Corporate Law Case Digest: Dee V.

SEC (1991)

G.R. No. L-60502 July 16, 1991

Lessons Applicable: Preemptive Rights (Sec.39) (Corporate Law)

FACTS:

1954: Naga Telephone Company (Natelco), Inc. was organized with P100K authorized capital 1974: Natelco decided to increase
its authorized capital to P3,000,000.00.. As required by the Public Service Act, Natelco filed an application for the approval of
the increased authorized capital with the then Board of Communications (BOC). January 8, 1975: approved with conditions:

That the issuance of the shares of stocks will be for a period of one year from the date hereof, "after which no further issues
will be made without previous authority from this Board." Natelco filed its Amended Articles of Incorporation with the SEC .the
original authorized capital of P100K was already paid increased capital of P2.9M the subscribers subscribed to P580K of which
P145K was fully paid capital stock of Natelco was divided into 213K CS and 87K PS, both at a par value of P10/shares

April 12, 1977: Without no prior authorization from the BOC (now National Telecommunications Commission) (NTC), Natelco
entered into a contract with Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of
telephone equipment

Natelco issued 24K shares of CS to CSI as downpayment

May 5, 1979: issued another 12K shares of CS to CSI

May 19, 1979: annual stockholders' meeting to elect their 7 directors to their BOD for the year 1979-1980

Pedro Lopez Dee (Dee) was unseated as Chairman of the Board and President but was elected as one of the directors, together
with his wife, Amelia Lopez Dee

CSI was able to gain control when their legal counsel, Atty. Luciano Maggay (Maggay) won a seat in the Board

Atty. Maggay became president upon reorganization

Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez Dee never attended the Maggay
Board thereby only Maggay representatives and Atty. Maggay attended

as per contract they issued 113,800 shares of stock in favor of CSI

Dee having been unseated filed a petition in the SEC questioning the validity of the elections

ground: no valid list of stockholders through which the right to vote could be determined

As prayed for a restraining order was issued by the SEC placing officers of the 1978-1979 Natelco Board in hold-over capacity

Upon elevation to the SC: dismissed the petition for being premature; restraining order was restrained

resulted in the unseating of the Maggay group from the BOD in a "hold-over" capacity

SEC: ordering the holding of special stockholder' meeting to elect the new members of the BOD based on its findings of who are
entitled to vote

June 23, 1981: Dee filed a petition for certiorari/appeal with the SEC en banc

SEC en banc: dismissed for lack of merit

May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an option to repurchase 36K shares of CS
of Natelco under a Deed of Assignment executed in his favor

May 21, 1982: restraining order dwas issued by the lower court commanding desistance from the scheduled election until
further orders

May 22, 1982: controlling majority of the stockholders proceeded with the elections under the supervision of the SEC
representatives

May 25, 1982: SEC recognized the election and the duly elected directors

Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting no elections were held and refused to
vacate their positions

May 28, 1982: SEC issued another order directing the hold-over directors and officers to turn over their respective posts and
directing the Sheriff of Naga City and other enforcement agencies to enforce its order

May 29, 1982: hold-over officers peacefully vacated

June 2, 1982: Villasenor filed a charge for contempt

September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto
Miguel, guilty of contempt of court

September 17, 1982: CSI group filed a petition for certiorari and prohibition with preliminary injunction or restraining order
against the CFI

April 14, 1983: IAC: Annuling contempt charge

ISSUES:

W/N SEC has the power and jurisdiction to declare null and void shares of stock issued by NATELCO to CSI for violation of
Sec. 20 (h) of the Public Service Act - NO

W/N Natelco stockholders have a right of preemption to the 113,800 shares

W/N the May 22, 1982 election was valid

HELD: Dismissed for lack of merit

NO

The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and
associations and those dealing with internal affairs of such entities; P.D. 902-A does not confer jurisdiction to SEC over all
matters affecting corporations

The jurisdiction of the SEC is limited to deciding the controversy in the election of the directors and officers of Natelco

