SHIPSIDE INCORPORATED
vs.
THE HON. COURT OF APPEALS, HON.
REGIONAL TRIAL COURT, BRANCH 26 & the
REPUBLIC OF THE PHILIPPINES
G.R. No. 143377, February 20, 2001
FACTS:
Originally four lots were owned Rafael
Galvez. He subsequently sold lot 1 and 4 in favor of
Filipina Mamaril, Cleopatra Llana, Regina Bustos,
and Erlinda Balatbat in a deed of sale. Mamaril later
sold lot 1 to Lepanto Consolidated Mining
Company. Later, unknown to Lepanto, the RTC
declared the OCT registered in the name of Galvez
as null and void and ordered the cancellation
thereof. On October 28, 1963, Lepanto
Consolidated Mining Company sold to herein
petitioner Lots No. 1 and 4. Meanwhile the decision
of the CA became final and executory and a writ
was issued, however said writ remained unsatisfied
for 24 years.
Office of the Solicitor General filed a
complaint for revival of judgment and cancellation of
titles before the Regional Trial Court of the First
Judicial Region against the successors of Galvez
and herein petitioner and its motion for
reconsideration was likewise turned down. The CA
affirmed the same, hence this petition.
ISSUE:
Whether or not the filing of the petition was
authorized by the BOD of petitioner.
RULING:
YES.
The Court of Appeals dismissed the petition
for certiorari on the ground that Lorenzo Balbin, the
resident manager for petitioner, who was the
signatory in the verification and certification on non-
forum shopping, failed to show proof that he was
authorized by petitioner's board of directors to file
such a petition.
It was clear from the record that when the
general manager filed the petition, there was no
proof attached as to the authorization by the Board.
However, when the petitioner filed its motion for
reconsideration a resolution or secretary’s
certification stating that that on October 11, 1999, or
ten days prior to the filing of the petition, Balbin had
been authorized by petitioner's board of directors to
file said petition. The Court accepted this
certification, although belatedly presented, as a
valid authorization. The Court was reiterated that
belated submission of a verification is allowed the
same being not a mandatory and jurisdictional
requirement, and as to the non-forum shopping the
same was considered to be valid because the case
of the petitioner must be litigated based on its merit
and must not be dismissed based on technical and
procedural infirmities, which were actually cured.
Pilipinas Loan Company vs SEC
G.R. No. 104720
April 4, 2001
FACTS:
Private respondent Filipinas Pawnshop, Inc. is a
duly organized corporation registered with the
Securities and Exchange Commission on February
9, 1959. The articles of incorporation of private
respondent states that its primary purpose is to
extend loans at legal interest on the security of
either personal properties or on the security of real
properties, and to finance installment sales of motor
vehicles, home appliances and other chattels.
Petitioner is a lending corporation duly registered
with the SEC on July 27, 1989. Based on its articles
of incorporation, the primary purpose of petitioner is
“to act as a lending investor or, otherwise, to
engage in the practice of lending money or
extending loans on the security of real or personal,
tangible or intangible properties whether as pledge,
real or chattel mortgage or otherwise, xxx without
however, engaging in pawnbroking as defined
under PD 114."
Private respondent filed a complaint with the
Prosecution and Enforcement Department (PED) of
the SEC and alleged that: (1) petitioner, contrary to
the restriction set by the Commission, has been
operating and doing business as a pawnbroker,
pawnshop or "sanglaan" in the same neighborhood
where private respondent has had its own
pawnshop for 30 years in violation of its primary
purpose and without the imprimatur of the Central
Bank to engage in the pawnshop business thereby
causing unjust and unfair competition with private
respondent. Petitioner denied that it is engaged in
the pawnshop business, alleging that it is a lending
investor duly registered with the Central Bank.
ISSUE:
Whether or not petitioner violated its primary
franchise.
RULING:
A corporation, under the Corporation Code, has
only such powers as are expressly granted to it by
law and by its articles of incorporation, those which
may be incidental to such conferred powers, those
reasonably necessary to accomplish its purposes
and those which may be incident to its existence.
In the case at bar, the limit of the powers of
petitioner as a corporation is very clear, it is
categorically prohibited from "engaging in
pawnbroking as defined under PD 114". Hence, in
determining what constitutes pawnbrokerage, the
relevant law to consider is PD 114.
Indispensable therefore to the determination of
whether or not petitioner had violated its articles of
incorporation, was an inquiry by the SEC if
petitioner was holding out itself to the public as a
pawnshop. It must be stressed that the
determination of whether petitioner violated PD 114
was merely incidental to the regulatory powers of
the SEC, to see to it that a corporation does not go
beyond the powers granted to it by its articles of
incorporation.
Atrium Management Corporation vs. Court of
Appeals
[GR 109491, 28 February 2001], also De Leon vs.
Court of Appeals [GR 121894]
First Division, Pardo (J): 4 concur
Facts: Hi-Cement Corporation through its corporate
signatories, Lourdes M. de Leon, treasurer, and the
late Antonio de las Alas, Chairman, issued checks
in favor of E.T. Henry and Co. Inc., as payee. E.T.
Henry and Co., Inc., in turn, endorsed the four
checks to Atrium Management Corporation for
valuable consideration. Upon presentment for
payment, the drawee bank dishonored all four
checks for the common reason "payment stopped".
On 3 January 1983, Atrium Management
Corporation filed with the Regional Trial Court,
Manila an action for collection of the proceeds of
four postdated checks in the total amount of P2
million, after its demand for payment of the value of
the checks was denied. After due proceedings, on
20 July 1989, the trial court rendered a decision
ordering Lourdes M. de Leon, her husband Rafael
de Leon, E.T. Henry and Co., Inc. and Hi-Cement
Corporation to pay Atrium jointly and severally, the
amount of P2 million corresponding to the value of
the four checks, plus interest and attorney's fees.
On appeal to the Court of Appeals, on 17 March
1993, the Court of Appeals promulgated its decision
modifying the decision of the trial court, absolving
Hi-Cement Corporation from liability and dismissing
the complaint as against it. The appellate court
ruled that: (1) Lourdes M. de Leon was not
authorized to issue the subject checks in favor of
E.T. Henry, Inc.; (2) The issuance of the subject
checks by Lourdes M. de Leon and the late Antonio
de las Alas constituted ultra vires acts; and (3) The
subject checks were not issued for valuable
consideration. Hence, Atrium filed the petition.
Issue [1]: Whether the issuance of the checks was
an ultra vires act.
Held [1]: The record reveals that Hi-Cement
Corporation issued the four (4) checks to extend
financial assistance to E.T. Henry, not as payment
of the balance of the P30 million pesos cost of
hydro oil delivered by E.T. Henry to Hi-Cement.
Why else would petitioner de Leon ask for
counterpart checks from E.T. Henry if the checks
were in payment for hydro oil delivered by E.T.
Henry to Hi-Cement? Hi-Cement, however,
maintains that the checks were not issued for
consideration and that Lourdes and E.T. Henry
engaged in a "kiting operation" to raise funds for
E.T. Henry, who admittedly was in need of financial
assistance. There was no sufficient evidence to
show that such is the case. Lourdes M. de Leon is
the treasurer of the corporation and is authorized to
sign checks for the corporation. At the time of the
issuance of the checks, there were sufficient funds
in the bank to cover payment of the amount of P2
million pesos. Thus, the act of issuing the checks
was well within the ambit of a valid corporate act, for
it was for securing a loan to finance the activities of
the corporation, hence, not an ultra vires act. An
ultra vires act is one committed outside the object
for which a corporation is created as defined by the
law of its organization and therefore beyond the
power conferred upon it by law" The term "ultra
vires" is "distinguished from an illegal act for the
former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the
latter is void and cannot be validated.
Issue [2]: Whether Lourdes M. de Leon and
Antonio de las Alas were personally liable for the
checks issued as corporate officers and authorized
signatories of the check.
Held [2]: Personal liability of a corporate director,
trustee or officer along (although not necessarily)
with the corporation may so validly attach, as a rule,
only when: (1) He assents (a) to a patently unlawful
act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its
stockholders or other persons; (2) He consents to
the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3)
He agrees to hold himself personally and solidarily
liable with the corporation; or (4) He is made, by a
specific provision of law, to personally answer for
his corporate action." Herein, Lourdes M. de Leon
and Antonio de las Alas as treasurer and Chairman
of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap
of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were
strictly endorsed for deposit only to the payee's
account and not to be further negotiated. What is
more, the confirmation letter contained a clause that
was not true, that is, "that the checks issued to E.T.
Henry were in payment of Hydro oil bought by Hi-
Cement from E.T. Henry". Her negligence resulted
in damage to the corporation. Hence, Ms. de Leon
may be held personally liable therefor.
G.R. No. L-5377 December 29, 1954
MARIA CLARA PIROVANA ET AL., plaintiffs-
appellees,
vs.
THE DE LA RAMA STEAMSHIP CO., defendant-
appellant.
SYLLABUS
1. CORPORATIONS; DONATIONS; DONATION
GIVEN "OUT OF GRATITUDE FOR SERVICES
RENDERED" IS REMUNERATIVE. — A donation
given by the corporation to the minor children of its
late president because he "was to a large extent
responsible for the rapid and very successful
development and expansion of the activities of this
company" is remunerative in nature in
contemplation of law.
2. ID.; ID.; PERFECTED DONATION CAN ONLY
BE RESCINDED ON LEGAL GROUNDS. — Where
the donation made by the corporation has not only
been granted in several resolutions duly adopted by
its board of directors but also it has been formally
ratified by its stockholders, with the concurrence of
its only creditor, and accepted by the donee, the
donation has reached the stage of perfection which
is valid and binding upon the corporation and as
such cannot be rescinded unless there exist legal
grounds for doing so.
3. ID.; ID.; DONATION DISTINGUISHED FROM
GRATUITY. — While a donation may technically be
different from a gratuity, in substance they are the
same. They are even similar to a pension. Thus, it
was said that "A pension is a gratuity only when it is
granted for services previously rendered, and which
at the time they were rendered gave rise to no legal
obligation." (Words and Phrases, Permanent
Edition, p. 675; O’Dea v. Cook, 169 Pac., 306, 176
Cal., 659.)
4. ID.; POWERS OF A CORPORATION; ACTS
PERFORMED WITHIN THE POWERS GRANTED
ARE NOT "ULTRA VIRES. — Where the
corporation was given broad and almost unlimited
powers to carry out the purposes for which it was
organized among them, to aid in any other manner
any person in the affairs and prosperity of whom it
has a lawful interest, a donation made to the heirs
of its late president in recognition of the valuable
services rendered by the latter which had
immensely contributed to its growth, comes within
this broad grant of power and can not be considered
an ultra vires act.
5. ID.; ID.; "ULTRA VIRES" ILLEGAL ACTS
DISTINGUISHED; EFFECT OF RATIFICATION BY
STOCKHOLDERS. — Illegal acts of a corporation
contemplate the doing of an act which is contrary to
law, morals, or public order, or contravene some
rules of public policy or public duty, and are, like
similar transactions between individuals, void. They
can not serve as basis of a court action, nor acquire
validity by performance, ratification, or estoppel. On
the other hand, ultra vires acts or those which are
not illegal and void ab initio but are merely within
the scope of the article of incorporation, are merely
voidable and may become binding and enforceable
when ratified by the stockholders.
6. ID.; ID.; "ULTRA VIRES" ACTS; RATIFICATION
BY STOCKHOLDERS OF "ULTRA VIRES" ACTS
CURES INFIRMITY. — The ratification by the
stockholders of an ultra vires act which is not illegal
cures the infirmity of the corporate act and makes it
perfectly valid and enforceable, specially so if it is
not merely executory but executed and
consummated and no creditors are prejudiced
thereby.
7. ATTORNEY’S FEES, WHEN MAY BE
AWARDED AS DAMAGES. — When the
defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur
expenses to protect his interest, attorney’s fees may
be awarded as damages (Article 2208, paragraph 2,
of the new Civil Code).
Facts:
Enrico Pirovano was the President and General
Manager of the De la Rama Steamship Company.
Early in 1941 the company insured the life of said
Enrico Pirovano in various Philippine and American
Life Insurance companies. Enrico Pirovano was
largely responsible for the rapid and very successful
development of the activities of the company. He
was killed by the Japanese in Manila sometime in
1944 leaving as his only heirs four minor children.
In view of the fact that Enrico Pirovano left
practically nothing to his heirs, the current President
of De la Rama Steamship proposed that it is but fit
and proper that the company which owes so much
to the deceased should make some provision for his
children. He proposed that out of the proceeds of
the insurance policies the sum of P400,000 be set
aside for Pirovano’s minor children, said sum of
money to be convertible into 4,000 shares of the
stock of the Company, at par, or 1,000 shares for
each child.
A resolution was adopted to carry out the proposal
and submitted to the stockholders of the De la
Rama company at a meeting properly convened,
and on that same date the same was duly
approved.
Sometime in March 1950, the President of the
corporation, Sergio Osmeña, Jr., inquired to the
Securities and Exchange Commission asking for
opinion regarding the validity of the donation of the
proceeds of the insurance policies to the Pirovano
children.
SEC rendered its opinion that the donation was void
because the corporation could not dispose of its
assets by gift and therefore the corporation acted
beyond the scope of its corporate powers.
In 1951, in view of the failure of compliance with the
conditions to which the above donation was made
subject, and in view of the opinion of the SEC
Commissioner, the majority of the stockholders'
voted to revoke the resolution approving the
donation to the Pirovano children.
The minor children of the late Enrico Pirovano,
represented by their mother and guardian, Estefania
demanded the payment of the credit due them,
amounting to P564,980.89, but the company
refused to pay. Thus, they instituted an action in the
Court of First Instance of Rizal.
Issue: Can defendant corporation give by way of
donation the proceeds of said insurance policies to
the minor children of the late Enrico Pirovano under
the law or its articles of corporation, or is that
donation an ultra vires act?
Held: After a careful perusal of the provisions of the
articles of incorporation of the De la Rama
company, we find that the corporation was given
broad and almost unlimited powers to carry out the
purposes for which it was organized among them,
(1) "To invest and deal with the moneys of the
company not immediately required, in such manner
as from time to time may be determined" and, (2)
"to aid in any other manner any person, association,
or corporation of which any obligation or in which
any interest is held by this corporation or in the
affairs or prosperity of which this corporation has a
lawful interest."
The world deal is broad enough to include any
manner of disposition, and refers to moneys not
immediately required by the corporation, and such
disposition may be made in such manner as from
time to time may be determined by the corporations.
The donation in question undoubtedly comes within
the scope of this broad power for it is a fact
appearing in the evidence that the insurance
proceeds were not immediately required when they
were given away.
Granting arguendo that the donation given by
Pirovano children is outside the scope of the powers
of the defendant corporation, or the scope of the
powers that it may exercise under the law, or it is an
ultra vires act, still it may said that the same can not
be invalidated, or declared legally ineffective for the
reason alone, it appearing that the donation
represents not only the act of the Board of Directors
but of the stockholders themselves as shown by the
fact that the same has been expressly ratified in a
resolution duly approved by the latter. By this
ratification, the infirmity of the corporate act, it may
has been obliterated thereby making the act
perfectly valid and enforceable. This is specially so
if the donation is not merely executory but executed
and consummated and no creditors are prejudice,
or if there are creditors affected, the latter has
expressly given their confirmity.
A distinction should be made between corporate
acts or contracts which are illegal and those which
are merely ultra vires.
The former contemplates the doing of an act which
is contrary to law, morals, or public policy or public
duty, and are, like similar transactions between the
individuals void. They cannot serve as basis of a
court action, nor require validity.
Ultra vires acts on the other hand, or those which
are not illegal and void ab initio, but are not merely
within the scope of the articles of incorporation, are
merely voidable and may become binding and
enforceable when ratified by the stockholders. Said
donation, even if ultra vires in the supposition we
have adverted to, is not void, and if voidable its
infirmity has been cured by ratification and
subsequent acts of the defendant corporation. The
defendant corporation, therefore, is now prevented
or estopped from contesting the validity of the
donation.
IRINEO G. CARLOS, plaintiff-appellant, vs.
MINDORO SUGAR CO., ET AL., defendants-
appellees.
Facts: The plaintiff brought this action to recover
from the defendants the value of four bonds, with
due and unpaid interest thereon, issued by the
Mindoro Sugar Company and placed in trust with
the Philippine Trust Company which, in turn,
guaranteed them for value received. Mindoro Sugar
Company is a corporation constituted in accordance
with the laws of the country. According to its articles
of incorporation one of its principal purposes was to
acquire and exercise the franchise granted by Act
No. 2720 to George H. Fairchild, to substitute the
organized corporation.
Philippine Trust Company is another domestic
corporation its principal purpose, then, as its name
indicates, is to engage in the trust business. The
board of directors of the Philippine Trust Company,
adopted a resolution authorizing its president,
among other things, to purchase the bonds in the
Mindoro Sugar Company that was about to issue,
and to resell them, with or without the guarantee of
said trust corporation, at a price not less than par,
and to guarantee to the Philippine National Bank the
payment of the indebtedness to said bank by the
Mindoro Sugar Company. Pursuance of this
resolution, the Mindoro Sugar Company executed in
favor of the Philippine Trust Company the deed of
trust transferring all of its property to it in
consideration of the bonds it had issued. Philippine
Trust Company sold thirteen bonds, to Ramon Diaz.
The Philippine Trust Company paid the appellant,
upon presentation of the coupons, the stipulated
interest from the date of their maturity then it
stopped payments; and thenceforth it alleged that it
did not deem itself bound to pay such interest or to
redeem the obligation because the guarantee given
for the bonds was illegal and void.
Issue: Whether or not PTC has the power to
guarantee and does this act constitute an ultra vires
act?
Held: No. It is not ultra vires for a corporation to
enter into contracts of guaranty or suretyship where
it does so in the legitimate furtherance of its
purposes and business. And it is well settled that
where a corporation acquires commercial paper or
bonds in the legitimate transaction of its business it
may sell them, and in furtherance of such a sale it
may, in order to make them the more readily
marketable, indorse or guarantee their payment.
Whenever a corporation has the power to take and
dispose of the securities of another corporation, of
whatsoever kind, it may, for the purpose of giving
them a marketable quality, guarantee their payment,
even though the amount involved in the guaranty
may subject the corporation to liabilities in excess of
the limit of indebtedness which it is authorized to
incur. A corporation which has power by its charter
to issue its own bonds has power to guarantee the
bonds of another corporation, which has been taken
in payment of a debt due to it, and which it sells or
transfers in payment of its own debt, the guaranty
being given to enable it to dispose of the bond to
better advantage. And so guaranties of payment of
bonds taken by a loan and trust company in the
ordinary course of its business, made in connection
with their sale, are not ultra vires, and are binding.
 When a contract is not on its face necessarily
beyond the scope of the power of the corporation by
which it was made, it will, in the absence of proof to
the contrary, be presumed to be valid.
Republic v. Acoje Mining Co.,
3 SCRA 361 (1963)
IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES
Ultra Vires Acts
(b) Ratification of Ultra Vires Acts:
Facts;
Acoje Mining Company, Inc. wrote the Director of
Posts requesting the opening of a post, telegraph
and money order offices at its mining camp at Sta.
Cruz, Zambales, to service its employees and their
families that were living in said camp. Acting on the
request, the Director of Posts wrote in reply stating
that if aside from free quarters the company would
provide for all essential equipment and assign a
responsible employee to perform the duties of a
postmaster without compensation from his office
until such time as funds therefor may be available
he would agree to put up the offices requested. The
company in turn replied signifying its willingness to
comply with all the requirements outlined in the
letter of the Director of Posts.
The Director of Posts again wrote a letter to the
company stating among other things that "In cases
where a post office will be opened under
circumstances similar to the present, it is the policy
of this office to have the company assume direct
responsibility for whatever pecuniary loss may be
suffered by the Bureau of Posts by reason of any
act of dishonesty, carelessness or negligence on
the part of the employee of the company who is
assigned to take charge of the post office," thereby
suggesting that a resolution be adopted by the
board of directors of the company expressing
conformity to the above condition relative to the
responsibility to be assumed buy it in the event a
post office branch is opened as requested. To which
the company agreed and adopted a board
resolution which provides among others “That the
requirement of the Bureau of Posts that the
Company should accept full responsibility for all
cash received by the Postmaster be complied with,
and that a copy of this resolution be forwarded to
the Bureau of Posts.”
The post office branch was opened at the camp on
October 13, 1949 with one Hilario M. Sanchez as
postmaster. He is an employee of the company,
who went on a three-day leave but never returned.
The company immediately informed the officials of
the Manila Post Office and the provincial auditor of
Zambales of Sanchez' disappearance with the
result that the accounts of the postmaster were
checked and a shortage was found in the amount of
P13,867.24. Several demands made upon the
company for the payment of the shortage in line
with the liability it has assumed having failed, the
government commenced the present action seeking
to recover the amount.
The company in its answer denied liability for said
amount contending that the resolution of the board
of directors wherein it assumed responsibility for the
act of the postmaster is ultra vires, and in any event
its liability under said resolution is only that of a
guarantor who answers only after the exhaustion of
the properties of the principal, aside from the fact
that the loss claimed by the plaintiff is not supported
by the office record.
Issue;
Whether or not the ultra vires act of the company
which in the sense that it has no authority to act on
a matter which may render the company liable as a
guarantor is valid.
Held;
The claim that the resolution adopted by the board
of directors of appellant company is an ultra
vires act cannot be entertained it appearing that the
same covers a subject which concerns the benefit,
convenience and welfare of its employees and their
families. While as a rule an ultra vires act is one
committed outside the object for which a corporation
is created as defined by the law of its organization
and therefore beyond the powers conferred upon it
by law (19 C.J.S., Section 965, p. 419), there are
however certain corporate acts that may be
performed outside of the scope of the powers
expressly conferred if they are necessary to
promote the interest or welfare of the corporation.
Thus, it has been held that "although not expressly
authorized to do so a corporation may become a
surety where the particular transaction is reasonably
necessary or proper to the conduct of its
business,"1 and here it is undisputed that the
establishment of the local post office is a
reasonable and proper adjunct to the conduct of the
business of appellant company. Indeed, such post
office is a vital improvement in the living condition of
its employees and laborers who came to settle in its
mining camp which is far removed from the postal
facilities or means of communication accorded to
people living in a city or municipality..
After the company had signified its willingness to
comply with the requirement of the government that
it furnish free quarters and all the essential
equipment that may be necessary for the operation
of the office including the assignment of an
employee who will perform the duties of a
postmaster, the Director of Posts agreed to the
opening of the post office stating that "In cases
where a post office will be opened under
circumstances similar to the present, it is the policy
of this office to have the company assume direct
responsibility for whatever pecuniary loss may be
suffered by the Bureau of Posts by reason of any
act of dishonesty, carelessness or negligence on
the part of the employee of the company who is
assigned to take charge of the post office," and
accepting this condition, the company, thru its board
of directors, adopted forthwith a resolution of the
following tenor: "That the requirement of the Bureau
of Posts that the company should accept full
responsibility for all cash received by the
Postmaster, be complied with, and that a copy of
this resolution be forwarded to the Bureau of Posts."
On the basis of the foregoing facts, it is evident that
the company cannot now be heard to complain that
it is not liable for the irregularity committed by its
employee upon the technical plea that the resolution
approved by its board of directors is ultra vires. The
least that can be said is that it cannot now go back
on its plighted word on the ground of estoppel.
