTC Manila is one of the RTCs of the NCJR, it was a proper
venue of the Republics complaint for civil forfeiture of Glasgows
account.
2. Section 4, Title II of the Rule of Procedure in Cases of Civil
Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for
civil forfeiture shall be verified and contain the following allegations:
(a) The name and address of the respondent;
188
189