In other words, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following
relationships: (a) between corporation, partnership or association and the public; (b) between the corporation, partnership, or
association and its stockholders, partners, members or officers; (c) between the corporation, partnership or association and the
state insofar as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners, or associates
themselves (Union Glass & Container Corp. vs. SEC, 126 SCRA 31 [1983]

The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the only issue in this case.
The SEC ruling as to the issue involving the Public Service Act, Section 20 (h), asserts that the Commission En Banc is not
empowered to grant much less cancel franchise for telephone and communications, and therefore has no authority to rule that
the issuance and sale of shares would in effect constitute a violation of Natelco's secondary franchise. It would be in excess of
jurisdiction on our part to decide that a violation of our public service laws has been committed.

2. NO

There is distinction between:

an order to issue shares on or before May 19, 1979; and

actual issuance of the shares after May 19, 1979 - CSI was in control of voting shares and the Board

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 - no violation of
preemptive right

3. YES.

Clear from records that it was held

There is evidence of the fact that the Natelco special stockholders' meeting and election of members of the Board of Directors
of the corporation were held at its office in Naga City on May 22, 1982 as shown when the Hearing Officer issued an order on
May 25, 1982, declaring the stockholders named therein as corporate officers duly elected for the term 1982-1983.

it is, therefore, very clear from the records that an election was held on May 22, 1982 at the Natelco Offices in Naga City and its
officers were duly elected, thereby rendering the issue of election moot and academic, not to mention the fact that the election
of the Board of Directors/Officers has been held annually, while this case was dragging for almost a decade.

The contempt charge against herein private respondents was predicated on their failure to comply with the restraining order
issued by the lower court.

Contrary to the claim of petitioners that the case is within the jurisdiction of the lower court as it does not involve an intra-
corporate matter but merely a claim of a private party of the right to repurchase common shares of stock of Natelco and that
the restraining order was not meant to stop the election duly called for by the SEC, it is undisputed that the main objective of
the lower court's order of May 21, 1982 was precisely to restrain or stop the holding of said election of officers and directors of
Natelco, a matter purely within the exclusive jurisdiction of the SEC

Indubitably, the aforesaid restraining order, aimed not only to prevent the stockholders of Natelco from conducting the
election of its directors and officers, but it also amounted to an injunctive relief against the SEC, since it is clear that even
"public officers" (such as the Hearing Officer of the SEC) are commanded to desist from conducting or holding the election
"under pain of punishment of contempt of court" (Ibid.) The fact that the SEC or any of its officers has not been cited for
contempt, along with the stockholders of Natelco, who chose to heed the lawful order of the SEC to go on with the election as
scheduled by the latter, is of no moment, since it was precisely the acts of herein private respondents done pursuant to an
order lawfully issued by an administrative body that have been considered as contemptuous by the lower court prompting the
latter to cite and punish them for contempt

within the jurisdiction of the lower court as it does not involve an intra-corporate matter but merely a claim of a private party
of the right to repurchase common shares of stock of Natelco and that the restraining order was not meant to stop the election
duly called for by the SEC and a matter purely within the exclusive jurisdiction of the SEC

temporary restraining order amounted to an injunctive relief against the SEC

since the trial judge in the lower court did not have jurisdiction in issuing the questioned restraining order, disobedience
thereto did not constitute contempt

Malayang Samahan ng mga Manggagawa sa M. Greenfield vs Ramos

Petitioners contention that respondent company officials should be made personally liable for damages on account of
petitioners dismissal is not impressed with merit. A corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general from the people comprising it.[12]The rule is that obligations incurred by
the corporation, acting through its directors, officers and employees, are its sole liabilities.[13] True, solidary liabilities may at
times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: [14]

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.[15]

(2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto.[16]

(3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with
the Corporation.[17]

(4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.[18]

In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the corporation for the
termination of employment of corporate employees done with malice or in bad faith.