The Court agreed with the following findings of the a
quo the: "A mere reading of the resolution of the
Board of Directors dated August 31, 1949, upon
which the plaintiff based its claim would show that
the responsibility of the defendant company is not
just that of a guarantor. Notice that the phraseology
and the terms employed are so clear and sweeping
and that the defendant assumed 'full responsibility
for all cash received by the Postmaster.' Here the
responsibility of the defendant is not just that of a
guarantor. It is clearly that of a principal."
Crisologo-Jose VS. CA (1989)
Facts:
Ricardo S. Santos Jr. was the vice-
president of Mover Enterprises, Inc., in charge of
marketing sales; the president was Atty. Oscar Z.
Benares. Atty. Benares, in accommodation of his
clients, spouses Ong, issued check against Traders
Royal Bank in the amount of Php 45,000 payable to
petitioner Ernestina Crisologo-Jose. Since the
check was under the account of their corporation,
Atty. Benares made Santos to sign the same as an
alternative to the treasurer who is unavailable. This
is in consideration of the waiver or quitclaim by
petitioner over a certain parcel of property which the
GSIS agreed to sell to the clients of Atty. Benares,
Spouses Ong, with the understanding that upon
approval by the GSIS of the compromise agreement
with that spouses, the check will be encashed
accordingly. However, since the compromise
agreement was not approved within the expected
period of time, the said check was replaced by
another check with the same amount and the same
was signed again by both Santos and Atty.
Benares. When petitioner deposited the
replacement check, it was dishonored for
insufficiency of funds. Petitioner then constrained to
file a criminal complaint for violation of B.P. 22
against Santos and Benares. During the preliminary
investigation, Santos tendered a check to Crisologo-
Jose in which the latter refused the same. Hence,
Santos deposited it with the Clerk of Court. The trial
court a quo dismissed the complaint filed by Santos
and not persuaded to believe that consignation
referred under Article 1256 is applicable to this
case. CA reversed and set aside judgment of
dismissal and revived Santos’s complaint for
consignation, directing the court a quo to give due
course. Hence, this instant petition by Crisologo-
Jose who avers that the accommodation party in
this case is Mover Enterprises, Inc. and not private
respondent who merely signed the check in
question in a representative capacity, that is, as
vice-president of said corporation, hence, he is not
liable.
Issue:
W/N the corporation may be held liable on
the accommodation instrument?
Ruling:
No.
The provision of the Negotiable Instruments
Law which holds an accommodation party liable on
the instrument to a holder for value, although such
holder at the time of taking the instrument knew him
to be only the accommodation party, does not
include nor apply to corporations which are
accommodation parties. This is because the issue
or indorsement of negotiable paper by a corporation
without consideration and for the accommodation of
another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation
where it is only an accommodation party. If the form
of the instrument, or the nature of the transaction, is
such as to charge the indorsee with knowledge that
the issue or indorsement of the instrument by the
corporation is for the accommodation of another, he
cannot recover against the corporation thereon.
By way of exception, an officer or agent of a
corporation shall have the power to execute or
indorse a negotiable paper in the name of the
corporation for the accommodation of a third person
only if specifically authorized to do so. Corollarily,
corporate officers, such as the president and vice-
president, have no power to execute for mere
accommodation a negotiable instrument of the
corporation for their individual debts or transactions
arising from or in relation to matters in which the
corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced
against the corporation, especially since it is not
involved in any aspect if the corporate business or
operations, the inescapable conclusion in law and in
logic is that the signatories thereof shall be
personally liable therefor, as well as the
consequences arising from their acts in connection
therewith.
The instant case falls squarely within the
purview of the aforesaid decisional rules. If we
indulge petitioner in her aforesaid postulation, then
she is effectively barred from recovering from Mover
Enterprises, Inc. the value of the check. Be that as it
may, petitioner is not without recourse.
Harden vs benguet Consolidated Mining Co.
Facts:
A petition was filed by F. M. Harden here in
known as the petitioner, acting in his own behalf
and that of all other stockholders of the Balatoc
Mining Co. who might join in the action and
contribute to the expense of the suit against , The
defendants are the Benguet Consolidated Mining
Co., the Balatoc Mining Co., H. E. Renz, John W.
Haussermann, and A. W. Beam. The connection of
Renz to this case, was that he was made as trustee
to the certificate of shares which was the subject of
this case.
The principal purpose the original action
was to annul a certificate covering 600,000 shares
of the stock of the Balatoc Mining Co., which have
been issued to the Benguet Consolidated Mining
Co., and to secure to the Balatoc Mining Co.
The Benguet Consolidated Mining Co. was
organized in June, 1903, as a sociedad anonima in
conformity with the provisions of Spanish law; while
the Balatoc Mining Co. was organized in December
1925, as a corporation, in conformity with the
provisions of the Corporation Law (Act No. 1459).
Both entities were organized for the purpose of
engaging in the mining of gold in the Philippine
Islands, and their respective properties are located
only a few miles apart in the sub province of
Benguet.
The Balatoc Corporation on its first years of
operations was not so successful that led to the
order of suspension made by the board of directors.
After the said suspension order, a meeting was held
by the board of directors in order to get capital.
They then approach A.W. Beam president of the
Benget Company to help in developing the
properties of Balatoc Corporation.
Negations was made between them and
come up with the following contract wherein the
Benguet Company was to proceed with the
development and construct a milling plant for the
Balatoc mine, and to erect an appropriate power
plant. In return Benguet Company should receive
from the treasurer of the Balatoc Company shares
of a par value of P600,000, in payment for the first
P600,000 be thus advanced to it by the Benguet
Company.
The petitioner in this case as one of the
major stockholder of the Balatoc company together
with other stock holders to annul the issuance of the
shares of stock for it was unlawful for Benguet
Company to possess shares of Balatoc company by
the provision under a certain Philippine bill act
specifically section 75 of the said act which states “it
shall be unlawful for any member of a corporation
engaged in agriculture or mining and for any
corporation organized for any purpose except
irrigation to be in any wise interested in any other
corporation engaged in agriculture or in mining."
Issue:
Whether or not the issuance of the shares of stock
should be annulled
Held:
Although arrangements between the two
mining companies was prohibited under the terms
of the Corporation law, the supreme court will not
declare the nullity of the arrangements on the
ground that only private rights and interests, not
public interests are involved in the case. The
provision referred to was adopted by the lawmakers
with a sole view to the public policy that should
control in the granting of mining rights.
The defendant Benguet Company has
committed no civil wrong against the plaintiffs, and if
a public wrong has been committed, the directors of
the Balatoc Company, and the plaintiff Harden
himself, were the active inducers of the commission
of that wrong. The contract, supposing it to have
been unlawful in fact, has been performed on both
sides, by the building of the Balatoc plant by the
Benguet Company and the delivery to the latter of
the certificate of 600,000 shares of the Balatoc
Company. There is no possibility of really undoing
what has been done. Nobody would suggest the
demolition of the mill. The Balatoc Company is
secure in the possession of that improvement, and
talk about putting the parties in status quo ante by
restoring the consideration with interest, while the
Balatoc Company remains in possession of what it
obtained by the use of that money, does not quite
meet the case. Also, to mulct the Benguet Company
in many millions of dollars in favor of individuals
who have not the slightest equitable right to that
money in a proposition to which no court can give a
ready assent.
The penalties imposed on what is now Sec. 190 (A)
of the Corporation Law for the violation of the
prohibition in question are of such nature that they
can be enforced only by a criminal prosecution or by
an action of Quo warranto. However these
proceedings can be maintained only by the Attorney
General in representation of the government.
HARDEN v BENGUET CONSOLIDATED MINING
COMPANY
G.R. No. L-37331, March 18, 1933
FACTS: Benguet Consolidated Mining Co. was
organized in June, 1903, as a sociedad anonima in
conformity with the provisions of Spanish law.
Balatoc Mining Co. was organized in December
1925, as a corporation, in conformity with the
provisions of the Corporation Law (Act No. 1459).
Both were organized for mining of gold and their
respective properties are located only a few miles
apart in Benguet. Balatoc capital stock consists of
one million shares of the par value of one peso (P1)
each.
When the Balatoc was first organized, its properties
were largely undeveloped. To improve its
operations, the company’s committee approached
A. W. Beam, then president and general manager of
the Benguet Company, to secure the capital
necessary to the development of the Balatoc
property. A contract was entered into wherein
Benguet will (1) construct a milling plant for the
Balatoc mine, of a capacity of 100 tons of ore per
day, and with an extraction of at least 85 per cent of
the gold content; (2) erect an appropriate power
plant. In return, Benguet will receive from Balatoc
shares of a par value of P600,000.
The total cost incurred by Benguet in developing
Balatoc was P1,417,952.15. A certificate for
600,000 shares of the stock of the Balatoc
Company was given to Benguet and the excess
value was paid to Benguet by Balatoc in cash. Due
to the improvements made by Benguet, the value of
shares of Balatoc increased in the market (from P1
to more than P11) and dividends enriched its
stockholders. Harden, the owner of thousands of
shares of Balatoc, questioned the transfer of
600,000 shares to Benguet with the success of the
development.
ISSUE: W/N it is unlawful for Benguet Company to
hold any interest in a mining corporation.
W/N, assuming the first question to be
answered in the affirmative, the Benguet Company,
which was organized as a sociedad anonima, is a
corporation within the meaning of the
language used by the Congress of the United
States, and later by the Philippine Legislature,
prohibiting a
mining corporation from becoming
interested in another mining corporation.
RULING:
1st Issue: The defendant Benguet Company has
committed no civil wrong against the plaintiffs, and if
a public wrong has been committed, the directors of
the Balatoc Company, and the plaintiff Harden
himself, were the active inducers of the commission
of that wrong. The contract, supposing it to have
been unlawful in fact, has been performed on both
sides.
2nd Issue: Having shown that the plaintiffs in this
case have no right of action against the Benguet
Company for the infraction of law supposed to have
been committed, we forego any discussion of the
further question whether a sociedad anonima
created under Spanish law, such as the Benguet
Company, is a corporation within the meaning of the
prohibitory provision already so many times
mentioned.
A sociedad anonima is something very much like
the English joint stock company, with features
resembling those of both the partnership is shown in
the fact that sociedad, the generic component of its
name in Spanish, is the same word that is used in
that language to designate other forms of
partnership, and in its organization it is constructed
along the same general lines as the ordinary
partnership.
In section 75 of the Corporation Law, a provision is
found making the sociedad anonima subject to the
provisions of the Corporation Law "so far as such
provisions may be applicable", and giving to the
sociedades anonimas previously created in the
Islands the option to continue business as such or
to reform and organize under the provisions of the
Corporation Law.
The provision in Section 75 of the Act Congress of
July 1, 1902 (Philippine Bill), generally prohibiting
corporations engaged in mining and members of
such from being interested in any other corporation
engaged in mining, was amended by section 7 of
Act No. 3518 of the Philippine Legislature, approved
by Congress March 1, 1929. The change in the law
effected by this amendment was in the direction of
liberalization. Thus, the inhibition contained in the
original provision against members of a corporation
engaged in agriculture or mining from being
interested in other corporations engaged in
agriculture or in mining was so modified as merely
to prohibit any such member from holding more
than fifteen per centum of the outstanding capital
stock of another such corporation. Moreover, the
explicit prohibition against the holding by any
corporation (except for irrigation) of an interest in
any other corporation engaged in agriculture or in
mining was so modified as to limit the restriction to
corporations organized for the purpose of engaging
in agriculture or in mining.
Safic Alcan & Cie vs Imperial Vegetable Oil Co.
Facts:
In 1985, Safic Alcan & Cie (SAC), a corporation,
entered into an agreement with Imperial Vegetable
Oil Co., Inc. (IVO) whereby the latter shall deliver
tones of coconut oil to SAC. Both parties complied.
IVO was represented by its president, Dominador
Monteverde. In 1986, SAC again entered into an
several agreements with IVO but this time it was
agreed that IVO shall deliver the coconut oil 8
months from the agreement or sometime in 1987.
This time, IVO failed to deliver and SAC sued IVO.
IVO in its defense aver that Monteverde was acting
beyond his power as president when he made the
1986 agreement with SAC; that Monteverde is
acting beyond his power because the 1986
contracts were speculative in nature and
speculative contracts are prohibited by the by-laws
of IVO.
SAC insists that there is an implied agency between
IVO and Monteverde because SAC and Monteverde
has been transacting since 1985 and that IVO
benefited from said transactions.

ISSUE: Whether or not Monteverde’s act in entering
into the 1986 contracts is ultra vires.
HELD: Yes. It was proven by IVO, when they
presented a copy of their by-laws, that Monteverde
acted beyond his authority when he entered into
speculative contracts with SAC in 1986. The 1986
contracts are speculative because at the time of the
contracts, the coconuts are not even growing at that
time and are yet to be harvested. Hence, the 1986
contracts are sales of mere expectations – and this
is something prohibited by the by-laws and the
Board of Directors of IVO.
There can be no implied agency too simply because
there has been a previous transaction between SAC
and IVO where IVO was represented by
Monteverde. This is because the 1985 contract and
the 1986 contracts are very different. The 1985
contract is not speculative while the 1986 contracts
are speculative hence, SAC should have secured
the confirmation by IVO’s Board that Monteverde is
indeed authorized to enter into such agreements.
Further, Monteverde did not even present the said
1986 agreements before the Board of Directors so
there was, in fact, no occasion at all for ratification.
The contracts were not even reported in IVO’s
export sales book and turn-out book. Neither were
they reflected in other books and records of the
corporation. It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate
power. Clearly, Monteverde’s speculative contracts
with Safic never bound IVO and Safic cannot
therefore enforce those contracts against IVO.
Lipat vs Pacific Bank Corporation
G.R. No. 104720
April 4, 2001
FACTS:
Petitioner spouses Lipat owned Bela’s Export
Trading (BET) a single proprietorship engaged in
the manufacture of garments for domestic and
foreign consumption. The spouses by virtue of an
SPA appointed and authorized their daughter to
obtain loan from respondent Pacific Bank. A loan
was secured and as security therefore a REM was
executed over the property of the spouses.
Sometime after, BET was incorporated into a family
corporation named Bela’s Export Corporation (BEC)
and the loan was restructured in its name.
Subsequent loans were obtained in behalf of BEC
all secured by the previous REM. BEC defaulted in
its payments which led to the foreclosure and sale
of the mortgaged property. The spouses moved to
annul the sale alleging that BEC is a distinct and
separate personality from them and that the REM
was executed only to secure BET’s loan. Both trial
court and CA ruled to pierce the corporate veil to
hold petitioner spouses liable for BEC’s obligations.
ISSUE:
Whether or not the doctrine of piercing the veil of
corporate fiction is applicable in this case.
RULING:
YES.
We find that the evidence on record demolishes,
rather than buttresses, petitioners’ contention that
BET and BEC are separate business entities. Note
that Estelita Lipat admitted that she and her
husband, Alfredo, were the owners of BET and
were two of the incorporators and majority
stockholders of BEC. It is also undisputed that
Estelita Lipat executed a special power of attorney
in favor of her daughter, Teresita, to obtain loans
and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-
vice president and general manager of both BET
and BEC, respectively.
It could not have been coincidental that BET and
BEC are so intertwined with each other in terms of
ownership, business purpose, and management.
Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded
the former. Petitioners’ attempt to isolate
themselves from and hide behind the corporate
personality of BEC so as to evade their liabilities to
Pacific Bank is precisely what the classical doctrine
of piercing the veil of corporate entity seeks to
prevent and remedy.
In our view, BEC is a mere continuation and
successor of BET and petitioners cannot evade
their obligations in the mortgage contract secured
under the name of BEC on the pretext that it was
signed for the benefit and under the name of BET.
We are thus constrained to rule that the Court of
Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil
of BEC.
VICENTE VS GERALDEZ
Facts:
In 1967, HI Cement Corporation was
granted authority to operate mining facilities in
Bulacan. However, the areas allowed for it to
explore cover areas which were also being explored
by Ignacio Vicente, Juan Bernabe, and Moises
Angeles. And so a dispute arose between the three
and HI Cement as neither side wanted to give up
their mining claims over the disputed areas.
Eventually, HI Cement filed a civil case against the
three. During pre-trial, the possibility of an amicable
settlement was explored where HI Cement offered
to purchase the areas of claims of Vicente et al at
the rate of P0.90 per square meter. Vicente et al
however wanted P10.00 per square meter.
In 1969, the lawyers of HI Cement agreed
to enter into a compromise agreement with the
three whereby commissioners shall be assigned by
the court for the purpose of assessing the value of
the disputed areas of claim. An assessment was
subsequently made pursuant to the compromise
agreement and the commissioners recommended a
price rate of P15.00 per square meter.
One of the lawyers of HI Cement, Atty.
Francisco Ventura, then notified the Board of
Directors of HI Cement for the approval of the
compromise agreement. But the Board disapproved
the compromise agreement hence Atty. Ventura
filed a motion with the court to disregard the
compromise agreement. Vicente et al naturally
assailed the motion. Vicente et al insisted that the
compromise agreement is binding because prior to
entering into the compromise agreement, the three
lawyers of HI Cement declared in open court that
they are authorized to enter into a compromise
agreement for HI Cement; that one of the lawyers of
HI Cement, Atty. Florentino Cardenas, is an
executive official of HI Cement; that Cardenas even
nominated one of the commissioners; that such act
ratified the compromise agreement even if it was
not approved by the Board. HI Cement, in its
defense, averred that the lawyers were not
authorized and that in fact there was no special
power of attorney executed in their favor for the
purpose of entering into a compromise agreement.
Judge Ambrosio Geraldez ruled in favor of HI
Cement.
ISSUE: Whether or not a compromise agreement
entered into by a lawyer purportedly in behalf of the
corporation is valid without a written authority.
HELD: No. Corporations may compromise only in
the form and with the requisites which may be
necessary to alienate their property. Under the
corporation law the power to compromise or settle
claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of
Directors but such power may be delegated. The
delegation must be clearly shown for as a general
rule an officer or agent of the corporation has no
power to compromise or settle a claim by or against
the corporation, except to the extent that such
power is given to him either expressly or by
reasonable implication from the circumstances. In
the case at bar, there was no special power of
attorney authorizing the three lawyers to enter into a
compromise agreement. This is even if the lawyers
declared in open court that they are authorized to
do so by the corporation (in this case, the transcript
of stenographic notes does not show that the
lawyers indeed declare such in open court).
The fact that Cardenas, an officer of HI Cement,
acted in effecting the compromise agreement, i.e.
nominating a commissioner, does not ratify the
compromise agreement. There is no showing that
Cardenas’ act binds HI Cement; no proof that he is
authorized by the Board; no proof that there is a
provision in the articles of incorporation of HI
Cement that he can bind the corporation.

Aguenza vs. Metropolitan Bank and Trust Co. et al.
G.R. No. 74336, 4/7/1997
FACTS: On March 21, 1978, private respondents
Vitaliado Arrieta, VP of Intertrade and Lilia P. Perez,
a bookkeeper in the employ of Intertrade, obtained
a P500,000.00 loan from private respondent
Metrobank. Both executed a Promissory Note in
favor of said bank in the amount of P500,000.00.
Under said note, private respondents Arrieta and
Perez promised to pay said amount, jointly and
severally, in twenty five (25) equal installments
of P20,000.00 each starting on April 20, 1979 with
interest of 18.704% per annum, and in case of
default, a further 8% per annum.
Private respondents Arrieta and Perez
defaulted in the payment of several installments,
thus resulting in the entire obligation becoming due
and demandable. In 1979, private respondent
Metrobank instituted suit against Intertrade,
Vitaliado Arrieta, Lilia Perez and her husband,
Patricio Perez, to collect not only the unpaid
principal obligation, but also interests, fees and
penalties, exemplary damages, as well as attorney's
fees and costs of suit.
More than a year after private respondent
Metrobank filed its original complaint, it filed an
Amended Complaint dated August 30, 1980 for the
sole purpose of impleading petitioner as liable for
the loan made by private respondents Arrieta and
Perez on March 21, 1978, notwithstanding the fact
that such liability is being claimed on account of a
Continuing Suretyship Agreement dated March 14,
1977 executed by petitioner and private respondent
Arrieta specifically to guarantee the credit line
applied for by and granted to, Intertrade, through
petitioner and private respondent Arrieta who were
specially given authority by Intertrade on February
28, 1977 to open credit lines with private
respondent Metrobank. The obligations incurred by
Intertrade under such credit lines were completely
paid as evidenced by private respondent
Metrobank's debit memo in the full amount
of P562,443.46.
RTC ruled that petitioner and Intertrade are not
liable for the promissory note executed by Arrieta
and Lilia Perez in the amount of ₱ 500,000 as the
same was the personal liability of the latter.
CA reversed the trial court and ordered Intertrade
and Marketing Co., Inc. and J. Antonio Aguenza to
pay, jointly and severally, the promissory note
contracted by Arrieta and Lilia Perez.
ISSUE : Was the promissory note dated 21 March
1978 secured and signed by Arrieta and Lilia Perez
a corporate liability of Intertrade and Aguenza?
RULING:
NO. Arrieta and Perez were never authorized by
Intertrade through a board resolution of the Board of
Directors of Intertrade authorizing the former to
transact said loan for and in behalf of the
corporation. It is a well-settled rule that a
corporation transacts its business only through its
officers or agents. And the authority of such
officers or agents is derived from the BOD or other
governing body unless conferred by the charter of
the corporation. It is to be noted that the promissory
note dated 21 March 1977 was signed by Arrieta
and Lilia Perez only with no indication as to what
capacity the two signatories had in affixing their
signatures thereon. There is no record that
Intertrade through its BOD, conferred upon Arrieta
and Lilia Perez the authority to contract a loan with
Metrobank and execute the promissory note as a
security therefor.
Metrobank in turn never presented a board
resolution nor a stockholder's resolution showing
that Arrieta and Lilia Perez were empowered by
Intertrade to execute the promissory note. Being
that the promissory note was not the responsibility
of Intertrade, it follows that the same was not
covered by the Continuing Suretyship Agreement.
CA decision is reversed and trial court decision is
REINSTATED.
GR 68555, 19 March 1993
Prime White Cement Corporation
vs. Intermediate Appellate Court
FACTS:
On or about 16 July 1969, Alejandro Te and
Prime White Cement Corporation (PWCC) thru its
President, Mr. Zosimo Falcon and Justo C. Trazo,
as Chairman of the Board, entered into a dealership
agreement whereby Te was obligated to act as the
exclusive dealer and/or distributor of PWCC of its
cement products in the entire Mindanao area for a
term of 5 years.
Right after Te entered into the dealership
agreement, he placed an advertisement in a
national, circulating newspaper the fact of his being
the exclusive dealer of PWWC's white cement
products in Mindanao area, more particularly, in the
Manila Chronicle dated 16 August 1969 and was
even congratulated by his business associates, so
much so, he was asked by some of his
businessmen friends and close associates if they
can be his sub-dealer in the Mindanao area.
ISSUE:
Whether the "dealership agreement"
referred by the President and Chairman of the
Board of PWCC is a valid and enforceable contract.
RULING:
NO.
The “dealership agreement” is not valid and
unenforceable. Under the Corporation Law, which
was then in force at the time the case arose, as well
as under the present Corporation Code, all
corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by law.
Although it cannot completely abdicate its power
and responsibility to act for the juridical entity, the
Board may expressly delegate specific powers to its
President or any of its officers.
In the absence of such express delegation,
a contract entered into by its President, on behalf of
the corporation, may still bind the corporation if the
board should ratify the same expressly or impliedly.
Implied ratification may take various forms — like
silence or acquiescence; by acts showing approval
or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom. Furthermore,
even in the absence of express or implied authority
by ratification, the President as such may, as a
general rule, bind the corporation by a contract in
the ordinary course of business, provided the same
is reasonable under the circumstances. These rules
are basic, but are all general and thus quite flexible.
They apply where the President or other officer,
purportedly acting for the corporations, is dealing
with a third person, i.e., a person outside the
corporation. The situation is quite different where a
director or officer is dealing with his own
corporation. Herein, Te was not an ordinary
stockholder; he was a member of the Board of
Directors and Auditor of the corporation as well. He
was what is often referred to as a "self-dealing"
director.
G.R. No. L-18287 March 30, 1963
TRINIDAD J. FRANCISCO, plaintiff-appellee,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,
defendant-appellant.
1. CORPORATIONS; BINDING EFFECT OF ACTS
OF CORPORATE OFFICERS. — A corporation
cannot evade the binding effect produced by a
telegram sent by its board secretary, and the
addressee of such telegram cannot be blamed for
relying upon it, because if every person dealing with
a corporation were held duty-bound to disbelieve
every act of its responsible officers no matter how
regular it should appear on its face, corporate
transactions would speedily come to a standstill.
2. ID.; ID.; WHEN CORPORATION ESTOPPED TO
DENY APPARENT AUTHORITY OF ITS
OFFICERS. — If a private corporation intentionally
or negligently clothes its officers or agents with
apparent power to perform acts for it, the
corporation will be estopped to deny that such
apparent authority is real, as to innocent third
persons dealing in good faith with such officers or
agents. (2 Fletcher’s Cyclopedia, Priv. Corp, 255,
perm. Ed.)
3. ID.; ID.; ID.; WHEN NOTICE OF FACTS BY A
CORPORATE OFFICER IS NOTICE TO
CORPORATION. — Knowledge of facts acquired or
possessed by an officer or agent of a corporation in
the course of his employment, and in relation to
matters within he communicates such knowledge or
not. (Ballentine, Law on Corporations, section 112).

4. ID.; ID.; ID.; SILENCE OF CORPORATION AS
RATIFICATION OF AGREEMENT. — The silence
of the corporation, taken together with the
unconditional acceptance of three subsequent
remittances from plaintiff, constitutes a binding
ratification of the original agreement between them
(Civil Code, Article 1393).
5. ID.; ID.; ID.; MAXIM THAT THE ONE WHO
MADE IT POSSIBLE FOR A WRONG TO BE
DONE SHOULD SUFFER. — The equitable maxim
that between two innocent parties the one who
made it possible for the wrong to be done should be
the one to bear the resulting loss, applies when—as
in the instant case—a corporation allows one of its
officers, now alleged to be without the proper
authority, to send a telegram binding the
corporation.
6. DAMAGES; BREACH OF CONTRACT; MORAL
DAMAGES NOT WARRANTED IF BREACH IS
NOT MALICIOUS OR FRAUDULENT. — Award of
moral damages under Article 2220 of the Civil Code
is not warranted if the breach of contract is not
malicious or fraudulent (Ventanilla v. Centeno, 110
Phil., 811; Flores v. Miranda, 105 Phil., 266).
7. ID.; ID.; WHEN EXEMPLARY DAMAGES
ALLOWED. — Exemplary damages are only
allowed in addition to moral, temperate liquidated,
or compensatory damages (Art. 2234, Civil Code;
Velayo v. Shell Co. of P.I. 100 Phil., 186; Singson,
Et. Al. v. Aragon and Lorza, 92 Phil. 514; 49 Off.
Gaz. No. 2, 515).
8. ATTORNEY’S FEES; AWARD ESSENTIALLY
DISCRETIONARY ALLOWED. — The award of
attorney’s fees is essentially discretionary with the
trial court, and no abuse of discretion is committed
when the court refuses to make an award because
of the absence of gross and evident bad faith in
defendant’s refusal to satisfy plaintiff’s claim, or of
any of the other grounds enumerated in Article 2208
of the Civil Code.
FACTS:
On 10 October 1956, the plaintiff, Trinidad J.
Francisco, in consideration of a loan in the amount
of P400,000.00, mortgaged in favor of the
defendant, Government Service Insurance System,
a parcel of land containing an area of 18,232 square
meters, with twenty-one (21) bungalows, known as
Vic-Mari Compound, located at Baesa, Quezon
City, payable within ten (10) years in monthly
installments of P3,902.41, and with interest of 7%
per annum compounded monthly.
On 6 January 1959, the GSIS extrajudicially
foreclosed the mortgage on the ground that up to
that date the plaintiff-mortgagor was in arrears on
her monthly installments in the amount of
P52,000.00. Payments made by the plaintiff at the
time of foreclosure amounted to P130,000.00. GSIS
itself was the buyer of the property in the
foreclosure sale.
But then, Trinidad’s father, Atty. Vicente Francisco,
wrote a letter to general manager of the defendant
corporation, Mr. Rodolfo P. Andal, offering that he
pay P30k off the loan and then allow GSIS to
administer the mortgaged property instead of
foreclosing it; that thereafter, GSIS shall receive
rents from the tenants of the land until the arrears
are paid and the account is made current or up to
date (because the total of the monthly rents is
bigger than the monthly loan payments supposed to
be paid by Trinidad to GSIS).
GSIS, through its general manager Rodolfo Andal,
responded with a letter which states that the GSIS
Board had accepted Vicente’s offer. But GSIS for
some reason did not take over the property.
Nevertheless, the Franciscos collected rents and
turned them over to GSIS.
Then in 1960, GSIS demanded Trinidad Francisco
to pay off the loan. Vicente then reminded GSIS of
the concluded contract generated by his offer and
its acceptance by telegram of the same date, the
compliance of the terms of the offer already
commenced by the plaintiff.
Defendant countered that the telegram should be
disregarded in view of its failure to express the
contents of the board resolution due to the error of
its minor employees in couching the correct wording
of the telegram.
Hence, the plaintiff instituted the present suit, for
specific performance and damages. The defendant
answered, pleading that the binding acceptance of
Francisco's offer was the resolution of the Board,
and that Andal's telegram, being erroneous, should
be disregarded.
After trial, the court below found that the offer of
Atty. Francisco, dated 20 February 1959, made on
behalf of his daughter, had been unqualifiedly
accepted, and was binding, and rendered judgment
as noted at the start of this opinion.
ISSUE: Whether or not the telegram generated a
contract that is valid and binding upon the parties.
RULING:
In the case at bar, the response by GSIS to Vicente
by way of a telegram, is within the apparent
authority of Andal. If there are any irregularities in
the telegraph i.e., the sending of the secretary
without the authority of Andal, Vicente is not
expected to know it because the telegram on its
face is clear as to the acceptance. Vicente cannot
therefore be faulted for relying on the telegram; that
GSIS accepted his offer. Hence, GSIS cannot now
ask Francisco to suddenly pay off the debt.
GSIS cannot also deny that it has knowledge of the
acceptance. A corporation cannot see, or know,
anything except through its officers. Knowledge of
facts acquired or possessed by an officer or agent
of a corporation in the course of his employment,
and in relation to matters within the scope of his
authority, is notice to the corporation, whether he
communicates such knowledge or not. Andal is
presumed to have knowledge of the acceptance
because it was his office which sent it to Vicente.
Knowledge of Andal, an officer of GSIS, is deemed
knowledge of GSIS.
At any rate, even if the compromise agreement is
void because of the “unauthorized” telegram,
GSIS’s silence and acceptance of the subsequent
remittances of the Franciscos ratified the
compromise agreement.
The offer of compromise made by plaintiff in the
letter had been validly accepted, and was binding
on the defendant. There was nothing in the
telegram that hinted at any anomaly, or gave
ground to suspect its veracity, and the plaintiff,
therefore, cannot be blamed for relying upon it.
There is no denying that the telegram was within
Andal's apparent authority, but the defense is that
he did not sign it, but that it was sent by the Board
Secretary in his name and without his knowledge.
Assuming this to be true, how was appellee to know
it? Corporate transactions would speedily come to a
standstill were every person dealing with a
corporation held duty-bound to disbelieve every act
of its responsible officers, no matter how regular
they should appear on their face.
As already observed, it is familiar doctrine that if a
corporation knowingly permits one of its officers, or
any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the
public as possessing power to do those acts, the
corporation will, as against any one who has in
good faith dealt with the corporation through such
agent, be estopped from denying his authority; and
where it is said "if the corporation permits" this
means the same as "if the thing is permitted by the
directing power of the corporation."
A person who knows that the officer or agent of the
corporation habitually transacts certain kinds of
business for such corporation under circumstances
which necessarily show knowledge on the part of
those charged with the conduct of the corporate
businesS.
PRIME WHITE VS IAC
Facts:
A director (Te) entered into an agreement
of Dealership agreement with PWCC, signed by
its chairman and president of the corporation to
supply 20,000 bags of white cement per month for
five years at a fixed price of P9.70 per bag.
Subsequently, the Board refused to abide by the
contract unless new conditions are accepted
providing for a new price formula. The dealing
director sued for specific performance on the
contract.
Issue:
W/N the terms of said dealership
agreement binds the corporation.
Ruling:
No, since the terms were unreasonable for
the corporation and that the unfairness in the
contract was a basis which renders a contract
entered into the President without authority from
the Board, void or voidable, although it may have
been in the ordinary course of business.
The Court held that under both the
Corporation Law then and the present
Corporation Code, the doctrine is that all corporate
powers shall be exercised by the Board of Directors,
except as those provided by law. Although it
cannot completely abdicate its powers and
responsibility to act for the juridical entity, the
Board may expressly delegate specific powers to
its president or any of its officers. In the absence
of such express delegation, a contract entered into
by its President on behalf of the corporation may
still bind the corporation if the Board should ratify
the same expressly or impliedly.
On the other hand, a director's contract with
his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under
the circumstances, it may be ratified by the
stockholders provided a full disclosure of his
adverse interest is made. Section 32 of the
Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or
officers with the corporation. — A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are
present:
1. That the presence of such director or
trustee in the board meeting in which the contract
was approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee
was not necessary for the approval of the contract;
3. That the contract is fair and reasonable
under the circumstances; and
4. That in the case of an officer, the contract
with the officer has been previously authorized by
the Board of Directors.
Where any of the first two conditions set
forth in the preceding paragraph is absent, in the
case of a contract with a director or trustee, such
contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of two-thirds (2/3) of
the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest
of the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair
and reasonable under the circumstances.
Although the old Corporation Law which
governs the instant case did not contain a similar
provision, yet the cited provision substantially
incorporates well-settled principles in corporate law.
Implied ratification takes various forms (1)
silence or acquiescence (2) by acts showing
approval or adoption of the contract or (3) by
acceptance and retention of the benefits flowing
therefrom.
Even in the absence of express or
implied authority by ratification, the President as a
general rule may bind the corporation by a
contract in the ordinary course of business,
provided the same is reasonable under the
circumstances. These rules are basic but general
and flexible. Applies where the President is
dealing with third persons but different where a
director is dealing with his own corporation.
The court herein held that the director
holds a position of trust and as such he owes a duty
of loyalty to his corporation and his contracts with
the corporation must always be at reasonable
terms otherwise the contract is void or voidable at
the instance of the corporation.
NOTE: The President as the highest office
of the corporation, by practice and jurisprudence
embodies apparent authority. On the other hand,
the general manager on its own may or may not
embody such authority depending on the
circumstances that go with it. The corporate
secretary and lawyer enjoy no such presumption
because their positions do entail much commercial
significance.
Prime white vs iac
220 SCRA 103 – Commercial Law – Corporation
Code – Award of Moral Damages to Corporations –
Self-Dealing Director
In July 1969, Zosimo Falcon and Justo Trazo
entered into an agreement with Alejandro Te
whereby it was agreed that from 1970 to 1976, Te
shall be the sole dealer of 20,000 bags Prime White
cement in Mindanao. Falcon was the president of
Prime White Cement Corporation (PWCC) and
Trazo was a board member thereof. Te was
likewise a board member of PWCC. It was agreed
that the selling price for a bag of cement shall be
P9.70.
Before the bags of cement can be delivered, Te
already made known to the public that he is the sole
dealer of cements in Mindanao. Various hardwares
then approached him to be his sub-dealers, hence,
Te entered into various contracts with them.
But then apparently, Falcon and Trazo were not
authorized by the Board of PWCC to enter into such
contract. Nevertheless, the Board wished to retain
the contract but they wanted some amendment
which includes the increase of the selling price per
bag to P13.30 and the decrease of the total amount
of cement bags from 20k to 8k only plus the
contract shall only be effective for a period of three
months and not 6 years.
Te refused the counter-offer. PWCC then awarded
the contract to someone else.
Te then sued PWCC for damages. PWCC filed a
counterclaim and in said counterclaim, it is claiming
for moral damages the basis of which is the claim
that Te’s filing of a civil case against PWCC
destroyed the company’s goodwill. The lower court
ruled in favor Te.
ISSUE: Whether or not the ruling of the lower court
is correct.
HELD: No. Te is what can be called as a self-
dealing director – he deals business with the same
corporation in which he is a director. There is
nothing wrong per se with that. However, Sec. 32
provides that:
SEC. 32. Dealings of directors, trustees or
officers with the corporation. —- A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in
the board meeting in which the contract was
approved was not necessary to constitute a quorum
for such meeting;
2. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under
the circumstances; and
4. That in the case of an officer, the contract with
the officer has been previously authorized by the
Board of Directors.
In this particular case, the Supreme Court focused
on the fact that the contract between PWCC and Te
through Falcon and Trazo was not reasonable.
Hence, PWCC has all the rights to void the contract
and look for someone else, which it did. The
contract is unreasonable because of the very low
selling price. The Price at that time was at least
P13.00 per bag and the original contract only
stipulates P9.70. Also, the original contract was for
6 years and there’s no clause in the contract which
protects PWCC from inflation. As a director, Te in
this transaction should protect the corporation’s
interest more than his personal interest. His failure
to do so is disloyalty to the corporation.
Anent the issue of moral damages, there is no
question that PWCC’s goodwill and reputation had
been prejudiced due to the filing of this case.
However, there can be no award for moral damages
under Article 2217 of the Civil Code in favor of a
corporation.
G.R. No. L-53820 June 15, 1992
YAO KA SIN TRADING, owned and operated by
YAO KA SIN, petitioner, vs.
HONORABLE COURT OF APPEALS and PRIME
WHITE CEMENT CORPORATION, represented
by its President-Chairman, CONSTANCIO B.
MALAGNA, respondents.
Facts: In 1973, Constancio Maglana, president of
Prime White Cement Corporation, sent an offer
letter to Yao Ka Sin Trading. The offer states that
Prime White is willing to sell 45,000 bags of cement
at P24.30 per bag. The offer letter was received by
Yao Ka Sin’s manager, Henry Yao. Yao accepted
the letter and pursuant to the letter, he sent a check
in the amount of P243,000.00 equivalent to the
value of 10,000 bags of cement. However, the
Board of Directors of Prime White rejected the offer
letter sent by Maglana but it considered Yao’s
acceptance letter as a new contract offer hence the
Board sent a letter to Yao telling him that Prime
White is instead willing to sell only 10,000 bags to
Yao Ka Sin and that he has ten days to reply; that if
no reply is made by Yao then they will consider it as
an acceptance and that thereafter Prime White shall
deposit the P243k check in its account and then
deliver the cements to Yao Ka Sin. Henry Yao never
replied.
Later, Yao Ka Sin sued Prime White to compel the
latter to comply with what Yao Ka Sin considered as
the true contract, i.e., 45,000 bags at P24.30 per
bag. Prime White in its defense averred that
although Maglana is empowered to sign contracts in
behalf of Prime White, such contracts are still
subject to approval by Prime White’s Board, and
then it still requires further approval by the National
Investment and Development Corporation (NIDC), a
government owned and controlled corporation
because Prime White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a
binding contract because it was made under the
apparent authority of Maglana. The trial court ruled
in favor of Yao Ka Sin. The Court of Appeals
reversed the trial court.
Issue: Whether or not the president of a corporation
is clothed with apparent authority to enter into
binding contracts with third persons without the
authority of the Board.
Ruling: No. The Board may enter into contracts
through the president. The president may only enter
into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to
approval by the Board. Unlike a general manager
(like the case of Francisco vs GSIS), the president
has no apparent authority to enter into binding
contracts with third persons. Further, if indeed the
by-laws of Prime White did provide Maglana with
apparent authority, this was not proven by Yao Ka
Sin.
As a rule, apparent authority may result from (1) the
general manner, by which the corporation holds out
an officer or agent as having power to act or, in
other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in
his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or
 Subsequently, petitioner repeatedly demanded payment for
without the scope of his ordinary powers. These are
not present in this case. her services but Ms. Lopez just ignored the demands. Ms.
Lopez curtly replied that she was not entitled to it because her
Also, the subsequent letter by Prime White to Yao designs did not conform to the banks policy of having a
Ka Sin is binding because Yao Ka Sin’s failure to standard design, and that there was no agreement between
her and the bank.
respond constitutes an acceptance, per stated in
the letter itself – which was not contested by Henry
Issue;
Yao during trial.
Whether or not there was a perfected contract between
petitioner Jazmin Soler and respondents COMBANK and Nida
ASMIN SOLER, vs. COURT OF APPEALS,Lopez, and whether or not Nida Lopez, the manager of the
bank branch, had authority to bind the bank in the transaction.
COMMERCIAL BANK OF MANILA, and
NIDA LOPEZ,
Held;
G.R. No. 123892
May 21, 2001 The discussions between petitioner and Ms. Lopez was to the
effect that she had authority to engage the services of
petitioner. During their meeting, she even gave petitioner
IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES specifications as to what was to be renovated in the branch
(ii) Theory of Apparent Authority (Art. 1883, Civil Code) premises and when petitioners requested for the blueprints of
the building, Ms. Lopez supplied the same.
Ms. Lopez was aware that petitioner hired the services of
people to help her come up with the designs for the
Facts; December, 1986 board meeting of the bank. Ms. Lopez even
insisted that the designs be rushed in time for presentation to
the bank. With all these discussion and transactions, it was
apparent to petitioner that Ms. Lopez indeed had authority to
Petitioner Jazmin Soler is a Fine Arts graduate of the engage the services of petitioner.
University of Sto. Tomas, Manila. She is a well known
licensed professional interior designer. In November 1986, In the case at bar, there was a perfected oral contract. When
Ms. Lopez and petitioner met in November 1986, and
her friend Rosario Pardo asked her to talk to Nida Lopez,
discussed the details of the work, the first stage of the
who was manager of the COMBANK (COMMERCIAL BANK contract commenced. When they agreed to the payment of
OF MANILA) Ermita Branch for they were planning to the ten thousand pesos (P10,000.00) as professional fees of
renovate the branch offices. petitioner and that she should give the designs before the
December 1986 board meeting of the bank, the second stage
During the November 1986 meeting between petitioner and of the contract proceeded, and when finally petitioner gave
Ms. Lopez, there were discussions as to what was to be the designs to Ms. Lopez, the contract was consummated.
renovated, which included a provision for a conference room, Petitioner believed that once she submitted the designs she
a change in the carpeting and wall paper, provisions for would be paid her professional fees. Ms. Lopez assured
bookshelves, a clerical area in the second floor, dressing up petitioner that she would be paid.
the kitchen, change of the ceiling and renovation of the tellers
booth. Ms. Lopez again assured petitioner that the bank It is familiar doctrine that if a corporation knowingly
would pay her fees. permits one of its officers, or any other agent, to act
within the scope of an apparent authority, it holds him
out to the public as possessing the power to do those
After a few days, petitioner requested for the blueprint of the
building so that the proper design, plans and specifications acts; and thus, the corporation will, as against anyone
could be given to Ms. Lopez in time for the board meeting in who has in good faith dealt with it through such agent, be
December 1986. Petitioner also did her research on the estopped from denying the agents authority.
designs and individual drawings of what the bank
wanted. She also hired the services of an electrical engineer,
architects and also contacted the suppliers of the wallpaper
and the sash makers for their quotation. So come December First Philippine International Bank VS. CA (1996)
1986, the lay out and the design were submitted to Ms.
Lopez. She even told petitioner that she liked the designs. Facts:
 Petitioner First Philippine International Bank
is a baking institution organized and existing under
the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera was the Head Manager
of the Property Management Department of the
petitioner bank. Respondent Carlos Ejercito is the
assignee of original plaintiffs-appellees Demetrio
Demetria and Jose Janolo. Petitioner bank acquired
six parcels of land which was used to be owned by
BYME Investment and Development Corporation
which had them mortgaged with the bank as
collateral for a loan. Plaintiffs wanted to buy said
property and thus initiated negotiations for that
purpose. Plaintiffs then as suggested by BYME met
with Rivera in which made plaintiff Janolo to create
a forma purchase offer to the bank. Several tenders
of payment were made but petitioner bank claimed
that Rivera has no authority to sell said property.
Plaintiffs then filed a suit for specific performance
with damages against the bank and its manager.
The basis of the suit was that the transaction had
with the bank resulted in a perfected contract of
sale. The defendants took the position that there
was no such perfected sale because defendant
Rivera is not authorized to sell the property, and
that there was no meeting of the minds as to the
price.
Issue:
W/N Rivera has no authority to act.
Ruling:
Yes.
The authority of a corporate officer in
dealing with third persons may be actual or
apparent. The doctrine of apparent authority, with
special reference to banks, was laid out in
Prudential Bank VS. Court of Appeals, where it was
held that:
“Conformably, we have declared in
countless decisions that the principal is liable for
obligations contracted by the agent. The agent’s
apparent representation yields to the principal’s true
representation and the contract is considered as
entered into between the principal and the third
person.
A bank is liable for wrongful acts of its
officers done in the interests of the bank or in the
course of dealings of the officers in their
representative capacity but not for acts outside the
scope of their authority. A bank holding out its
officers and agents as trustworthy of confidence will
not be permitted to profit by the frauds they may
accrue to the bank therefrom. Accordingly, a
banking corporation is liable to innocent third
persons where the representation is made in the
course of its business by an agent acting within the
general scope of his authority and attempting to
perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit.
Application of these principles is especially
necessary because banks have a fiduciary
relationship with the public and their stability
depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded
where banks do not exercise strict care in the
selection and supervision of its employees, resulting
in prejudice to their depositors.”
From the evidence found by respondent
Court, it is obvious that petitioner Rivera has
apparent or implied authority to act for the Bank in
the matter of selling its acquired assets.