In the instant case, there is nothing substantial on record to show that respondent officers acted in patent bad faith or were
guilty of gross negligence in terminating the services of petitioners so as to warrant personal liability.

Petitioners claim that the jobs intended for the respondent companys regular employees were diverted to its
satellite companies where the respondent company officers are holding key positions is not substantiated and was
raised for the first time in this motion for reconsideration. Even assuming that the respondent company officials
are also officers and incorporators of the satellite companies, such circumstance does not in itself amount to
fraud. The documents attached to petitioners motion for reconsideration show that these satellite
companies[23] were established prior to the filing of petitioners complaint against private respondents with the
Department of Labor and Employment nd that these corporations have different sets of incorporators aside from
the respondent officers and are holding their principal offices at different locations. Substantial identity of
incorporators between respondent company and these satellite companies does not necessarily imply fraud. [24] In
such a case, respondent companys corporate personality remains inviolable.
HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner, vs. NATIONAL IRRIGATION
ADMINISTRATION, respondent.

he next issue to be resolved is whether or not Hydros claim should be computed at the fixed rate of exchange.

When the MOA[41] and the Supplemental MOA[42] were in effect, there were instances when the foreign currency
availed of by Hydro exceeded the foreign currency payable to it for that particular Progress Payment. In instances like
these, NIA actually charged Hydro interest in foreign currency computed at the prevailingexchange rate and not at the
fixed rate. NIA now insists that the exchange rate should be computed according to the fixed rate and not the
escalating rate it actually charged Hydro.

Suffice it to state that this flip-flopping stance of NIA of adopting and discarding positions to suit its convenience
cannot be countenanced. A person who, by his deed or conduct has induced another to act in a particular manner, is
barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to
another.[43] Indeed, the application of the principle of estoppel is proper and timely in heading off NIAs efforts at
renouncing its previous acts to the prejudice of Hydro which had dealt with it honestly and in good faith.

. . . A principle of equity and natural justice, this is expressly adopted under Article 1431 of the Civil Code, and
pronounced as one of the conclusive presumptions under Rule 131, Section 3(a) of the Rules of Court, as follows:

Whenever a party has, by his own declaration, act or omission, intentionally and deliberately led another to believe a
particular thing to be true, and to act upon such a belief he cannot, in any litigation arising out of such declaration, act
or omission, be permitted to falsify it.

Petitioner, having performed affirmative acts upon which the respondents based their subsequent actions, cannot
thereafter refute his acts or renege on the effects of the same, to the prejudice of the latter. To allow him to do so
would be tantamount to conferring upon him the liberty to limit his liability at his whim and caprice, which is against
the very principles of equity and natural justice[44]

NIA is, therefore, estopped from invoking the contractual stipulation providing for the fixed rate to justify a lower
computation than that claimed by Hydro. It cannot be allowed to hide behind the very provision which it itself
continuously violated.[45] An admission or representation is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon. [46] A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them

JOHN F. McLEOD, Petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION

In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the
Assistant Spinning Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980
under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having controlling
interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the
time of his retirement complainant was receivingP60,000.00 monthly with vacation and sick leave benefits;

hat on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to Patricio Lim requesting
for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant
compromise settlement of onlyP300,000.00 which complainant rejected; that again complainant
wrote a letter (Annex "F") reiterating his demand for full payment of all benefits and to no avail,
hence this complaint; and that he is entitled to all his money claims pursuant to law.
nd a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his retirement pay equivalent to 22.5 days for every
year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

ohn F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied
The Court of Appeals rejected McLeod’s theory that all respondent corporations are the same corporate entity which should be held solidarily
liable for the payment of his monetary claims.

The petition must fail.

It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former
acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where
the purchaser expressly or impliedly agrees to assume the 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 selling corporation
fraudulently enters into the transaction to escape liability for those debts.

None of the foregoing exceptions is present in this case.

There was also no merger or consolidation of PMI and SRTI.