Traders royal bank vs ca
Facts:
Filriters Guaranty Assurance Corporation
(FGAC) is the owner of several Central Bank
Certificates of Indebtedness (CBCI). These
certificates are actually proof that FGAC has the
required reserve investment with the Central Bank
to operate as an insurer and to protect third persons
from whatever liabilities FGAC may incur. In 1979,
FGAC agreed to assign said CBCI to Philippine
Underwriters Finance Corporation (PUFC). Later,
PUFC sold said CBCI to petitioner Traders Royal
Bank (TRB). Said sale with TRB comes with a right
to repurchase on a date certain. However, when the
day to repurchase arrived, PUFC failed to
repurchase said CBCI hence TRB requested the
Central Bank to have said CBCI be registered in
TRB’s name. Central Bank refused as it alleged that
the CBCI are not negotiable; that as such, the
transfer from FGAC to PUFC is not valid; that since
it was invalid, PUFC acquired no valid title over the
CBCI; that the subsequent transfer from PUFC to
TRB is likewise invalid.
TRB then filed a petition for mandamus to
compel the Central Bank to register said CBCI in
TRB’s name. TRB averred that PUFC is the alter
ego of FGAC; that PUFC owns 90% of FGAC; that
the two corporations have identical sets of directors;
that payment of said CBCI to PUFC is like a
payment to FGAC hence the sale between PUFC
and TRB is valid. In FGAC’s point it has Without any
consideration or benefit whatsoever to FGAC’s, in
violation of law and the trust fund doctrine and to
the prejudice of policyholders and to all who have
present or future claim against policies issued by
FGAC, Alfredo Banaria, then Senior Vice-President-
Treasury of FGAC, without any board resolution,
knowledge or consent of the board of directors of
Filriters, and without any clearance or authorization
from the Insurance Commissioner, executed a
detached assignment purportedly assigning CBCI
No. 891 to PUFC.
Issue:
Whether or not there was valid transfer of the CBCI
from FGAC to CBCI in order for TRB to acquire a
valid ownership over the said CBCI.
Held:
Sec. 3. Assignment of Registered Certificates. —
Assignment of registered certificates shall not be
valid unless made at the office where the same
have been issued and registered or at the Securities
Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in
person or by his representative, duly authorized in
writing. For this purpose, the transferee may be
designated as the representative of the registered
owner.
Petitioner, being a commercial bank, cannot feign
ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate
agents within circumstances showing that the
agents are acting in excess of corporate authority,
may not hold the corporation liable. 22 This is only
fair, as everyone 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. 23
The transfer made by Filriters to Philfinance did not
conform to the said. Central Bank Circular, which for
all intents, is considered part of the law. As found by
the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to
Philfinance, purportedly for and in favor of Filriters,
did not have the necessary written authorization
from the Board of Directors of Filriters to act for the
latter. As it is, the sale from Filriters to Philfinance
was fictitious, and therefore void and inexistent, as
there was no consideration for the same. This is
fatal to the petitioner's cause, for then, Philfinance
had no title over the subject certificate to convey the
Traders Royal Bank. Nemo potest nisi quod de jure
potest — no man can do anything except what he
can do lawfully.
NYCO Sales Corp vs BA Finance Corp
G.R. No. 71694
August 16, 1991
FACTS:
Nyco Sales whose president and general
manager Rufino Yao is engaged in the business
of selling construction materials.
Fernandezes acting on behalf of Sanshell
Corporation approached Yao for credit
accommodation. They requested Nyco thru Yao
to garant Sanshell discounting priveleges which
Nyco had with BA Finance.
Fernandezes went to Yao for the purpose of
discounting Sanshell’s BPI PDC’s on the aount
of Php 60,000 payable to Nyco. Nyco then thru
Yao endorsed the check in favor of BA Finance.
BA Finance then issued a check payable Nyco
which endorsed it in favor of Sanshell which
made use of the negotiation. Nyco executed a
Deed of Assignment in favor of BA Finance with
the conformity of Sanshell. Under the deed, the
subject of Assignment was the BPI PDC Check.
Agreed that there will be a Continuing
Suretyship Agreement whereby Fernandezes
unconditionally guaranteed to BA Finance the
compliance of all indebtness of Nyco. The
check was subsequently dishonored by the
drawee bank upon presentment for payment.
BA Finance reported the matter to the
Fernandezes and issued a substitute (Security
Bank) check with the same amount to BA
Finance which was again subsequently
dishonored.
Despite repeated demands, Nyco and the
Fernandezes failed to pay the obligation. BA
Finance then instituted an action to the court.
Nyco and Fernandezes were considered in
default. TC ruled in favor of BA Finance
ordering the Fernandezes and Nycho solidarily
to pay the former. Nycho moved to set aside the
order and impleaded Sanshell. TC ruled in favor
of BA Finance.
With regards to the Fernandezes, the TC
denied the cross claim of Nycho because it
seems that Fernadezes never received the
 cross claim of Nycho and have not been
declared in default.
Upon appeal, affirmed TC decision with
modification with respect to the running time of
interest running from February 19, 1979 instead
of February 1 1979.
Hence this appeal.
NYCHO’S CONTENTIONS:
o Discharged of liability when BA Finance failed
to give a notice of dishonor.
o No novation when BA Finance accepted SBTC
check.
o Yao as President is not authorized to enter into
credit assignment with BA Finance since there
is no Board Resolution authorizing the same.
ISSUE:
Whether or not Nyco is liable for the acts of its
president.
RULING:
YES.
The by-laws of Nyco expressly authorized its
President to enter into contracts, borrowing money ,
signing, indorsing checks in behalf of the compant.
Also, it appears that the same kind of transaction
already happened between Nyco and BA Finance.
Hence, Nyco is placed from estopped from denying
Yao’s authority because of its silence just to escape
liability.
Inter-Asia Investments Industries vs. Court of
Appeals
[GR 125778, 10 June 2003]
Facts: On 1 September 1978, Inter-Asia Industries,
Inc. (Inter-Asia), by a Stock Purchase Agreement
(the Agreement), sold to Asia Industries, Inc. (Asia
Industries) for and in consideration of the sum of
P19,500,000.00 all its right, title and interest in and
to all the outstanding shares of stock of
FARMACOR, INC. (FARMACOR). The Agreement
was signed by Leonides P. Gonzales and Jesus J.
Vergara, presidents of Inter-Asia and Asia
Industries, respectively. Under paragraph 7 of the
Agreement, Inter-Asia as seller made warranties
and representations. The Agreement was later
amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of 30 September
1978, which was moved to 31 October 1978, and to
the mode of payment of the purchase price. The
Agreement, as amended, provided that pending
submission by SGV of FARMACOR's audited
financial statements as of 31 October 1978, Asia
Industries may retain the sum of P7,500,000.00 out
of the stipulated purchase price of P19,500,000.00;
that from this retained amount of P7,500,000.00,
Asia Industries may deduct any shortfall on the
Minimum Guaranteed Net Worth of P12,000,000.00;
and that if the amount retained is not sufficient to
make up for the deficiency in the Minimum
Guaranteed Net Worth, Inter-Asia shall pay the
difference within 5 days from date of receipt of the
audited financial statements.
Asia Industries paid Inter-Asia a total amount of
P12,000,000.00: P5,000,000.00 upon the signing of
the Agreement, and P7,000,000.00 on 2 November
1978. From the STATEMENT OF INCOME AND
DEFICIT attached to the financial report dated 28
November 1978 submitted by SGV, it appears that
FARMACOR had, for the 10 months ended 31
October 1978, a deficit of P11,244,225.00. Since
the stockholder's equity amounted to
P10,000,000.00, FARMACOR had a net worth
deficiency of P1,244,225.00. The guaranteed net
worth shortfall thus amounted to P13,244,225.00
after adding the net worth deficiency of
P1,244,225.00 to the Minimum Guaranteed Net
Worth of P12,000,000.00. The adjusted contract
price, therefore, amounted to P6,225,775.00 which
is the difference between the contract price of
P19,500,000.00 and the shortfall in the guaranteed
net worth of P13,224,225.00. Asia Industries having
already paid Inter-Asia P12,000,000.00, it was
entitled to a refund of P5,744,225.00. Inter-Asia
thereafter proposed, by letter of 24 January 1980,
signed by its president, that Asia Industries's claim
for refund be reduced to P4,093,993.00, it promising
to pay the cost of the Northern Cotabato Industries,
Inc. (NOCOSII) superstructures in the amount of
P759,570.00. To the proposal respondent agreed. Section 23 of the Corporation Code of the
Inter-Asia, however, welched on its promise. Philippines. Under this provision, the power and
responsibility to decide whether the corporation
should enter into a contract that will bind the
corporation is lodged in the board, subject to the
Inter-Asia's total liability thus stood at
articles of incorporation, bylaws, or relevant
P4,853,503.00 (P4,093,993.00 plus P759,570.00)
provisions of law. However, just as a natural person
exclusive of interest. On 5 April 1983, Asia
may authorize another to do certain acts for and on
Industries filed a complaint against Inter-Asia with
his behalf, the board of directors may validly
the Regional Trial Court of Makati, one of two
delegate some of its functions and powers to
causes of action of which was for the recovery of
officers, committees or agents. The authority of
above-said amount of P4,853,503.00 17 plus
such individuals to bind the corporation is generally
interest. Denying Asia Industries's claim, Inter-Asia
derived from law, corporate bylaws or authorization
countered that Asia Industries failed to pay the
from the board, either expressly or impliedly by
balance of the purchase price and accordingly set
habit, custom or acquiescence in the general course
up a counterclaim. Finding for Asia Industries, the
of business, viz: "A corporate officer or agent may
trial court rendered on 27 November 1991 a
represent and bind the corporation in transactions
Decision, ordering Inter-Asia to pay Asia Industries
with third persons to the extent that [the] authority to
the sum of P4,853,503.00 plus interest thereon at
do so has been conferred upon him, and this
the legal rate from the filing of the complaint until
includes powers as, in the usual course of the
fully paid, the sum of P30,000.00 as attorney's fees
particular business, are incidental to, or may be
and the costs of suit; and (b) dismissing the
implied from, the powers intentionally conferred,
counterclaim. On appeal to the Court of Appeals,
powers added by custom and usage, as usually
and by Decision of 25 January 1996, the Court of
pertaining to the particular officer or agent, and such
Appeals affirmed the trial court's decision. Inter-
apparent powers as the corporation has caused
Asia's motion for reconsideration of the decision
person dealing with the officer or agent to believe
having been denied by the Court of Appeals by
that it has conferred.... [A]pparent authority is
Resolution of 11 July 1996, Inter-Asia filed the
derived not merely from practice. Its existence may
petition for review on certiorari.
be ascertained through (1) the general manner in
which the corporation holds out an officer or agent
as having the power to act or, in other words the
Issue: Whether the 24 January 1980 letter signed apparent authority to act in general, with which it
by Inter-Asia’s president is valid and binding. clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of
his ordinary powers. It requires presentation of
Held: The 24 January 1980 letter signed by Inter-
evidence of similar acts executed either in its favor
Asia's president is valid and binding. As held in the
or in favor of other parties. It is not the quantity of
case of People's Aircargo and Warehousing Co.,
similar acts which establishes apparent authority,
Inc. v. Court of Appeals, the general rule is that, in
but the vesting of a corporate officer with the power
the absence of authority from the board of directors,
to bind the corporation." Hence, an officer of a
no person, not even its officers, can validly bind a
corporation who is authorized to purchase the stock
corporation. A corporation is a juridical person,
of another corporation has the implied power to
separate and distinct from its stockholders and
perform all other obligations arising therefrom, such
members, "having . . . powers, attributes and
as payment of the shares of stock. By allowing its
properties expressly authorized by law or incident to
president to sign the Agreement on its behalf, Inter-
its existence." Being a juridical entity, a corporation
Asia clothed him with apparent capacity to perform
may act through its board of directors, which
all acts which are expressly, impliedly and
exercises almost all corporate powers, lays down all
inherently stated therein.
corporate business policies and is responsible for
the efficiency of management, as provided in
LUNETA MOTOR COMPANY
vs.
A.D. SANTOS, INC., ET AL.
G.R. No. L-17716. July 31, 1962
FACTS:
On December 31, 1941, to secure payment
of a loan evidenced by a promissory note executed
by Nicolas Concepcion and guaranteed by one
Placido Esteban in favor of petitioner, Concepcion
executed a chattel mortgage covering the above
mentioned certificate in favor of petitioner.
Thereafter, he constituted a second
mortgage on the same certificate to secure payment
of a subsequent loan obtained by Concepcion from
the Rehabilitation Finance Corporation (now
Development Bank of the Philippines). This second
mortgage was approved by the respondent
Commission, subject to the mortgage lien in favor of
petitioner. The certificate was later sold to Francisco
Benitez, Jr., who resold it to Rodi Taxicab
Company. Both sales were made with assumption
of the mortgage in favor of the RFC, and were also
approved provisionally by the Commission, subject
to petitioner's lien.
On October 10, 1953 petitioner filed an
action to foreclose the chattel mortgage executed in
its favor by Concepcion. While the above case was
pending, the RFC also instituted foreclosure
proceedings on its second chattel mortgage, and as
a result of the decision in its favor therein rendered,
the certificate of public convenience was sold at
public auction in favor of Amador D. Santos for
P24,010.00 on August 31, 1956. Santos
immediately applied with the Commission for the
approval of the sale, and the same was approved
on January 26, 1957, subject to the mortgage lien in
favor of petitioner.
ISSUE:
Whether or not the purpose for which
petitioner was organized and the transaction of its
lawful business reasonably and necessarily requires
acquisition and holds the certificate and operates as
a common carrier by land.
RULING:
NO.
Under Section 13 (5) of the Corporation
Law, a corporation created thereunder may
purchase, hold, etc., and otherwise deal in such real
and personal property is the purpose for which the
corporation was formed may permit, and the
transaction of its lawful business may reasonably
and necessarily require.
Petitioner’s corporate purposes are to carry
on a general mercantile and commercial business,
etc., and that it is authorized in its articles of
incorporation to operate and otherwise deal in and
concerning automobiles and automobile
accessories' business in all its multifarious
ramification and to operate, etc., and otherwise
dispose of vessels and boats, etc., and to own and
operate steamship and sailing ships and other
floating craft and deal in the same and engage in
the Philippine Islands and elsewhere in the
transportation of persons, merchandise and chattels
by water; all this incidental to the transportation of
automobiles.
The Court finds that Petitoner’s articles of
incorporation are precisely the best evidence that it
has no authority at all to engage in the business of
land transportation and operate a taxicab service.
That it may operate and otherwise deal in
automobiles and automobile accessories; that it
may engage in the transportation of persons by
water does not mean that it may engage in the
business of land transportation — an entirely
different line of business. If it could not thus engage
in the line of business, it follows that it may not
acquire a certificate of public convenience to
operate a taxicab service, such as the one in
question, because such acquisition would be
without purpose and would have no necessary
connection with petitioner's legitimate business.
CENTRAL TEXTILE MILLS, INC., petitioner, vs.
NATIONAL WAGES AND PRODUCTIVITY
COMMISSION, REGIONAL TRIPARTITE WAGES
AND PRODUCTIVITY BOARD - NATIONAL
CAPITAL REGION, and UNITED CMC TEXTILE
WORKERS UNION, respondents.
DECISION
ROMERO, J.:
On December 20, 1990, respondent Regional
Tripartite Wages and Productivity Board - National
Capital Region (the Board) issued Wage Order No.
NCR-02 (WO No. NCR-02), which took effect on
January 9, 1991. Said wage order mandated a
P12.00 increase in the minimum daily wage of all
employees and workers in the private sector in the
NCR, but exempted from its application distressed
employers whose capital has been impaired by at
least twenty-five percent (25%) in the preceding
year.
The Guidelines on Exemption from Compliance
With the Prescribed Wage/Cost of Living Allowance
Increase Granted by the Regional Tripartite Wage
and Productivity Boards, issued on February 25,
1991, defined capital as the paid-up capital at the
end of the last full accounting period (in case of
corporations). Under said guidelines, (a)n applicant
firm may be granted exemption from payment of the
prescribed increase in wage/cost-of-living allowance
for a period not to exceed one (1) year from
effectivity of the Order x x x when accumulated
losses at the end of the period under review have
impaired by at least 25 percent the paid-up capital
at the end of the last full accounting period
preceding the application.
By virtue of these provisions, petitioner filed on April
11, 1991 its application for exemption from
compliance with WO No. NCR-02 due to financial
losses.
In an order dated October 22, 1991, the Boards
Vice-Chairman, Ernesto Gorospe, disapproved
petitioners application for exemption after
concluding from the documents submitted that
petitioner sustained an impairment of only 22.41%.
On February 4, 1992, petitioners motion for
reconsideration was dismissed by the Board for lack
of merit. The Board, except for Vice-Chairman
Gorospe who took no part in resolving the said
motion for reconsideration, opined that according to
the audited financial statements submitted by
petitioner to them, to the Securities and Exchange
Commission and to the Bureau of Internal Revenue,
petitioner had a total paid-up capital of
P305,767,900.00 as of December 31, 1990, which
amount should be the basis for determining the
capital impairment of petitioner, instead of the
authorized capital stock of P128,000,000.00 which it
insists should be the basis of computation.
The Board also noted that petitioner did not file with
the SEC the August 15, 1990 resolution of its Board
of Directors, concurred in by its stockholders
representing at least two-thirds of its outstanding
capital stock, approving an increase in petitioners
authorized capital stock from P128,000,000.00 to
P640,000,000.00. Neither did it file any petition to
amend its Articles of Incorporation brought about by
such increase in its capitalization.
Petitioner maintains in the instant action that its
authorized capital stock, not its unauthorized paid-
up capital, should be used in arriving at its capital
impairment for 1990. Citing two SEC Opinions
dated August 10, 1971, and July 28, 1978,
interpreting Section 38 of the Corporation Code, it
claims that the capital stock of a corporation
stand(s) increased or decreased only from and after
approval and the issuance of the certificate of filing
of increase of capital stock.
We agree.
The guidelines on exemption specifically refer to
paid-up capital, not authorized capital stock, as the
basis of capital impairment for exemption from WO.
No. NCR-02. The records reveal, however, that
petitioner included in its total paid-up capital
payments on advance subscriptions, although the
proposed increase in its capitalization had not yet
been approved by, let alone presented for the
approval of, the SEC. As observed by the Board in
its order of February 4, 1992, the aforementioned
(r)esolution (of August 15, 1990) has not been filed
by the corporation with the SEC, nor was a petition
to amend its Articles of Incorporation by reason of
the increase in its capitalization filed by the same.
It is undisputed that petitioner incurred a net loss of
P68,844,222.49 in 1990, and its authorized capital
stock as of that time stood at P128,000,000.00.[if
!supportFootnotes][1][endif] On August 15, 1990, a Board
resolution increasing the capital stock of the
corporation was affirmed by the requisite number of
stockholders. Although no petition to that effect was
ever submitted to the SEC for its approval,
petitioner already started receiving subscriptions
and payments on the proposed increase, which it
allegedly held conditionally, that is, pending
approval of the same by the SEC. In its
Memorandum, however, petitioner admitted, without
giving any reason therefor, that it indeed received
subscriptions and payments to the said proposed
increase in capital stock, even in the absence of
SEC approval of the increase as required by the
Corporation Code.[if !supportFootnotes][2][endif] Thus, by the
end of 1990, the corporation had a subscribed
capital stock of P482,748,900.00 and, after
deducting P176,981,000.00 in subscriptions
receivables, a total paid-up capital of
P305,767,900.00.[if !supportFootnotes][3][endif]
P177,767,900.00 of this sum constituted the
unauthorized increase in its subscribed capital
stock, which are actually payments on future issues
of shares.
These payments cannot as yet be deemed part of
petitioners paid-up capital, technically speaking,
because its capital stock has not yet been legally
increased. Thus, its authorized capital stock in the
year when exemption from WO No. NCR-02 was
sought stood at P128,000,000.00, which was
impaired by losses of nearly 50%. Such payments
constitute deposits on future subscriptions, money
which the corporation will hold in trust for the
subscribers until it files a petition to increase its
capitalization and a certificate of filing of increase of
capital stock is approved and issued by the SEC.[if
!supportFootnotes][4][endif] As a trust fund, this money is still
withdrawable by any of the subscribers at any time
before the issuance of the corresponding shares of
stock, unless there is a pre-subscription agreement
to the contrary, which apparently is not present in
the instant case. Consequently, if a certificate of
increase has not yet been issued by the SEC, the
subscribers to the unauthorized issuance are not to
be deemed as stockholders possessed of such
legal rights as the rights to vote and dividends. [if
!supportFootnotes][5][endif]
The Court observes that the subject wage order
exempts from its coverage employers whose capital
has been impaired by at least 25% because if
impairment is less than this percentage, the
employer can still absorb the wage increase. In the
case at hand, petitioners capital held answerable for
the additional wages would include funds it only
holds in trust, which to reiterate may not be deemed
par of its paid-up capital, the losses of which shall
be the basis of the 25% referred to above. To
include such funds in the paid-up capital would be
prejudicial to the corporation as an employer
considering that the records clearly show that it is
entitled to exemption, even as the anomaly was
brought about by an auditing error.
Another issue, raised late in the proceedings by
respondents, is the alleged non-exhaustion of
administrative remedies by petitioner. They claim
that the questioned order of the Board should have
first been appealed to the National Wages and
Productivity Commission (the Commission), as
provided for under Section 9 of the Revised
Guidelines on Exemption From Compliance With
the Prescribed Wage/Cost of Living Allowance
Increases Granted by the Regional Tripartite Wages
and Productivity Boards.
Petitioner explained that at the time it filed the
instant petition for certiorari on March 6, 1992, the
procedure governing applications for exemption
from compliance with wage orders was the original
guidelines, which took effect on February 25, 1991.
Under Section 6 of said guidelines, the denial by the
Board of a request for reconsideration shall be final
and immediately executory. Appeal to the
Commission as an optional remedy[if
!supportFootnotes][6][endif] was only made available after the
issuance of the revised guidelines on September
25, 1992. Hence, petitioner cannot be faulted for not
having first appealed the questioned orders. It must
be added that since no order, resolution or decision
of the Commission is being assailed in this petition,
it should be dropped as party respondent, as prayed
for in its manifestation and motion dated June 22,
1992.[if !supportFootnotes][7][endif]
In order to avoid any similar controversy, petitioner
is reminded to adopt a more systematic and precise
accounting procedure keeping in mind the various
principles and nuances surrounding corporate
practice.
WHEREFORE, the petition is hereby
GRANTED. The assailed orders of the Regional
Tripartite Wages and Productivity Board National
Capital Region, dated October 22, 1991 and
February 4, 1992, are ANNULLED and SET ASIDE.
Said Board is also hereby mandated to issue
another order granting the application of petitioner
Central Textile Mills, Inc. for exemption from Wage
Order No. NCR-02 for the year ending December
31, 1990. No pronouncement as to cost.
SO ORDERED.
G.R. No. L-48237
MADRIGAL & COMPANY, INC., petitioner,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL
ASSISTANT FOR LEGAL AFFAIRS, THE HON.
SECRETARY OF LABOR, and MADRIGAL
CENTRAL OFFICE EMPLOYEES UNION,
respondents.
FACTS:
The petitioner was engaged in the management of
Rizal Cement Co., Inc. The petitioner and Rizal
Cement Co., Inc. are sister companies. Both are
owned by the same or practically the same
stockholders.
On December 28, 1973, the Madrigal Central Office
Employees Union, sought for the renewal of its
collective bargaining agreement with the petitioner,
which was due to expire on February 28, 1974.
Specifically, it proposed a wage increase of
P200.00 a month, an allowance of P100.00 a
month, and other economic benefits. The petitioner,
however, requested for a deferment in the
negotiations.
On July 29, 1974, by an alleged resolution of its
stockholders, the petitioner reduced its capital
stock from 765,000 shares to 267,366 shares.
This was effected through the distribution of the
marketable securities owned by the petitioner to its
stockholders in exchange for their shares in an
equivalent amount in the corporation.
On August 22, 1975, by yet another alleged
stockholders' action, the petitioner reduced its
authorized capitalization from 267,366 shares to
110,085 shares, again, through the same scheme.
After the petitioner's failure to sit down with the
respondent union, the latter, on August 28, 1974,
filed a complaint for unfair labor practice.
The petitioner alleged operational losses. Pending
the resolution of the case the petitioner informed the
Secretary of Labor that "Rizal Cement Co., Inc. had
ceased operating temporarily. Due to lack of
business incentives and prospects and in order to
prevent further losses it had to reduce its capital
stock on two occasions. As the situation,
therefore, now stands, the Madrigal & Co., Inc. is
without substantial income to speak of,
necessitating a reorganization, by way of
retrenchment, of its employees and operations."
The letter, however, was not verified and neither
was it accompanied by the proper supporting
papers. For this reason, the Department of Labor
took no action on the petitioner's request.
On January 19, 1976, the labor arbiter rendered a
decision against the petitioner. The arbiter
specifically found that the petitioner "had been
making substantial profits in its operation" since
1972 through 1975. The petitioner appealed.
Petitioner proceeded with the retrenchment program
and terminated the services of a number of
employees. Respondent union filed a complaint for
illegal lockout. The Secretary of Labor found the
dismissal to be contrary to law and ordered the
petitioner to reinstate the employees.
The petitioner then moved for reconsideration,
which the Acting Labor Secretary, Amado Inciong,
denied.
On appeal, petitoner insists that it is incurring
losses; that as such, it has to reduce its
capitalization; that the profits it is earning are cash
dividends from Rizal Cement Co.; that under the
law, dividends are the absolute property of a
stockholder like the petitioner and cannot be
compelled to share it with creditors (like the
employees).
RULING:
What clearly emerges from the recorded facts is
that the petitioner, awash with profits from its
business operations but confronted with the
demand of the union for wage increases, decided to
evade its responsibility towards the employees by a
devised capital reduction. While the reduction in
capital stock created an apparent need for
retrenchment, it was, by all indications, just a mask
for the purge of union members, who, by then, had
agitated for wage increases. In the face of the
petitioner company's piling profits, the unionists had
the right to demand for such salary adjustments.
That the petitioner made quite handsome profits is
clear from the records
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."
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 consequently, to justify the mass layoff in its
employee ranks, especially of union members. They
were nothing but a premature and plain distribution
of corporate assets to obviate a just sharing to labor
of the vast profits obtained by its joint efforts with
capital through the years. Surely, we can neither
countenance nor condone this. It is an unfair labor
practice.
Islamic Directorate of the Philippines vs. Court
of Appeals[GR117897,14May1997]
Facts: Sometime in 1971, Islamic leaders of all
Muslim major tribal groups in the Philippines
headed by Dean Cesar Adib Majul organized and
incorporated the ISLAMIC DIRECTORATE OF THE
PHILIPPINES (IDP), the primary purpose of which
is to establish an Islamic Center in Quezon City for,
the construction of a "Mosque (prayer place,
Madrasah (Arabic School), and other religious
infrastructures" so as to facilitate the effective
practice of Islamic faith in the area. Towards this
end, that is, in the same year, the Libyan
government donated money to the IDP to purchase
land at Culiat, Tandang Sora, Quezon City, to be
used as a Center for the Islamic populace. The land
were covered by two titles: TCTs RT-26520
(176616) and RT-26521 (170567), both registered
in the name of IDP.
In 1972, after the purchase of the land by the Libyan
government in the name of IDP, Martial Law was
declared by the late President Ferdinand Marcos.
Most of the members of the 1971 Board of Trustees
flew to the Middle East to escape political
persecution.
Thereafter, two Muslim groups sprung, the Carpizo
Group, headed by Engineer Farouk Carpizo, and
the Abbas Group, led by Mrs. Zorayda Tamano and
Atty. Firdaussi Abbas. Both groups claimed to be
the legitimate IDP.
Significantly, on 3 October 1986, the SEC, in a suit
between these two contending groups, came out
with a Decision in SEC Case 2687 declaring the
election of both the Carpizo Group and the Abbas
Group as IDP board members to be null and void.
Neither group, however, took the necessary steps
prescribed by the SEC in its 3 October 1986
Decision, and no valid election of the members of
the Board of Trustees of IDP was ever called.
Although the Carpizo Group attempted to submit a
set of by-laws, the SEC found that, aside from that
Engineer Farouk Carpizo and Atty. Musib Buat,
those who prepared and adopted the by-laws were
not bona fide members of the IDP, thus rendering
the adoption of the by-laws likewise null and void.
On 20 April 1989, without having been properly
elected as new members of the Board of Trustees
of IDP, the Carpizo Group caused to be signed an
alleged Board Resolution of the IDP, authorizing the
sale of the subject two parcels of land to the Iglesia
ni Cristo (INC) for a consideration of
P22,343,400.00, which sale was evidenced by a
Deed of Absolute Sale 12 dated 20 April 1989.
On 30 May 1991, the 1971 IDP Board of Trustees
headed by former Senator Mamintal Tamano, or the
Tamano Group, filed a petition before the SEC
(SEC Case 4012) seeking to declare null and void
the Deed of Absolute Sale signed by the Carpizo
Group and the INC since the group of Engineer
Carpizo was not the legitimate Board of Trustees of
the IDP.
Meanwhile, INC, pursuant to the Deed of Absolute
Sale executed in its favor, filed an action for Specific
Performance with Damages against the vendor,
Carpizo Group, before Branch 81 of the Regional
Trial Court of Quezon City (Civil Case Q-90-6937)
to compel said group to clear the property of
squatters and deliver complete and full physical
possession thereof to INC. Likewise, INC filed a
motion in the same case to compel one Mrs. Leticia
P. Ligon to produce and surrender to the Register of
Deeds of Quezon City the owner's duplicate copy of
TCTs RT-26521 and RT-26520 covering the two
parcels of land, so that the sale in INC's favor may
be registered and new titles issued in the name of
INC. Mrs. Ligon was alleged to be the mortgagee of
the two parcels of land executed in her favor by
certain Abdulrahman R.T. Linzag and Rowaida
Busran-Sampaco claimed to be in behalf of the
Carpizo Group.
Judge Celia Lipana-Reyes of Branch 81, Regional
Trial Court of Quezon City, denied IDP's motion to
intervene on the ground of lack of juridical
personality of the IDP- Tamano Group and that the
issues being raised by way of intervention are intra-
corporate in nature, jurisdiction thereto properly
pertaining to the SEC.
Apprised of the pendency of SEC Case 4012
involving the controverted status of the IDP-Carpizo
Group but without waiting for the outcome of said
case, Judge Reyes, on 12 September 1991,
rendered Partial Judgment in Civil Case Q-90-6937
ordering the IDP-Carpizo Group to comply with its
obligation under the Deed of Sale of clearing the
subject lots of squatters and of delivering the actual
possession thereof to INC. Thereupon Judge Reyes
in another Order, dated 2 March 1992, pertaining
also to Civil Case Q-90-6937, treated INC as the
rightful owner of the real properties and disposed.
On 6 April 1992, the Order was amended by Judge
Reyes directing Ligon "to deliver the owner's
duplicate copies of TCT Nos. RT-26521 (170567)
and RT-26520 (176616) to the Register of Deeds of
Quezon City for the purposes stated in the Order of
March 2, 1992."
Mortgagee Ligon went to the Court of Appeals, thru
a petition for certiorari (CA-GR SP-27973), assailing
the Orders of Judge Reyes. The appellate court
dismissed her petition on 28 October 1992.
Undaunted, Ligon filed a petition for review before
the Supreme Court (GR 107751).
On 5 July 1993, finally came out with a Decision in
SEC Case 4012, Declaring the by-laws submitted
by the IDP-Caprizo group as unauthorized, and
hence, null and void; declaring the sale of the two
(2) parcels of land in Quezon City covered by the
Deed of Absolute Sale entered into by Iglesia ni
Kristo and the Islamic Directorate of the Philippines,
Inc. null and void; declaring the election of the
Board of Directors 23 of the corporation from 1986
to 1991 as null and void; and Declaring the
acceptance of the respondents, except Farouk
Carpizo and Musnib Buat, as members of the IDP
null and void.
The INC filed a Motion for Intervention but the same
was denied.
INC elevated SEC Case 4012 to the Court of
Appeals by way of a special civil action for certiorari
and was granted.
Issue: Whether the Tandang Sora property was
legitimately sold to the INC.
to comply with Section 40 of the Corporation Code
pertaining to the disposition of all or substantially all
assets of the corporation. The Tandang Sora
property, it appears from the records, constitutes
the only property of the IDP. Hence, its sale to a
third-party is a sale or disposition of all the
corporate property and assets of IDP falling
squarely within the contemplation of the foregoing
section. For the sale to be valid, the majority vote of
the legitimate Board of Trustees, concurred in by
the vote of at least 2/3 of the bona fide members of
the corporation should have been obtained. These
twin requirements were not met as the Carpizo
Group which voted to sell the Tandang Sora
property was a fake Board of Trustees, and those
whose names and signatures were affixed by the
Carpizo Group together with the sham Board
Resolution authorizing the negotiation for the sale
were, from all indications, not bona fide members of
the IDP as they were made to appear to be.
Apparently, there are only 15 official members of
the IDP including the 8 members of the Board of
Trustees. All told, the disputed Deed of Absolute
Sale executed by the fake Carpizo Board and INC
was intrinsically void ab initio.

Held: As far back as 3 October 1986, the SEC, in

ROSITA PEÑA
Case 2687, in a suit between the Carpizo Group
vs.
and the Abbas Group, already declared the election
THE COURT OF APPEALS, SPOUSES RISING T.
of the Carpizo Group (as well as the Abbas Group)
YAP and CATALINA YAP, PAMPANGA BUS CO.,
to the IDP Board as null and void for being violative
INC., JESUS DOMINGO, JOAQUIN BRIONES,
of the Articles of Incorporation. Nothing thus
SALVADOR BERNARDEZ, MARCELINO
becomes more settled than that the IDP-Carpizo
ENRIQUEZ and EDGARDO A. ZABAT
Group with whom INC contracted is a fake Board.
Premises considered, all acts carried out by the
Carpizo Board, particularly the sale of the Tandang G.R. No. 91478 ,February 7, 1991
Sora property, allegedly in the name of the IDP,
have to be struck down for having been done
without the consent of the IDP thru a legitimate IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES
Board of Trustees. Article 1318 of the New CivilSpecific (Express) Powers
Code lays down the essential requisites of
contracts, and where all these elements must be (e) Sell or Dispose of Assets (Sec. 40)
present to constitute a valid contract. For, where
even one is absent, the contract is void. Specifically,
consent is essential for the existence of a contract,
Facts;
and where it is wanting, the contract is non-existent.
Herein, the IDP, owner of the subject parcels of
land, never gave its consent, thru a legitimate Board
of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, a case Pampanga Bus Co.(PAMBUSCO), original owners of the lots
not only of vitiated consent, but one where consent in question under TCT Nos. 4314, 4315 and 4316, mortgaged
on the part of one of the supposed contracting the same to the Development Bank of the Philippines (DBP)
parties is totally wanting. Ineluctably, the subject
on January 3, 1962 in consideration of the amount of
sale is void and produces no effect whatsoever. The
Carpizo Group- INC sale is further deemed null and P935,000.00. This mortgage was foreclosed. In the
void ab initio because of the Carpizo Group's failureforeclosure sale under Act No. 3135 held on October 25,
1974, the said properties were awarded to Rosita Peña as In this case, neither petitioner nor respondents Yap spouses
highest bidder. A certificate of sale was issued in her favor by
are stockholders or officers of PAMBUSCO. Consequently,
the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, the issue of the validity of the series of transactions resulting
upon payment of the sum of P128,000.00 to the Office of the in the subject properties being registered in the names of
Provincial Sheriff . The certificate of sale was registered on respondents Yap may be resolved only by the regular courts.
October 29, 1974.

In Teves vs. People's Homesite and Housing

Corporation, 7 this Court held:
On November 19, 1974, the board of directors of
PAMBUSCO, through three (3) out of its five (5) directors,
resolved to assign its right of redemption over the aforesaid
lots and authorized one of its members, Atty. Joaquin Briones
"to execute and sign a Deed of Assignment for and in behalf “that a person who is not a party obliged principally or
of PAMBUSCO in favor of any interested party . . .". subsidiarily in a contract may exercise an action for nullity of
Consequently, on March 18, 1975, Briones executed a Deed the contract if he is prejudiced in his rights with respect to one
of Assignment of PAMBUSCO's redemption right over the of the contracting parties, and can show the detriment which
subject lots in favor of Marcelino Enriquez . The latter then would positively result to him from the contract in which he
redeemed the said properties and a certificate of redemption
had no intervention,”
dated August 15, 1975 was issued in his favor by Sheriff
Zabat upon payment of the sum of one hundred forty
thousand, four hundred seventy four pesos P140,474.00) to
the Office of the Provincial Sheriff of Pampanga .
There can be no question in this case that the questioned
resolution and series of transactions resulting in the
A day after the aforesaid certificate was issued, Enriquez
executed a deed of absolute sale of the subject properties in registration of the properties in the name of respondent Yap
favor of plaintiffs-appellants, the spouses Rising T. Yap and spouses adversely affected the rights of petitioner to the said
Catalina Lugue, for the sum of P140,000.00. properties. Consequently, petitioner has the legal standing to
question the validity of said resolution and transactions.
On September 8, 1975, Peña wrote the Sheriff notifying him
that the redemption was not valid as it was made under a void
deed of assignment. She then requested the recall of the said
As to the question of validity of the board resolution of
redemption and a restraint on any registration or transaction
respondent PAMBUSCO adopted on November 19, 1974,
regarding the lots in question. She wrote the Sheriff asking for
Section 4, Article III of the amended by-laws of respondent
the execution of a deed of final sale in her favor on the ground
PAMBUSCO, provides as follows:
that "the one (1) year period of redemption has long elapsed
without any valid redemption having been exercised;" hence
she "will now refuse to receive the redemption money.
Sec. 4. Notices of regular and special meetings of the Board
of Directors shall be mailed to each Director not less than five
days before any such meeting, and notices of special meeting
Issue;
shall state the purpose or purposes thereof Notices of regular
meetings shall be sent by the Secretary and notices of special
meetings by the President or Directors issuing the call. No
1.) Legal standing of the petitioner (PEÑA) to institute the failure or irregularity of notice of meeting shall invalidate any
case at bar, and regular meeting or proceeding thereat; Provided a quorum of
2.The validity of the board resolution (Deed of Assignment) by the Board is present, nor of any special meeting; Provided at
the members of the board of directors of PAMBUSCO. least four Directors are present.

Held;
The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the
corporation. They are in effect, written, into the charter. In this
sense they become part of the fundamental law of the
corporation with which the corporation and its directors and
officers must comply. 11
Apparently, only three (3) out of five (5) members of the board
of directors of respondent PAMBUSCO convened on
November 19, 1974 by virtue of a prior notice of a special
meeting. There was no quorum to validly transact business
since, under Section 4 of the amended by-laws hereinabove
reproduced, at least four (4) members must be present to
constitute a quorum in a special meeting of the board of
directors of respondent PAMBUSCO. Under Section 25 of the
Corporation Code of the Philippines, the articles of
incorporation or by-laws of the corporation may fix a greater
number than the majority of the number of board members to
constitute the quorum necessary for the valid transaction of
business. Any number less than the number provided in the
articles or by-laws therein cannot constitute a quorum and
any act therein would not bind the corporation; all that the
attending directors could do is to adjourn.
It is also undisputed that at the time of the passage of the
questioned resolution, respondent PAMBUSCO was insolvent
and its only remaining asset was its right of redemption over
the subject properties. Since the disposition of said
redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required
number of stockholders under the law, the said resolution, as
well as the subsequent assignment executed on March 8,
1975 assigning to respondent Enriquez the said right of
redemption, should be struck down as null and void.
De La Rama VS. Ma-ao Sugar Central Co. (1969)
Facts:
De la Rama et. al. contend that Ma-ao
Sugar Central through its President, subscribed Php
300,000 worth of capital stock of Philippine Fiber
Processing Co. Inc. They allege that the time of the
first two payments were made there was no board
resolution authorizing the investment and that it was
only before the third payment that the President was
so authorized by the Board of Directors. De la
Rama also contends that even assuming arguendo,
that the said Board Resolutions are valid, the
transaction is still wanting in legality, no resolution
having been approved by the affirmative vote of the
stockholders holding shares in the corporation,
entitling them to atleast 2/3 of the voting power.
Issue:
W/N the investment of corporate funds of
Ma-ao were in violation of corporation law.
Ruling:
No.
Investment of corporate funds in another
corporation if done in pursuance of the corporate
purpose, does not need the approval of the
stockholders, but where the purchase of the shares
of another corporation is done solely for investment
and not to accomplish the purpose of its
incorporation, the vote of the approval of the
stockholders is necessary. The investment made in
Philippine Fiber was upheld by the SC. Philippine
Fiber was engaged in the manufacture of bags or
investments in another corporation engaged in the
manufacture engaged in the manufacture of bags.
Since the sugar central is engaged in the
manufacture of sugars, sugar bags necessarily
would come under the purview of its needs under
the regular course of business.
Any corporation whatever its primary
purpose has a choice of placing such fund either in
savings or time deposit account or in money market
placements, or treasury bills, or even in shares of
stocks of other corporations which are traded in the
stock exchange. The exercise of such business
judgment on the part of the board in consistency
with the primary purpose, since it is expected even
from the stockholders to believe, that it is within the
ordinary business discretion of the Board to place
the corporation’s investible fund in the form of
investment that would yield the best possible return
to the corporation and would not require the
ratification of the stockholders or members each
time.
Nielson vs lepanto
Facts:
An operating agreement was executed
before World War II (on 30 January 1937) between
Nielson & Co. Inc. and the Lepanto Consolidated
Mining Co. whereby the former operated and
managed the mining properties owned by the latter
for a management fee of P2,500.00 a month and a
10% participation in the net profits resulting from the
operation of the mining properties, for a period of 5
years. In 1940, a dispute arose regarding the
computation of the 10% share of Nielson in the
profits. The Board of Directors of Lepanto, realizing
that the mechanics of the contract was unfair to
Nielson, authorized its President to enter into an
agreement with Nielson modifying the pertinent
provision of the contract effective 1 January 1940 in
such a way that Nielson shall receive (1) 10% of the
dividends declared and paid, when and as paid,
during the period of the contract and at the end of
each year, (2) 10% of any depletion reserve that
may be set up, and (3) 10% of any amount
expended during the year out of surplus earnings
for capital account. In the latter part of 1941, the
parties agreed to renew the contract for another
period of 5 years, but in the meantime, the Pacific
War broke out in December 1941. In January 1942
operation of the mining properties was disrupted on
account of the war. In February 1942, the mill,
power plant, supplies on hand, equipment,
concentrates on hand and mines, were destroyed
upon orders of the United States Army, to prevent
their utilization by the invading Japanese Army.
The Japanese forces thereafter occupied the mining
properties, operated the mines during the
continuance of the war, and who were ousted from
the mining properties only in August 1945. After the
mining properties were liberated from the Japanese
forces, LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the
mines and mill; setting up new organization;
clearing the mill site; repairing the mines; erecting
staff quarters and bodegas and repairing existing
structures; installing new machinery and equipment;
repairing roads and maintaining the same;
salvaging equipment and storing the same within
the bodegas; doing police work necessary to take
care of the materials and equipment recovered;
repairing and renewing the water system; and
retimbering. The rehabilitation and reconstruction of
the mine and mill was not completed until 1948. On
26 June 1948 the mines resumed operation under
the exclusive management of LEPANTO. Shortly
after the mines were liberated from the Japanese
invaders in 1945, a disagreement arose between
NIELSON and LEPANTO over the status of the
operating contract which as renewed expired in
1947. Under the terms thereof, the management
contract shall remain in suspense in case fortuitous
event or force majeure, such as war or civil
commotion, adversely affects the work of mining
and milling. On 6 February 1958, NIELSON brought
an action against LEPANTO before the Court of
First Instance of Manila to recover certain sums of
money representing damages allegedly suffered by
the former in view of the refusal of the latter to
comply with the terms of a management contract
entered into between them on 30 January 1937,
including attorney's fees and costs. LEPANTO in its
answer denied the material allegations of the
complaint and set up certain special defenses,
among them, prescription and laches, as bars
against the institution of the action.
After trial, the court a quo rendered a decision
dismissing the complaint with costs. The court
stated that it did not find sufficient evidence to
establish LEPANTO's counterclaim and so it
likewise dismissed the same. NIELSON appealed.
The Supreme Court reversed the decision of the
trial court and enter in lieu thereof another, ordering
Lepanto to pay Nielson (1) 10% share of cash
dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the
date of the filing of the complaint; (2) management
fee for January, 1942 in the amount of P2,500.00,
with legal interest thereon from the date of the filing
of the complaint; (3) management fees for the sixty-
month period of extension of the management
contract, amounting to P150,000.00, with legal
interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the
period of extension of the management contract,
amounting to P1,400,000.00, with legal interest
thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the
period of extension, amounting to P53,928.88, with
legal interest thereon from the date of the filing of
the complaint; (6) 10% of the expenses for capital
account during the period of extension, amounting
to P694,364.76, with legal interest thereon from the
date of the filing of the complaint; (7) to issue and
deliver to Nielson and Co. Inc. shares of stock of
Lepanto Consolidated Mining Co. at par value
equivalent to the total of Nielson's 10% share in the
stock dividends declared on November 28, 1949
and August 22, 1950, together with all cash and
stock dividends, if any, as may have been declared
and issued subsequent to November 28, 1949 and
August 22, 1950, as fruits that accrued to said
shares; provided that if sufficient shares of stock of
Lepanto's are not available to satisfy this judgment,
Lepanto shall pay Nielson an amount in cash
equivalent to the market value of said shares at the
time of default, that is, all shares of stock that
should have been delivered to Nielson before the
filing of the complaint must be paid at their market
value as of the date of the filing of the complaint;
and all shares, if any, that should have been
delivered after the filing of the complaint at the
market value of the shares at the time Lepanto
disposed of all its available shares, for it is only then
that Lepanto placed itself in condition of not being
able to perform its obligation; (8) the sum of
P50,000.00 as attorney's fees; and (9) the costs.
Lepanto seeks the reconsideration of the decision
rendered on 17 December 1966.
Issue:
Whether or not Nielson is entitled to stock dividend
Held:
Section 16 of the Corporation Law, in part, provides
as follows:
No corporation organized under this Act shall create
or issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue
stock or bonds except in exchange for actual cash
paid to the corporation or for: (1) property actually
received by it at a fair valuation equal to the par or
issued value of the stock or bonds so issued; and in
case of disagreement as to their value, the same
shall be presumed to be the assessed value or the
value appearing in invoices or other commercial
documents, as the case may be; and the burden or
proof that the real present value of the property is
greater than the assessed value or value appearing
in invoices or other commercial documents, as the
case may be, shall be upon the corporation, or for
(2) profits earned by it but not distributed among its
stockholders or members; Provided, however, That
no stock or bond dividend shall be issued without
the approval of stockholders representing not less
than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the
corporation or at a special meeting duly called for
the purpose.
xxx xxx xxx
No corporation shall make or declare any dividend
except from the surplus profits arising from its
business, or divide or distribute its capital stock or
property other than actual profits among its
members or stockholders until after the payment of
its debts and the termination of its existence by
limitation or lawful dissolution: Provided, That
banking, savings and loan, and trust corporations
may receive deposits and issue certificates of
deposit, checks, drafts, and bills of exchange, and
the like in the transaction of the ordinary business of
banking, savings and loan, and trust corporations.
(As amended by Act No. 2792, and Act No. 3518;
Emphasis supplied.)
From the above-quoted provision of Section 16 of
the Corporation Law, the consideration for which
shares of stock may be issued are: (1) cash; (2)
property; and (3) undistributed profits. Shares of
stock are given the special name "stock dividends"
only if they are issued in lieu of undistributed profits.
If shares of stocks are issued in exchange of cash
or property then those shares do not fall under the
category of "stock dividends". A corporation may
legally issue shares of stock in consideration of
services rendered to it by a person not a
stockholder, or in payment of its indebtedness. A
share of stock issued to pay for services rendered is
equivalent to a stock issued in exchange of
property, because services is equivalent to
property.14 Likewise a share of stock issued in
payment of indebtedness is equivalent to issuing a
stock in exchange for cash. But a share of stock
thus issued should be part of the original capital
stock of the corporation upon its organization, or
part of the stocks issued when the increase of the
capitalization of a corporation is properly authorized.
In other words, it is the shares of stock that are
originally issued by the corporation and forming part
of the capital that can be exchanged for cash or
services rendered, or property; that is, if the
corporation has original shares of stock unsold or
unsubscribed, either coming from the original
capitalization or from the increased capitalization.
Those shares of stock may be issued to a person
who is not a stockholder, or to a person already a
stockholder in exchange for services rendered or for
cash or property. But a share of stock coming from
stock dividends declared cannot be issued to one
who is not a stockholder of a corporation.
A "stock dividend" is any dividend payable in shares
of stock of the corporation declaring or authorizing
such dividend. It is, what the term itself implies, a
distribution of the shares of stock of the corporation
among the stockholders as dividends. A stock
dividend of a corporation is a dividend paid in
shares of stock instead of cash, and is properly
payable only out of surplus profits.15 So, a stock
dividend is actually two things: (1) a dividend, and
(2) the enforced use of the dividend money to
purchase additional shares of stock at par.16 When
a corporation issues stock dividends, it shows that
the corporation's accumulated profits have been
capitalized instead of distributed to the stockholders
or retained as surplus available for distribution, in
money or kind, should opportunity offer. Far from
being a realization of profits for the stockholder, it
tends rather to postpone said realization, in that the
fund represented by the new stock has been
transferred from surplus to assets and no longer
available for actual distribution.17 Thus, it is
apparent that stock dividends are issued only to
stockholders. This is so because only stockholders
are entitled to dividends. They are the only ones
who have a right to a proportional share in that part
of the surplus which is declared as dividends. A
stock dividend really adds nothing to the interest of
the stockholder; the proportional interest of each
stockholder remains the same.18If a stockholder is
deprived of his stock dividends - and this happens if
the shares of stock forming part of the stock
dividends are issued to a non-stockholder — then
the proportion of the stockholder's interest changes
radically. Stock dividends are civil fruits of the
original investment, and to the owners of the shares
belong the civil fruits.19
The term "dividend" both in the technical sense and
its ordinary acceptation, is that part or portion of the
profits of the enterprise which the corporation, by its
governing agents, sets apart for ratable division
among the holders of the capital stock. It means the
fund actually set aside, and declared by the
directors of the corporation as dividends and duly
ordered by the director, or by the stockholders at a
corporate meeting, to be divided or distributed
among the stockholders according to their
respective interests.20
It is Our considered view, therefore, that under
Section 16 of the Corporation Law stock dividends
can not be issued to a person who is not a
stockholder in payment of services rendered. And
so, in the case at bar Nielson can not be paid in
shares of stock which form part of the stock
dividends of Lepanto for services it rendered under
the management contract. We sustain the
contention of Lepanto that the understanding
between Lepanto and Nielson was simply to make
the cash value of the stock dividends declared as
the basis for determining the amount of
compensation that should be paid to Nielson, in the
proportion of 10% of the cash value of the stock
dividends declared. And this conclusion of Ours
finds support in the record.
Jose Ricafort et al v. Hon Judge Felix Moya et al
The case stemmed from a deed of absolute sale
executed on April 18 1978 between Daniel
Aguinaldo as vendor and Ricaforte and Calalang as
vendees. Both had failed to fulfil their obligations in
the deed which worsened as cases have been filed
against each party. After a number of suits filed,
Ricafort et al filed for Preliminary injunction against
Aguinaldo to prohibit him from representing himself
as controlling stockholder of NADECOR and
attempting to sell that corporation’s so-called
Kingking Mining claims. This was granted by the
Court. Ricafort and Calalang believed that they and
SAICOR are to be excluded by Aguinaldo and
group from the management of NADECOR as
Aguinaldo had refused to convoke the stockholders
annual meeting for the year 1981 which should
have been called on third Monday of August, in the
by-laws.
Stockholders elected as directors Calalang, Ricafort
and 5 others. The stockholders rejected the
aforesaid operating agreement in March 25 1981
between NADECOR as represented by Aguinaldo
and the consortium of Black Mountain Corp et al
and instead approved the proposed operating
agreement with Benguet Corporation. The
Certificate attesting to these events was filed with
SEC. NADECOR, represented by new officers
entered into an Operating Agreement with Benguet
Corporation for the operation by the latter of the
KINGKING MINES.
ISSUE: Whether the Operating Agreement with the
Black Mountain Consortium of March 25, 1981 is
valid
HELD: NO.
The Operating Agreement with the Black Mountain
Consortium was never ratified by the NADECOR
stockholders; indeed, it was explicitly rejected by
said stockholders. Considering that the Kingking
Mines comprise all or substantially the assets of
NADECOR, the operating agreement of March 25
1981 had to be ratified by the stockholders in order
to be valid and effective. This, in accordance with
Section 44 of the Corporation Code. That no such
ratification was ever given constitutes yet another
reason to invalidate such.
The agreement executed on March 25 1981 was
entered into in defiance of valid orders of a court of
competent jurisdiction and was in fact subsequently
nullified by it; it was entered into against the wishes
of the majority of the stockholders and directors and
in truth, was not only not ratified by the majority of
the said stockholders as required by the
Corporation Code, but explicitly rejected and
disowned by them at a meeting duly convoked, said
stockholders thereafter approving an operation
agreement with Benguet Corporation; the
agreement was sought to be vindicated and
enforced by individuals who no longer represented
the majority of the stockholders of NADECOR, over
the objection and against the wishes of the
legitimate majority; the authority granted to the
consortium to implement the agreement of March
25 1981 was rescinded and revoked by the Office of
the President and one of the companies in said
consortium is now no longer capable on account of
bankruptcy of complying with its contractual
commitments-it is impossible to accord the
agreement any validity or effect whatsoever.
NOTA BENE: NOT ALL FACTS ARE STATED
HEREIN
On April 18, 1978, a deed of sale was executed by
Daniel Aguinaldo and DR Aguinaldo Corporation
(DRACOR) as vendors, and Jose Ricafort and
Conrado Calalang as vendees. In the deed,
Aguinaldo and DRACOR sold to Ricafort and
Calalang all their shares of stocks and subscriptions
in three corporations: ADECOR (Aguinaldo Dev’t
Corp), MARBLECORP(Phil. Marble Corp) and
NADECOR (Nationwide Devt Corp) Aguinaldo
bound himself to convey 9 parcels of rice land in
Saug, Davao del Norte held in trust by him, to the
real or beneficial owner ADECOR. Ricafort and
Calalang pledged to Aguinaldo all shares of stocks
in the 3 corporations subject of sale and the 9 Saug
lots as security for payment of balance price.
August 18 1980- Shareholders of NADECOR
elected Aguinaldo, Aytona, Calalang, Ricafort and 5
others as directors. Aytona, Aguinaldo and Borsoto
as Chairman, President and Secretary respectively
Sept 26 1980- Aguinaldo executed a deed of
reconveyance of 9 Saug lots in favour of ADECOR
as called for by the April 18 1978 stipulation which
was not complied with by Ricafort and Calalang (on
the mortgaged lots) because the deed of
reconveyance of the Saug lots executed by
Aguinaldo in favour of ADECOR was fatally
defective as it did not bear the signature of
Aguinaldo’s wife, Helen Leontovich. No remedy
done to the omission until controversy between
parties has worsened
FIRST CASE: Oct 6 1980
Ricafort and Calalang filed before the CFI of Rizal
due to breach of contract of April 18 1978 by
Aguinaldo’s failure to
transfer the 9 Saug lots with prayer that Aguinaldo’s
obligation to make conveyance be deemed waived
and that Ricafort and Calalang be discharged from
their obligationAguinaldo reacted by instructing a
notary public, Neis to conduct Auction Sale of
pledged stock of DRACOR, ADECOR AND
NADECOR
Ricafort and Calalang brought suit against
Aguinaldo and Neis to be stopped from proceeding
with the auction sale and applied for preliminary
injunction
TRO issued by Judge Maddela enjoining the
auction sale.
Three more amendments were made by Ricafort.
Reformation of contract of sale to include all stocks
in NADECOR of Aguinaldo and DRACOR.
Preliminary injunction against Aguinaldo to prohibit
him from representing himself as controlling
stockholder of NADECOR and attempting to sell
that corporation’s so-called Kingking Mining
claims.These amendments were allowed by court
order. Third amendment added averments of fraud
relative to the transfer by Aguinaldo to himself of
ADECOR shares in a foreign company.
Preliminary injunctions by Manila CFI. Injunctive
orders issued against Aguinaldo and his group by
the trial court as regards Kingking’s mining claims
and Operating Agreement involving Kingking
between Aguinaldo in representation of NADECOR
and a consortium made up of Black Mountain Inc,
Tetra Management Corp, and Energy Corporation.
Court enjoined NADECOR in ratifying the Operating
Management
Court stopped the auction sale which was
rescheduled by Neis and; Aguinaldo in representing
himself as controlling stockholder of NADECOR
offering its Kingking claims for sale
Court order prohibiting Aguinaldo from selling the
ADECOR shares in Sawyer-Adecor International
Corporation(SAICOR) which he had caused to be
transferred in his name
Ricafort and Calalang believed that they and
SAICOR are to be excluded by Aguinaldo and
group from the management of NADECOR as
Aguinaldo had refused to convoke the stockholders
annual meeting for the year 1981 which should
have been called on third Monday of August, in the
by-laws.
Stockholders elected as directors Calalang, Ricafort
and 5 others. The stockholders rejected the
aforesaid operating agreement in March 25 1981
between NADECOR as represented by Aguinaldo
and the consortium of Black Mountain Corp et al
and instead approved the proposed operating
agreement with Benguet Corporation. The
Certificate attesting to these events was filed with
SEC
NADECOR, represented by new officers entered
into an Operating Agreement with Benguet
Corporation for the operation by the latter of the
KINGKING MINES.
SEC CASE: NADECOR, represented by its newly
elected directors and officers filed against Aguinaldo
and group for continuingly fraudulently representing
themselves as the legitimate officers of NADECOR.
CIVIL CASE no. 143: the consortium of Black
Mountain Inc et al filed a complaint against Benguet
Corporation and
NADECOR and the directors of NADECOR
(Ricafort and Calalang included) enjoining them
from interfering with Black Mountain’s possession of
NADECOR’s Kingking Mines and recover damages.
Ricafort et al moved to dismiss the complaint for
failure to state a cause of action, that NADECOR’s
agreement with Black Mountain Inc for the operation
of the Kingking mining claims had never been
approved by the NADECOR stockholders owning
the majority of the capital stock. Rtc denied the
MTD.
JOSE G. RICAFORT, CONRADO T. CALALANG,
NATIONWIDE DEVELOPMENT CORPORATION
and AGUINALDO DEVELOPMENT
CORPORATION, petitioners,
vs.
HON. FELIX L. MOYA, Judge, CFI, Davao, Br. II,
BLACK MOUNTAIN, INC., TETRA
MANAGEMENT CORPORATION and the
ENERGY CORPORATION, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for
petitioners.
 Reymundo P.G. Villarica and Siguion
Reyna, Montecillo & Ongsiako for private
respondents.
NARVASA, J.:
With this judgment, the Court writes finis to a
controversy principally involving two (2) groups of
individuals, which has given rise to no less than
eleven (11) actions and proceedings: three (3) in
the Court of First Instance, two (2) in the Securities
and Exchange Commission, and six (6) in this
Court.
The roots of the controversy go as far back as 1978,
to a deed of sale executed on April 18 of that year
by Daniel R. Aguinaldo and D.R. Aguinaldo
Corporation (DRACOR), as vendors, and Jose
Ricafort and Conrado Calalang, as vendees. By that
deed:
1) Aguinaldo and DRACOR sold to Jose Ricafort
and Conrado Calalang all their shares of stock and
subscriptions in three (3) corporations, namely:
a) ADECOR (Aguinaldo Development Corporation ),
b) MARBLECORP (Philippine Marble Corporation),
and
c) NADECOR (Nationwide Development
Corporation);
2) Aguinaldo bound himself to convey nine (9)
parcels of rice land in Saug, Davao del Norte, held
in trust by him, to the real or beneficial owner,
ADECOR;
3) As security for payment of the balance of the
price (a down payment having been made on
execution of the deed of sale) Ricafort and Calalang
bound themselves:
1) To pledge to Aguinaldo all the shares of stock in
the three (3) corporations, subject of the sale; and
2) To mortgage to Aguinaldo the nine (9) "Saug
lots."
The pledge of the stock certificates was effected on
the same day, April 18, 1978.
On August 18, 1980, at the stockholders' meeting of
NADECOR, Daniel R. Aguinaldo, Dominador
Aytona, Conrado Calalang, Jose G. Ricafort, and
five (5) others were elected directors. These
directors later elected Aytona, Aguinaldo, and
Romeo H. Borsoto as, respectively, Chairman,
President and Secretary.
A month later, or on September 26, 1980, Aguinaldo
executed the Deed of Reconveyance of the nine
"Saug lots" in favor of ADECOR, as called for by the
Deed of Sale of April 18, 1978, supra. But the
related stipulation—that Ricafort and Calalang
cause the mortgage of those lots in Aguinaldo's
favor as security for the payment of the balance of
the price fixed in the sale of April 18, 1978—was not
complied with. Ricafort and Calalang refused to
fulfill that prestation because, according to them, the
deed of reconveyance of the "Saug lots" executed
by Aguinaldo in favor of ADECOR dated September
26, 1980, was fatally defective as it did not bear the
signature of Aguinaldo's wife, Helen Leontovich. For
some undisclosed reason, the latter never saw fit to
remedy the omission until very, very much later,
after the controversy between the parties had
worsened and spawned bitter litigation in various
courts, as will now be briefly narrated.
CIVIL CASE No. 38117, CFI, Rizal
The first case was commenced on October 6, 1980.
On that day Civil Case No. 38117 was instituted by
Ricafort and Calalang in the then Court of First
Instance of Rizal. The stated cause: breach of the
contract of sale of April 18, 1978 by Aguinaldo's
failure to make a valid transfer of the nine "Saug
lots;" the prayer: that Aguinaldo's obligation to make
the conveyance be deemed waived and
correspondingly, that Ricafort and Calalang, as
vendees, be deemed discharged from their own
obligation to pay the balance of the price, and the
pledge of the stock purchased by them be
considered discharged and released.
Aguinaldo reacted by instructing a Notary Public,
Wilfred Neis, to conduct the auction sale of the
pledged stock (of DRACOR; ADECOR and
NADECOR, supra). Atty. Neis scheduled the sale
on October 10, 1980. This gave rise to the second
litigation between the parties.
CIVIL CASE NO. 135262, Manila
On October 8, 1980, Ricafort and Calalang brought
suit against Aguinaldo and Notary Public Neis in the
Court of First Instance of Manila, which was
docketed as Civil Case No. 135262. They asked
that the latter be stopped from proceeding with the
auction sale of the stock in question on October 10,
1980, or at any other time thereafter. They also
applied for a preliminary injunction pending
determination of the merits of the action.
Ricafort and Calalang later amended the complaint
to incorporate their cause of action in Civil Case No.
38117 of the Court of First Instance at Pasig, supra.
Case No. 38117 thus became functus officio.
Consequently, Ricafort and Calalang caused its
dismissal by filing with the Pasig Court a notice to
that effect dated November 6, 1980, in accordance
with Section 1, Rule 17 of the Rules of Court. 1
Temporary Restraining Order
On October 8, 1980, a temporary restraining order
was issued by Judge Tomas Maddela, to whose
sala Civil Case No. 135262 had been raffled,
enjoining the auction sale of the pledged stock
subject of the contract of sale of April 18, 1978.
Three more amendments of the complaint were
thereafter sought by Ricafort and Calalang through
separate motions.
The first amendment sought to add a plea:
a) for reformation of the contract of sale of April 18,
1978 to include all of the shares of stock in
NADECOR of Aguinaldo, DRACOR and all their
nominees (totaling 67% of the outstanding stock in
NADECOR); and
b) for a preliminary injunction against Aguinaldo to
prohibit him from representing himself as the
controlling stockholder of NADECOR and
attempting to sell that corporation's so-called
"Kingking Mining Claims" in Pantukan, Davao del
Norte.
The amendment was allowed by Order dated April
20, 1981.
The second amendment impleaded NADECOR as
additional defendant, and prayed that it also be
enjoined from offering the Kingking Mining Claims
for sale. The amendment was admitted by Order
issued on June 25, 1981.
These mining claims, by the way, are embraced in
nine (9) Lode Lease Contracts docketed as LLC-V-
908 to V-910; V-935, V-948, V-949, V-966, V-1074
and V-1075;2 and there is evidence on record that
said claims constitute practically all the assets of
NADECOR.
The third amendment added averments of fraud
relative to the transfer by Aguinaldo to himself of
ADECOR shares in a foreign company, Sawyer-
Adecor International, Inc. (SAICOR). This
amendment was approved by Order dated February
5, 1982.
Preliminary Injunctions by Manila CFI (CC 135262)
Re Kingking Mining Claims, etc.
Several injunctive orders were thereafter issued
against Aguinaldo and his group by the Trial Court
mainly as regards the Kingking Mining Claims in
Davao del Norte. These resulted mainly from an
Operating Agreement involving said Kingking
Claims executed on March 25, 1981 between
Aguinaldo, in representation of NADECOR, on the
one hand, and a consortium made up of Black
Mountain, Inc., Tetra Management Corporation, and
Energy Corporation, on the other. On March 30,
1981 the Court enjoined the NADECOR Board from
ratifying that Operating Agreement of March 25,
1981.
On April 20, 1981, the Court stopped (a) the auction
sale of the pledged shares of stock which had been
re-scheduled by Notary Public Wilfred Neis at
Aguinaldo's instance, and (b) Aguinaldo from
representing himself as the controlling stockholder
of NADECOR and offering its Kingking Claims for
sale.
On June 29, 1981, the Court issued another Order
(a) declaring Aguinaldo and the NADECOR
directors guilty of contempt of court for having,
despite the injunction of March 30, 1981, approved
and confirmed the Operating Agreement involving
the Kingking Claims entered into by NADECOR with
Black Mountain, etc., administering an admonition
on them, and (b) NULLIFYING said Operating
Agreement.
And on September 15, 1981 yet another Order was
rendered by the Trial Court, prohibiting Aguinaldo
from voting or selling the ADECOR shares in
Sawyer-Adecor International Corporation
(SAICOR), which he had caused to be transferred
to his name.
At about this time, Ricafort and Calalang perceived
what they believed to be a plot by the Aguinaldo-
Aytona group to exclude them and SAICOR from
the management of NADECOR. It appears that
Aguinaldo and his group had refused to convoke the
stockholders of NADECOR for the annual meeting
for the year 1981 which, under the by-laws 3 should
have been called on the third Monday of August. So
on August 17, 1981, the Ricafort Group, and the
President of SAICOR, Carol Garvice, who was in
the country at the time, went to the main offices of
NADECOR, and proceeded to hold a meeting for
the declared purpose of electing the directors for the
incoming year, and otherwise transacting corporate
business. Dominador Aytona, Daniel Aguinaldo's
colleague and counsel, moved to postpone the
meeting, drawing attention to a temporary
restraining order supposedly issued by the Superior
Court of California dated August 14, 1981. The
majority of the stockholders then present however
voted against the postponement, opining inter alia
that the restraining order of the California Court was
not enforceable in the Philippines. Aytona then
questioned Garvice's qualification to take part in the
stockholders' meeting. He was reminded that as
early as May, 1981, he already knew Garvice to be
the President of SAICOR. When the majority of the
stockholders expressed their firm wish to continue
with the meeting, Aguinaldo and Aytona walked out.
The stockholders then elected as directors,
Conrado Calalang, Jose Ricafort and five (5) others.
The stockholders also rejected the aforesaid
operating agreement of March 25, 1981 between
NADECOR, represented by the Aguinaldo-Aytona
Group, and the consortium of Black Mountain, Inc.,
Energy Corporation, and Tetra Management
Corporation. The stockholders instead approved the
proposed operating agreement with Benguet
Corporation. The directors-elect then organized the
NADECOR Board: they elected the corporate
officers headed by Calalang as chairman and
president. The Secretary's Certificate attesting to
these events was in due course filed with the
Securities and Exchange Commission.
On that day, too, NADECOR, represented by the
new officers, entered into an Operating Agreement
with Benguet Corporation for the operation by the
latter of the company's KINGKING MINES. This
was the second such agreement involving the
Kingking Mines . 4
Litigation in Securities & Exchange Commission
The area of conflict now widened, to include
litigation in the Securities and Exchange
Commission. Two (2) cases were instituted in that
quasi-judicial agency: SEC Case No. 2143, in 1981
and SEC Case No. 2878, in 1984.
SEC Case No. 2143
SEC Case No. 2143 was commenced by complaint
dated September 24, 1981 of NADECOR,
represented by its newly elected directors and
officers (the Ricafort-Calalang Group), against
Aguinaldo, Aytona and a certain Romeo H. Borsoto.
The complaint alleged that despite the election of
the new officers at the stockholders' meeting of
August 17, 1981, the defendants continued to
fraudulently represent themselves as the legitimate
officers of NADECOR and to exclude said officers-
elect from the exercise of their rights. The complaint
also adverted to the defendants' allegedly malicious
refusal to perform their ministerial duty to issue
notices of the annual stockholders' meeting, supra.
Acting on the application for preliminary injunction
contained in the complaint, an order was issued on
September 28, 1981 by SEC Director and Hearing
Officer Sixto Villanueva (a) prohibiting the
defendants "from acting and representing
themselves as officers of NADECOR until further
orders," and (b) setting the hearing on the
preliminary injunction on October 7, 1981.
On October 7, 1981 and various dates thereafter,
the complainants presented evidence in
substantiation of their plea for a preliminary
injunction. Defendants refused to adduce proof of
their own. They contented themselves with
presenting their Answer to the Complaint, and an
opposition to the application for preliminary
injunction. And instead of submitting countervailing
evidence, they filed various motions to lift the
temporary restraining order of September 28, 1981.
They also attempted to present Calalang and
Ricafort as hostile witnesses at the injunction
hearing and caused issuance of subpoena towards
this end. Those processes were however quashed
by the Hearing Officer who ordered said defendants
instead to submit a proposal for a stipulation or a
request for admission of the facts as to which
examination of Calalang and Ricafort was being
sought. The defendants ignored the order and
renewed their attempts to have Calalang and
Ricafort testify as their hostile witnesses.
Then, without awaiting resolution of the application
for preliminary injunction by the Hearing Officer
(who was still waiting for the defendants to submit
their evidence), said defendants brought the matter
up to the Securities and Exchange Commission en
banc (by filing with that body a petition for certiorari
and mandamus, with application for preliminary
injunction). The Hearing Officer, Director Villanueva,
thereafter denied the defendants' motions to lift the
restraining order of September 28, 1981. The
defendants thereupon filed a supplemental petition
with the Commission en banc, asking that the
Healing Officer's own restraining order of
September 28, 1981 be itself restrained. They later
moved to be allowed to continue exercising
functions as officers of NADECOR.
CIVIL CASE NO. 143, CFI, DAVAO
Still another action was begun at about this time. On
November 6, 1981, the consortium of Black
Mountain, Inc., Energy Corporation and Tetra
Management Corporation filed a complaint in the
Court of First Instance of Davao, which was
docketed as Civil Case No. 143. Named defendants
were Benguet Corporation, NADECOR, and the
directors of NADECOR, including Ricafort and
Calalang. The complaint sought to enjoin them from
interfering with Black Mountain's possession of
NADECOR's Kingking mines and recover damages.
The Trial Court issued a temporary restraining
Order to this effect on November 11, 1981.
Ricafort and his co-defendants moved to dismiss
the complaint for failure to state a cause of action.
They argued that the complaint contained no
averment—in any case, it was an uncontroverted
fact—that NADECOR's agreement with Black
Mountain, Inc., et al. for the operation of the
Kingking Mining Claims had never been approved
by the NADECOR stockholders owning the majority
of the capital stock, although such approval was
required by Section 44 of the Corporation Code for
any contract, such as the one in question, "whereby
a corporation undertakes to manage or operate all
or substantially all of the business of another
corporation, whether such contracts are called
service contracts, operating agreements or
otherwise . . .," and it appearing that the agreement
with Black Mountain embraced 93.5% of the total
number and area of NADECOR's mining claims and
NADECOR had no other mining properties or
business.
The Trial Court denied the motion to dismiss in an
Order dated December 15,1981.
All the foregoing actions in turn generated
proceedings in the Supreme Court.
PROCEEDINGS INSTITUTED IN SUPREME
COURT
G.R. No. 60376 (Aguinaldo, et al. v. Hon. T.P.
Maddela, et al. [RTC No. 135262])
On November 20, 1981, Aguinaldo, Neis and
NADECOR filed with this Court a petition for
certiorari and prohibition with application for
preliminary injunction, assailing Manila CFI Judge
Maddela's alleged failure to act on Civil Case No.
135262. This was docketed as G.R. No. 60376.
Petitioners Aguinaldo, et al., later filed on June 15,
1982, a supplemental petition:
(1) to annul and enjoin enforcement of Judge
Maddela's temporary restraining order dated March
30, 1981—stopping the NADECOR Board (then
controlled by the Aguinaldo-Aytona Group) from
approving the Operating Agreement with Black
Mountain, Inc. involving the Kingking Mines; and
(2) to nullify and set aside other adverse orders,
dated April 20, 1981, June 25, 1981, June 26, 1981,
and Sept. 15, 1981.
G.R. No. 59114 (Ricafort, et al. v. Hon. Felix Moya,
et al. [Davao RTC CC 143])
For their part, Ricafort and Calalang, together with
NADECOR and ADECOR, filed with this Court on
December 17, 1981 a petition for certiorari, against
Judge Felix L. Moya of the Davao CFI (Branch II),
Black Mountain, Inc., Tetra Management
Corporation and Energy Corporation. The petition
was later amended on January 26, 1982. The
petitioners sought annulment of three orders of
Judge Moya, to wit:
(1) the temporary restraining order issued on
November 11, 1981;
(2) the order of December l5, 1981, denying the
petitioners' motion to dismiss the action (on the
ground that the Operating Agreement of Black
Mountain, Inc., et al. with NADECOR had not been
approved by stockholders holding the majority of the
capital stock as required by the Corporation Code,
supra); and
(3) the order of January 20, 1982, denying their
motion to quash the contempt charges against
them.
Due Course to G.R. Nos. 60376 & 59114
Both petitions in G.R. Nos. 60376 and 59114 were
given due course in virtue of a Resolution of this
Court dated August 23, 1982.
After Black Mountain, Inc., filed on September 9,
1982, a motion alleging chiefly that G.R. No. 59114
had been rendered moot by Letter of Instructions
No. 1349 issued by former President Marcos on
August 1, 1983, both "Kingking Claims Cases," G.R.
No. 59114 and G.R. No. 60376, lay fallow for some
three years.
A word about said Letter of Instructions No. 1349. It
advised the consortium of Black Mountain, Inc.,
Energy Corporation, and Tetra Management
Corporation to implement the operating agreement
involving the NADECOR's Kingking mining property
in Pantukan, Davao. It superseded Letter of
Instructions Nos. 1210, dated March 9, 1982,
directing that said property be immediately put into
production and that a company called "North Davao
Mining Corporation" undertake the development of
said Kingking mining property. 5
G.R. No. 61377 (Aguinaldo, Aytona, Borsoto v.
SEC, Ricafort, et al. [RE SEC Case. No. 2143])
A third certiorari action involving substantially the
same parties was commenced in this Court on
August 13, 1982. That action, docketed as G.R. No.
61377, concerned SEC Case No. 2143 in which, it
will be recalled, the Aguinaldo-Aytona Group had
presented to the Commission en banc a petition and
supplemental petition impugning certain actuations
of the Hearing Officer including the latter's
temporary restraining Order. In this Court the
Aguinaldo-Aytona Group complained of the alleged
inaction of the Securities and Exchange
Commission en banc on their petition to nullify the
same which had resulted to their disadvantage, and
prayed for invalidation of said Hearing Officer's
restraining order.
G.R. Nos. 88895 and 88095
Still another proceeding in connection with SEC
Case No. 2143 was instituted in this Court by the
Aytona Group, although much, much later, in 1988.
That stemmed from a motion submitted by the
Aytona Group in said SEC Case No. 2143 for a
preliminary injunction to stop the Ricafort-Calalang
Group from calling and holding the annual
stockholders' meeting of NADECOR on August 15,
1988 pursuant to the By-Laws. When that motion
was denied, Aytona went to the Court of Appeals
which, however, sustained the SEC's denial of the
preliminary injunction. Aytona then appealed to this
Court, his petitions being docketed here as G.R.
Nos. 88895 and 88095. Later, Aytona moved to
withdraw and dismiss that appeal, but the appeal
was instead denied by this Court for failure to
comply with the requisites of the Rules of Court.
G.R. Nos. 77274-75 (Dominador R. Aytona, as
Executor of the Estate of Deceased Daniel R.
Aguinaldo vs. Conrado T. Calalang, et al. [RE CC
Q-45704])
One more proceeding on appeal involving the same
parties was added to this Court's docket sometime
in 1987. This was G.R. Nos. 77274-75. It had its
origin in yet another action filed by Aytona, this time
with the Regional Trial Court at Quezon City, on
August 15, 1985. He filed the case as a stockholder
of NADECOR and as executor of the estate of
Daniel R. Aguinaldo, who had died in the meantime.
Named as defendants were Conrado T. Calalang,
Jose G. Ricafort, Salvador O. Rivera, Benjamin V.
Aritao, Edgar de Castro, (as officers of NADECOR),
and Sawyer-Adecor International, Inc. (SAICOR)
and Benguet Corporation. The suit was chiefly
grounded on an order of preliminary injunction of
the Superior Court of California enjoining several
specified stockholders of NADECOR from voting a
large bloc of NADECOR shares owned by SAICOR,
pending judicial determination of ownership of 1.2
million SAICOR shares of stock, registered in the
name of the late D.R. Aguinaldo. The Quezon City
Court issued a temporary restraining order on
August 16, 1985 enjoining defendants from voting
the SAICOR shares at the annual stockholders'
meeting set on August 19, 1985, and all other
meetings.
The defendants, the Ricafort-Calalang Group,
promptly moved to dismiss the action on the ground
of (1) lack of jurisdiction of the Court over of the
subject-matter; (2) non-enforceability of the foreign
order of injunction, hence, failure of the complaint
founded thereon to state a cause of action; and (3)
failure of plaintiffs counsel to indicate his IBP
number. The motion was denied by Order dated
October 25, 1985; and a writ of preliminary
injunction subsequently issued against the
defendants on November 5, 1975. Ricafort and his
co-defendants challenged that order of denial
before the Court of Appeals by way of a petition for
certiorari and prohibition. SAICO filed a separate
petition for certiorari and prohibition against the
same order also before the Court of Appeals. The
cases were consolidated; and judgment was
rendered thereon in due course on November 28,
1986, annulling and setting aside the Order of the
Court a quo of October 25, 1985 and the order for a
preliminary injunction of November 5, 1985.
Aytona's motion for reconsideration was later
denied by the Court of Appeals, in a Resolution
dated January 23, 1987.
Aytona appealed to this Court. His appeal was
docketed as G.R. Nos. 77274-75 (Dominador R.
Aytona, as Executor of the Estate of Deceased
Daniel R. Aguinaldo vs. Conrado T. Calalang, Jose
G. Ricafort, Salvador O. Rivera, Benjamin V. Aritao,
Edgar de Castro, and Sawyer- Adecor International,
Inc.)
G.R. No. 75098 (Ricafort, et al. v. Hon. T. Maddela,
et al. [Case No. 135262])
One more proceeding in this Court has to be
mentioned: G.R. No. 75098, which was an appeal
by certiorari by Ricafort and Calalang against the
Order of Judge Maddela of June 10, 1986 in Civil
Case No. 135262. Said order was issued by Judge
Maddela in connection with hearings that this Court
instructed him to conduct, on a motion of the Aytona
Group that the auction sale of the pledged stock
should proceed in view of certain recent
developments. The instruction was contained in a
Resolution dated July 8, 1985 in G.R. No. 60376.
G.R. No. 75098 was later consolidated with G.R.
No. 60376 by this Court's Resolution of November
5, 1986.
Intervention by the Office of the President
It appears that the Office of the President of the
Philippines took some interest in the Kingking
mining property of' NADECOR and issued two
letters of instructions concerning it. The first, LOI
No. 1210, dated March 9, 1982, directed that the
mining property be immediately put into production
and that a firm known as "North Davao Mining
Corporation" undertake its development. The
second, LOI No. 1349, dated August 1, 1983,
advised Black Mountain, Inc., the Energy
Corporation, and the Tetra Management
Corporation to implement their operating agreement
involving said Kingking mining property in Pantukan,
Davao. 6
FINAL DISPOSITION OF SUPREME COURT AND
SEC CASES
G.R. NOS. 60376 AND 75058 (Judgment on
Compromise)
A compromise was arrived at by the parties in G.R.
Nos. 60376 and 75098. It was embodied and
approved in a Resolution dated March 16, 1988,
dictated at a hearing presided over by the Chairman
of the First Division, in the presence of the parties
and their counsel. Basically the compromise
provided for the consummation of the deed of sale
of April 18, 1978 through the compliance by the
parties with their yet unfulfilled prestations as well
as the obligations thereto related. The Resolution
approving said compromise declared that those
contractual and related commitments should be
fulfilled on March 21, 1988, and that thereupon,
"G.R. Nos. 60376 and 75098, as well as the case
thereto related, Civil Case No. 135262 of the
Regional Trial Court of Manila, shall be ordered
dismissed, closed, and terminated."
On March 23, 1988, this Court promulgated another
Resolution declaring the compromise approved by
the Resolution of March 16, 1988 to have been fully
executed to all the parties' satisfaction. It also
ordered the Register of Deeds of Davao to cancel
the transfer certificates of title covering the nine (9)
"Saug lots" still in the name of Daniel R. Aguinaldo
and to issue new ones in the name of ADECOR.
Finally, the Resolution declared "G.R. No. 75098
DISMISSED, CLOSED AND TERMINATED, and
G.R. No. 60376 and Civil Case No. 135262
DISMISSED only insofar as they involve the subject
matter of this compromise agreement." Later,
however, the parties having reached a complete
settlement, the case was ordered dismissed by this
Court, by Resolution of August 14, 1989. (Rollo,
G.R. Nos. 60376 and 75098, p. 2298)
G.R. Nos. 77274-75
Decision was rendered in G.R. Nos. 77274-75
(Dominador R. Aytona, as Executor of the Estate of
Deceased Daniel R. Aguinaldo vs. Conrado T.
Calalang, Jose G. Ricafort, Salvador O. Rivera,
Benjamin V. Aritao, Edgar de Castro, and Sawyer-
Adecor International, Inc.) on June 20, 1988. 7 This
Court ruled that QC RTC Case Q-45704 involved a
controversy arising out of intra-corporate relations
between and among stockholders and thus fell
within the original and exclusive jurisdiction of the
Securities and Exchange Commission; moreover,
there was as yet no foreign judgment to be enforced
by Philippine Courts, the petitioners' action in the
Regional Trial Court being founded on a mere
interlocutory order.
G.R. No. 61377
Decision was also promulgated by the Court in G.R.
No. 61377 on June 30, 1988, dismissing the
petition. 8 It held that the challenged temporary
restraining order of the Hearing Officer in SEC Case
No. 2143, like those issued by Regional Trial
Courts, lapsed after twenty (20) days; that the
Securities and Exchange Commission still had
jurisdiction and indeed the obligation to proceed
with the hearing on the merits of Case No. 2143 and
issue appropriate orders pursuant thereto, subject
to review by the Court of Appeals and the Supreme
Court; and that since petitioners (defendants) had
not yet finished presenting evidence on such
matters affecting the corporate affairs of NADECOR
as the validity of proxy votes, alleged usurpation of
corporate powers, claims of majority status,
issuance of notices—evidentiary issues the
resolution of which is primarily lodged with the
Securities and Exchange Commission, the latter
ought to continue to hear and then decide the
respective lights of parties in NADECOR.
SEC Case No. 2143
On July 31, 1989, a Joint Manifestation was
presented by the Ricafort Group and the Aytona
Group in SEC Case No. 2143, briefly to the
following effect:
1) the Aytona Group will no longer question the
1989 NADECOR annual stockholders' meeting and
the election of directors on that occasion, as well as
the organizational meeting of the board of directors;
2) both groups waive any and all claims for
damages they may have against each other in the
case;
3) the Aytona Group will not move for
reconsideration, appeal, or in any way question the
decision which may be rendered in the case
pursuant to the joint manifestation.
Acting thereon, Hearing Officer Alberto P. Atas
rendered an Order on August 9, 1989, ruling that
1. (The Commission had decided to) . . . recognize
and affirm the validity of the annual stockholders'
meeting of Nationwide Development Corporation
held on August 17, 1981, the election of petitioners
as directors of the Corporation in that meeting, and
the validity of the organizational meeting of such
board electing the officers of the corporation; . . .
2. . . . all claims for damages of the parties against
each other related to this action are hereby
considered waived," and
3. Case No. 2143 was "considered CLOSED."
SEC Case No. 2878
To complete the picture, mention must be made of
one other action in the Securities and Exchange
Commission between the same parties, SEC. Case
No. 2878. That case was filed by the Ricafort-
Calalang Group to enjoin the Aytona Group from
continuing to act and represent themselves as
Directors and/or officers of NADECOR. The Ricafort
Group alleged that they were duly elected as
directors of NADECOR at the annual stockholders'
meeting on August 20, 1984, and later, elected as
officers of the firm by the directors; that the meeting
was adjourned by Calalang, as Chairman, in view of
the objections by Aytona (presenting TRO by RTC,
QC) to the voting of SAICO's 7,000 shares at the
election of directors; that after adjournment,
however, Aytona and his group elected themselves
officers of NADECOR. A temporary restraining
order was issued by Hearing Officer Emmanuel
Sison, followed, after presentation of evidence, by a
preliminary injunction, against the Aytona Group.
Aytona moved for reconsideration of the Order of
injunction, dated October 14, 1985, but his motion
was denied by order dated January 17, 1986.
On May 25, 1989, the decision in said SEC Case
No. 2878 was handed down by Hearing Officer
Felipe S. Tongco. Tongco ruled that the only issue
concerned the validity of the adjournment of the
meeting of August 20, 1984 by Calalang; that as to
the question regarding the election of Aytona, et al.
as directors after said adjournment, the same had
been mooted by the subsequent and indisputably
valid election of Calalang and his group in 1986 and
1987; that the validity of the acts of the Aytona
Group as pseudo directors and officers had to be
determined; that the evidence sufficiently
established that the annual stockholders' meeting of
August 20, 1984 had been validly adjourned by
Calalang; that the election of the Aytona Group as
directors following the adjournment was therefore
void ab initio; and that group's acts as directors and
officers of NADECOR were also null and void.
Remaining Proceedings and Resolution Thereof
Thus, the only proceedings left undecided are Civil
Case No. 143 of the Regional Trial Court of Davao,
and G.R. No. 59114, related to Case No. 143.
The main issue in these two (2) cases is the validity
of the Operating Agreement relative to the Kingking
Mines entered into on March 25, 1981 between
NADECOR, then represented by the Aguinaldo-
Aytona Group, and the consortium composed of
Black Mountain, Inc., Tetra Management
Corporation, and Energy Corporation.
The facts and considerations hereunder
summarized, developed beyond dispute in the
various legal proceedings above surveyed, dictate a
declaration of the invalidity of said Agreement of
March 25, 1981.
1. On March 30, 1981, in Civil Case No. 135262,
the Manila Trial Court enjoined the NADECOR
Board (controlled by the Aguinaldo-Aytona Group)
from ratifying this Operating Agreement.
2. On April 20, 1981, the same Court inter alia
stopped Aguinaldo from representing himself as the
controlling stockholder of NADECOR and offering
its Kingking Claims for sale.
3. On June 29, 1981, the Court issued another
Order (a) declaring Aguinaldo and the NADECOR
directors guilty of contempt of court for having,
despite the injunction of March 30, 1981, approved
and confirmed the Operating Agreement involving
the Kingking Claims entered into by NADECOR with
Black Mountain, etc., administering an admonition
on them, and (b) NULLIFYING said Operating
Agreement.
4. The Ricafort-Calalang Group validly elected
directors at the annual stockholders meeting of
NADECOR on August 17, 1981; and said directors
thereafter validly elected the officers of the
corporation at the organizational meeting of the
board.
5. The same group (Ricafort-Calalang) had been
validly re-elected since then, in 1985, 1986, 1987.
An attempt of the Aguinaldo-Aytona group to have
its members elected as directors at the
stockholders' meeting of August 19, 1985 was
declared null and void.
6. At the annual meeting of August 17, 1981, too,
the NADECOR stockholders rejected the operating
agreement executed on March 25, 1981 by
NADECOR, then acting through the Aguinaldo-
Aytona Group, and the Black Mountain Consortium,
supra. The stockholders also approved the
proposed Agreement with Benguet Corporation for
the operation by the latter of the company's
KINGKING MINES. The agreement with Benguet
Corporation was subsequently signed and
executed.
7. On January 22, 1987, President Corazon C.
Aquino issued Memorandum Order No. 69, entitled
"RESCINDING LETTER OF INSTRUCTION NOS.
1210 AND 1349, DATED MARCH 9, 1982 AND
AUGUST 1, 1983," treating directly of the "approved
operating agreement involving the Kingking mining
property in Pantukan, Davao" of the consortium
composed of Black Mountain, Inc., Energy
Corporation, and Tetra Management Corporation . 9
The memorandum reads as follows:
Letter of Instructions Nos. 1210, dated March 9,
1982, directing that the Kingking mining property in
Pantukan, Davao, covered by mining lease
contracts issued in the name of the Nationwide
Development Corporation be immediately put into
production and that the North Davao Mining
Corporation undertake the development of the
Kingking mining property; and Letter of Instructions
No. 1349, dated August 1, 1983, advising the Black
Mountain, Inc., the Energy Corporation, and the
Tetra Management Corporation to implement the
approved operating agreement involving the
Kingking mining property in Pantukan, Davao, are
hereby rescinded and revoked.
This Memorandum Order takes effect immediately.
This memorandum Order was sent on February 18,
1987, by Presidential Staff Director Melquiades T.
de la Cruz to Director Benjamin Gonzales of the
Bureau of Mines and Geo-Sciences, and Carlos G.
Dominguez, Secretary of Natural Resources,
evidently for implementation. These acts, according
to Ricafort and Calalang , 10 "rectified the "great
prejudice" caused to . . . (them) by the 'unjust
awards by then President Marcos of the operation
of the Kingking mines to "crony" North Davao
Mining Corporation which had no operating
agreement from the claim owners and then to
"cronies" Black Mountain, Inc., et al. which had a
spurious operating agreement from Aguinaldo with
a court-cancelled board of directors' ratification and
no stockholders' approval . . ."
It was evidently on account of Memorandum Order
No. 69 of President Aquino that NADECOR (the
Ricafort-Calalang Group) finally succeeded in
getting possession of the mines; this, sometime in
December, 1989, NADECOR was granted authority
by the Secretary of Natural Resources "to enter the
area" and "proceed with exploration and
development activities" subject to certain specified
conditions, one of which was that NADECOR itself
shall conduct said exploration and development
activities and not contract said activities to an
operator . . ."
8. As admitted by the respondents, Black Mountain,
Inc. "ceased operations and became bankrupt years
before Marcos was booted out of office."
9. The Operating Agreement with the Black
Mountain Consortium of March 25, 1981 was never
ratified by the NADECOR stockholders; indeed, it
was explicitly rejected by said stockholders.
Considering that the Kingking Mines comprise all or
substantially all the assets of NADECOR, the
operating agreement of March 25, 1981 had to be
ratified by the stockholders in order to be valid and
effective. This, in accordance with Section 44 of the
Corporation Code. 11 That no such ratification was
ever given constitutes yet another reason to
invalidate the same.
Under these circumstances—the agreement
executed on March 25, 1981 was entered into in
defiance of valid orders of a court of competent
jurisdiction and was in fact subsequently nullified by
it; it was entered into against the wishes of the
majority of the stockholders and directors and in
truth, was not only not ratified by the majority of said
stockholders as required by the Corporation Code,
but explicitly rejected and disowned by them at a
meeting duly convoked, said stockholders thereafter
approving an operating agreement with Benguet
Corporation; the agreement was sought to be
vindicated and enforced by individuals who no
longer represented the majority of the stockholders
of NADECOR, over the objection and against the
wishes of the legitimate majority; the authority
granted to the consortium (Black Mountain, Inc.,
Energy Corporation, and Tetra Management
Corporation) to implement the agreement of March
25, 1981 was rescinded and revoked by the Office
of the President of the Philippines; and one of the
companies in said consortium is now, admittedly, no
longer capable on account of bankruptcy of
complying with its contractual commitments—it is
impossible to accord the agreement any validity or
effect whatsoever.
It thus clearly appears, not only that upon purely
legal considerations, the operating agreement of
March 25, 1981 is, if not outrightly void,
unenforceable for want of requisite valid ratification
and conferred upon private respondents no
actionable, vindicable rights, but also that, from a
practical standpoint, any issue about said
respondents' rights under the agreement has been
mooted by supervening events effectively
precluding their exercise in any case.
WHEREFORE, the petition is GRANTED. Civil
Case No. 143 of the Regional Trial Court of Davao
is DISMISSED, and the restraining order of
November 11, 1981 issued therein, if still extant, is
DISSOLVED. Costs against private respondents.
SO ORDERED.
G.R. No. 129459 September 29, 1998
SAN JUAN STRUCTURAL AND STEEL
FABRICATORS, INC., petitioner, vs.
COURT OF APPEALS, MOTORICH SALES
CORPORATION, NENITA LEE GRUENBERG,
ACL DEVELOPMENT CORP. and JNM REALTY
AND DEVELOPMENT CORP., respondents.
FACTS: In 1989, San Juan Structural and Steel
Fabricators, Inc. (San Juan) alleged that it entered
into a contract of sale with Motorich Sales
Corporation (Motorich) through the latter’s treasurer,
Nenita Gruenberg. The subject of the sale was a
parcel of land owned by Motorich. San Juan
advanced P100k to Nenita as earnest money.
On the day agreed upon on which Nenita was
supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not
heed the subsequent demand of San Juan to
comply with the contract hence San Juan sued
Motorich. Motorich, in its defense, argued that it is
not bound by the acts of its treasurer, Nenita, since
her act in contracting with San Juan was not
authorized by the corporate board.
San Juan raised the issue that Nenita was actually
the wife of the President of Motorich; that Nenita
and her husband owns 98% of the corporation’s
capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as
principal stockholders who do not need any
authorization from the corporate board; that in this
case, the corporate veil may be properly pierced.
ISSUE: Whether or not the contract Gruenberg
signed is binding on the two corporations?
HELD: No. Unless duly authorized, a treasurer,
whose powers are limited, cannot bind the
corporation in a sale of its assets. Furthermore, the
Court has also recognized the rule that "persons
dealing with an assumed agent, whether the
assumed agency be a general or special one bound
at their peril, if they would hold the principal liable,
to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to
establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)."
In the case at bar, Respondent Motorich
categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of
land. Consequently, petitioner had the burden of
proving that Nenita Gruenberg was in fact
authorized to represent and bind Motorich in the
transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court
contained no proof of such authority. It has not
shown any provision of said respondent's articles of
incorporation, bylaws or board resolution to prove
that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich
does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent
the corporation. Petitioner cannot assume that she,
by virtue of her position, was authorized to sell the
property of the corporation. Selling is obviously
foreign to a corporate treasurer's function, which
generally has been described as "to receive and
keep the funds of the corporation, and to disburse
them in accordance with the authority given him by
the board or the properly authorized officers."
Neither was such real estate sale shown to be a
normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution,
export and import in relation to a general
merchandising business. Unmistakably, its treasurer
is not cloaked with actual or apparent authority to
buy or sell real property, an activity which falls way
beyond the scope of her general authority.
AF Realty & Development Inc. vs. Dieselman
Freight Services Co.
[GR 111448, 16 January 2002]
Third Division, Sandoval-Gutierrez (J): 4 concur
Facts: On 10 May 1988, Manuel C. Cruz, Jr., a
member of the board of directors of Dieselman
Freight Services Co., issued a letter denominated
as "Authority To Sell Real Estate" to Cristeta N.
Polintan, a real estate broker of the CNP Real
Estate Brokerage. Cruz, Jr. authorized Polintan "to
look for a buyer/buyers and negotiate the sale" of
the lot at P3,000.00 per square meter, or a total of
P6,282,000.00. Cruz, Jr. has no written authority
from Dieselman to sell the lot. In turn, Cristeta
Polintan, through a letter dated 19 May 1988,
authorized Felicisima ("Mimi") Noble to sell the
same lot. Felicisima Noble then offered for sale the
property to AF Realty & Development, Inc. (AF
Realty) at P2,500.00 per square meter. Zenaida
Ranullo, board member and vice-president of AF
Realty, accepted the offer and issued a check in the
amount of P300,000.00 payable to the order of
Dieselman. Polintan received the check and signed
an "Acknowledgment Receipt" indicating that the
amount of P300,000.00 represents the partial
payment of the property but refundable within two
weeks should AF Realty disapprove Ranullo's
action on the matter. On 29 June 1988, AF Realty
confirmed its intention to buy the lot. Hence, Ranullo
asked Polintan for the board resolution of
Dieselman authorizing the sale of the property.
However, Polintan could only give Ranullo the
original copy of TCT 39849, the tax declaration and
tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman. On 2 August
1988, Manuel F. Cruz, Sr., president of Dieselman,
acknowledged receipt of the said P300,000.00 as
"earnest money" but required AF Realty to finalize
the sale at P4,000.00 per square meter. AF Realty
replied that it has paid an initial down payment of
P300,000.00 and is willing to pay the balance.
However, on 13 August 1988, Mr. Cruz, Sr.
terminated the offer and demanded from AF Realty
the return of the title of the lot earlier delivered by
Polintan. Claiming that there was a perfected
contract of sale between them, AF Realty filed with
the Regional Trial Court, Branch 160, Pasig City a
complaint for specific performance (Civil Case
56278) against Dieselman and Cruz, Jr.. The
complaint prayed that Dieselman be ordered to
execute and deliver a final deed of sale in favor of
AF Realty." In its amended complaint, AF Realty
asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorney's
fees; and P500,000.00 as exemplary damages. In
its answer, Dieselman alleged that there was no
meeting of the minds between the parties in the sale
of the property and that it did not authorize any
person to enter into such transaction on its behalf.
Meanwhile, on 30 July 1988, Dieselman and Midas
Development Corporation (Midas) executed a Deed
of Absolute Sale of the same property. The agreed
price was P2,800.00 per square meter. Midas
delivered to Dieselman P500,000.00 as down
payment and deposited the balance of
P5,300,000.00 in escrow account with the PCIBank.
Constrained to protect its interest in the property,
Midas filed on 3 April 1989 a Motion for Leave to
Intervene in Civil Case 56278. Midas alleged that it
has purchased the property and took possession
thereof, hence Dieselman cannot be compelled to
sell and convey it to AF Realty. The trial court
granted Midas' motion. After trial, the lower court
rendered the Decision holding that the acts of Cruz,
Jr. bound Dieselman in the sale of the lot to AF
Realty. Consequently, the perfected contract of sale
between Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas
acted in bad faith when it initially paid Dieselman
P500,000.00 even without seeing the latter's title to
the property. Moreover, the notarial report of the
sale was not submitted to the Clerk of Court of the
Quezon City RTC and the balance of P5,300,000.00
purportedly deposited in escrow by Midas with a
bank was not established. Dieselman was ordered
to execute and deliver to AF Realty the final deed of
sale of the property covered by TCT 39849 of the
Registry of Deed of Rizal, Metro Manila District II,
including the improvements thereon, and ordering
Dieselman to pay AF Realty attorney's fees in the
amount of P50,000.00 and to pay the costs.
Dissatisfied, all the parties appealed to the Court of
Appeals. In its Decision dated 10 December 1992,
the Court of Appeals reversed the judgment of the
trial court holding that since Cruz, Jr. was not
authorized in writing by Dieselman to sell the
subject property to AF Realty, the sale was not
perfected; and that the Deed of Absolute Sale
between Dieselman and Midas is valid, there being
no bad faith on the part of the latter. The Court of
Appeals then declared Dieselman and Cruz, Jr.
jointly and severally liable to AF Realty for
P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's
fees. On 5 August 1993, the Court of Appeals, upon
motions for reconsideration filed by the parties,
promulgated an Amending Decision, in the sense
that only Cruz, should be made liable to pay AF
Realty the damages and attorney's fees awarded
therein, plus the amount of P300,000.00 unless, in
the case of the said P300,000.00, the same is still
deposited with the Court which should be restituted
to AF Realty. AF Realty filed the petition for review
on certiorari.
Issue: Whether there was a perfected contract of
sale involving the Dieselman real property in favor
of AF Realty.
Held: Section 23 of the Corporation Code expressly
provides that the corporate powers of all
corporations shall be exercised by the board of
directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the
board of directors of a corporation validly delegate
some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of
directors or by a corporate agent duly authorized by
the board. Absent such valid
delegation/authorization, the rule is that the
declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with, the performance of authorized
duties of such director, are held not binding on the
corporation. Herein, Cruz has no written authority
from the board of directors of Dieselman to sell or to
negotiate the sale of the lot, much less to appoint
other persons for the same purpose. Cruz's lack of
such authority precludes him from conferring any
authority to Polintan involving the subject realty.
Necessarily, neither could Polintan authorize
Felicisima Noble. Clearly, the collective acts of
Cruz, Polintan and Noble cannot bind Dieselman in
the purported contract of sale.
Atrium Management Corporation vs. Court of
Appeals
[GR 109491, 28 February 2001], also De Leon vs.
Court of Appeals [GR 121894]
First Division, Pardo (J): 4 concur
Facts: Hi-Cement Corporation through its corporate
signatories, Lourdes M. de Leon, treasurer, and the
late Antonio de las Alas, Chairman, issued checks
in favor of E.T. Henry and Co. Inc., as payee. E.T.
Henry and Co., Inc., in turn, endorsed the four
checks to Atrium Management Corporation for
valuable consideration. Upon presentment for
payment, the drawee bank dishonored all four
checks for the common reason "payment stopped".
On 3 January 1983, Atrium Management
Corporation filed with the Regional Trial Court,
Manila an action for collection of the proceeds of
four postdated checks in the total amount of P2
million, after its demand for payment of the value of
the checks was denied. After due proceedings, on
20 July 1989, the trial court rendered a decision
ordering Lourdes M. de Leon, her husband Rafael
de Leon, E.T. Henry and Co., Inc. and Hi-Cement
Corporation to pay Atrium jointly and severally, the
amount of P2 million corresponding to the value of
the four checks, plus interest and attorney's fees.
On appeal to the Court of Appeals, on 17 March
1993, the Court of Appeals promulgated its decision
modifying the decision of the trial court, absolving
Hi-Cement Corporation from liability and dismissing
the complaint as against it. The appellate court
ruled that: (1) Lourdes M. de Leon was not
authorized to issue the subject checks in favor of
E.T. Henry, Inc.; (2) The issuance of the subject
checks by Lourdes M. de Leon and the late Antonio
de las Alas constituted ultra vires acts; and (3) The
subject checks were not issued for valuable
consideration. Hence, Atrium filed the petition.
Issue [1]: Whether the issuance of the checks was
an ultra vires act.
Held [1]: The record reveals that Hi-Cement
Corporation issued the four (4) checks to extend
financial assistance to E.T. Henry, not as payment
of the balance of the P30 million pesos cost of
hydro oil delivered by E.T. Henry to Hi-Cement.
Why else would petitioner de Leon ask for
counterpart checks from E.T. Henry if the checks
were in payment for hydro oil delivered by E.T.
Henry to Hi-Cement? Hi-Cement, however,
maintains that the checks were not issued for
consideration and that Lourdes and E.T. Henry
engaged in a "kiting operation" to raise funds for
E.T. Henry, who admittedly was in need of financial
assistance. There was no sufficient evidence to
show that such is the case. Lourdes M. de Leon is
the treasurer of the corporation and is authorized to
sign checks for the corporation. At the time of the
issuance of the checks, there were sufficient funds
in the bank to cover payment of the amount of P2
million pesos. Thus, the act of issuing the checks
was well within the ambit of a valid corporate act, for
it was for securing a loan to finance the activities of
the corporation, hence, not an ultra vires act. An
ultra vires act is one committed outside the object
for which a corporation is created as defined by the
law of its organization and therefore beyond the
power conferred upon it by law" The term "ultra
vires" is "distinguished from an illegal act for the
former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the
latter is void and cannot be validated.
Issue [2]: Whether Lourdes M. de Leon and
Antonio de las Alas were personally liable for the
checks issued as corporate officers and authorized
signatories of the check.
Held [2]: Personal liability of a corporate director,
trustee or officer along (although not necessarily)
with the corporation may so validly attach, as a rule,
only when: (1) He assents (a) to a patently unlawful
act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its
stockholders or other persons; (2) He consents to
the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3)
He agrees to hold himself personally and solidarily
liable with the corporation; or (4) He is made, by a
specific provision of law, to personally answer for
his corporate action." Herein, Lourdes M. de Leon
and Antonio de las Alas as treasurer and Chairman
of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap
of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were
strictly endorsed for deposit only to the payee's
account and not to be further negotiated. What is
more, the confirmation letter contained a clause that
was not true, that is, "that the checks issued to E.T.
Henry were in payment of Hydro oil bought by Hi-
Cement from E.T. Henry". Her negligence resulted
in damage to the corporation. Hence, Ms. de Leon
may be held personally liable therefor.
China Banking Corporation vs. Court of Appeals
[GR 117604, 26 March 1997]
First Division, Kapunan (J): 4 concur
Facts: On 21 August 1974, Galicano Calapatia, Jr.,
a stockholder of Valley Golf & Country Club, Inc.
(VGCCI), pledged his Stock Certificate 1219 to
China Banking Corporation (CBC). On 16
September 1974, CBC wrote VGCCI requesting that
the pledge agreement be recorded in its books. In a
letter dated 27 September 1974, VGCCI replied that
the deed of pledge executed by Calapatia in CBC's
favor was duly noted in its corporate books. On 3
August 1983, Calapatia obtained a loan of
P20,000.00 from CBC, payment of which was
secured by the pledge agreement still existing
between Calapatia and CBC. Due to Calapatia's
failure to pay his obligation, CBC, on 12 April 1985,
filed a petition for extrajudicial foreclosure before
Notary Public Antonio T. de Vera of Manila,
requesting the latter to conduct a public auction sale
of the pledged stock. On 14 May 1985, CBC
informed VGCCI of the foreclosure proceedings and
requested that the pledged stock be transferred to
its name and the same be recorded in the corporate
books. However, on 15 July 1985, VGCCI wrote
CBC expressing its inability to accede to CBC's
request in view of Calapatia's unsettled accounts
with the club. Despite the foregoing, Notary Public
de Vera held a public auction on 17 September
1985 and CBC emerged as the highest bidder at
P20,000.00 for the pledged stock. Consequently,
CBC was issued the corresponding certificate of
sale. On 21 November 1985, VGCCI sent Calapatia
a notice demanding full payment of his overdue
account in the amount of P18,783.24. Said notice
was followed by a demand letter dated 12
December 1985 for the same amount and another
notice dated 22 November 1986 for P23,483.24. On
4 December 1986, VGCCI caused to be published
in the newspaper Daily Express a notice of auction
sale of a number of its stock certificates, to be held
on 10 December 1986 at 10:00 a.m. Included
therein was Calapatia's own share of stock (Stock
Certificate 1219). Through a letter dated 15
December 1986, VGCCI informed Calapatia of the
termination of his membership due to the sale of his
share of stock in the 10 December 1986 auction. On
5 May 1989, CBC advised VGCCI that it is the new
owner of Calapatia's Stock Certificate 1219 by
virtue of being the highest bidder in the 17
September 1985 auction and requested that a new
certificate of stock be issued in its name. On 2
March 1990, VGCCI replied that "for reason of
delinquency" Calapatia's stock was sold at the
public auction held on 10 December 1986 for
P25,000.00. On 9 March 1990, CBC protested the
sale by VGCCI of the subject share of stock and
thereafter filed a case with the Regional Trial Court
of Makati for the nullification of the 10 December
1986 auction and for the issuance of a new stock
certificate in its name. On 18 June 1990, the
Regional Trial Court of Makati dismissed the
complaint for lack of jurisdiction over the subject
matter on the theory that it involves an intra-
corporate dispute and on 27 August 1990 denied
CBC's motion for reconsideration. On 20 September
1990, CBC filed a complaint with the Securities and
Exchange Commission (SEC) for the nullification of
the sale of Calapatia's stock by VGCCI; the
cancellation of any new stock certificate issued
pursuant thereto; for the issuance of a new
certificate in petitioner's name; and for damages,
attorney's fees and costs of litigation. On 3 January
1992, SEC Hearing Officer Manuel P. Perea
rendered a decision in favor of VGCCI, stating in the
main that considering that the said share is
delinquent, VGCCI had valid reason not to transfer
the share in the name of CBC in the books of
VGCCI until liquidation of delinquency.
Consequently, the case was dismissed. On 14 April
1992, Hearing Officer Perea denied CBC's motion
for reconsideration. CBC appealed to the SEC en
banc and on 4 June 1993, the Commission issued
an order reversing the decision of its hearing officer;
holding that CBC has a prior right over the pledged
share and because of pledgor's failure to pay the
principal debt upon maturity, CBC can proceed with
the foreclosure of the pledged share; declaring that
the auction sale conducted by VGCCI on 10
December 1986 is declared NULL and VOID; and
ordering VGCCI to issue another membership
certificate in the name of CBC. VGCCI sought
reconsideration of the order. However, the SEC
denied the same in its resolution dated 7 December
1993. The sudden turn of events sent VGCCI to
seek redress from the Court of Appeals. On 15
August 1994, the Court of Appeals rendered its
decision nullifying and setting aside the orders of
the SEC and its hearing officer on ground of lack of
jurisdiction over the subject matter and,
consequently, dismissed CBC's original complaint.
The Court of Appeals declared that the controversy
between CBC and VGCCI is not intra-corporate;
nullifying the SEC orders and dismissing CBC’s
complaint. CBC moved for reconsideration but the
same was denied by the Court of Appeals in its
resolution dated 5 October 1994. CBC filed the
petition for review on certiorari.
Issue: Whether CBC is bound by VGCCI's by-laws.
Held: In order to be bound, the third party must
have acquired knowledge of the pertinent by-laws at
the time the transaction or agreement between said
third party and the shareholder was entered into.
Herein, at the time the pledge agreement was
executed. VGCCI could have easily informed CBC
of its by-laws when it sent notice formally
recognizing CBC as pledgee of one of its shares
registered in Calapatia's name. CBC's belated
notice of said by-laws at the time of foreclosure will
not suffice. By-laws signifies the rules and
regulations or private laws enacted by the
corporation to regulate, govern and control its own
actions, affairs and concerns and its stockholders or
members and directors and officers with relation
thereto and among themselves in their relation to it.
In other words, by-laws are the relatively permanent
and continuing rules of action adopted by the
corporation for its own government and that of the
individuals composing it and having the direction,
management and control of its affairs, in whole or in
part, in the management and control of its affairs
and activities. The purpose of a by-law is to regulate
the conduct and define the duties of the members
towards the corporation and among themselves.
They are self-imposed and, although adopted
pursuant to statutory authority, have no status as
public law. Therefore, it is the generally accepted
rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions
either actually or constructively. For the exception to
the general accepted rule that third persons are not
bound by by-laws to be applicable and binding upon
the pledgee, knowledge of the provisions of the
VGCCI By-laws must be acquired at the time the
pledge agreement was contracted. Knowledge of
said provisions, either actual or constructive, at the
time of foreclosure will not affect pledgee's right
over the pledged share. Article 2087 of the Civil
Code provides that it is also of the essence of these
contracts that when the principal obligation
becomes due, the things in which the pledge or
mortgage consists maybe alienated for the payment
to the creditor. Further, VGCCI's contention that
CBC is duty-bound to know its by-laws because of
Article 2099 of the Civil Code which stipulates that
the creditor must take care of the thing pledged with
the diligence of a good father of a family, fails to
convince. CBC was never informed of Calapatia's
unpaid accounts and the restrictive provisions in
VGCCI's by-laws. Furthermore, Section 63 of the
Corporation Code which provides that "no shares of
stock against which the corporation holds any
unpaid claim shall be transferable in the books of
the corporation" cannot be utilized by VGCCI. The
term "unpaid claim" refers to "any unpaid claim
arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder
may owe the corporation arising from any other
transaction." Herein, the subscription for the share
in question has been fully paid as evidenced by the
issuance of Membership Certificate 1219. What
Calapatia owed the corporation were merely the
monthly dues. Hence, Section 63 does not apply.
Tam Wing Tak VS. Makasiar
Facts:
On November 11, 1992, petitioner, in his
capacity as director of Concord-World Properties,
Inc., (Concord for brevity), a domestic corporation,
filed an affidavit-complaint with the Quezon City
Prosecutors Office, charging Vic Ang Siong with
violation of B.P. Blg. 22. Docketed by the prosecutor
as I.S. No. 93-15886, the complaint alleged that a
check for the amount of P83,550,000.00, issued by
Vic Ang Siong in favor of Concord, was dishonored
when presented for encashment.
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 firms
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 said
case since petitioner lacked the requisite authority
to initiate the criminal complaint for and on
Concords behalf and that Concord and Vic Ang
Siong had already agreed upon the payment of the
latter’s balance on the dishonored check. Petitioner
appealed the dismissal of his complaint by the City
Prosecutor to the Chief State Prosecutor. The Chief
State Prosecutor dismissed the appeal for having
been filed out of time. Petitioner then filed the Civil
Case for mandamus with the Regional Trial Court of
Quezon City to compel the Chief State Prosecutor
to file or cause the filing of an information charging
Vic Ang Siong with violation of B.P. Blg. 22. Said
mandamus was later on denied. Hence, the instant
petition.
Issue:
W/N Respondent Chief State Prosecutor in
refusing to order the filing of an information for
violation of B.P. Blg. 22 against Vic Ang Siong acted
without or in excess of jurisdiction or with grave
abuse of discretion.
Ruling:
No.
A minority stockholder and member of the
board has no power or authority to sue on the
corporation’s behalf. Nor can we uphold this as a
derivative suit, since 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. There
is now showing that petitioner has complied with the
foregoing requisites.
It is not disputed in the instant case that
Concord, a domestic corporation, was the payee of
the bum check, not petitioner. Therefore, it is
Concord, as payee of the bounced check, which is
the injured party. Since petitioner was neither a
payee nor a holder of the bad check, he had neither
the personality to sue nor a cause of action against
Vic Ang Siong. Under Section 36 of the Corporation
Code, read in relation to Section 23, it is clear that
where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees.
Note that petitioner failed to show any proof that he
was authorized or deputized or granted specific
powers by Concords board of director to sue Victor
Ang Siong for and on behalf of the firm. Clearly,
petitioner as a minority stockholder and member of
the board of directors had no such power or
authority to sue on Concords behalf. Nor can we
uphold his act as 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. There
is no showing that petitioner has complied with the
foregoing requisites. It is obvious that petitioner has
not shown any clear legal right which would warrant
the overturning of the decision of public
respondents to dismiss the complaint against Vic
Ang Siong. A public prosecutor, by the nature of his
office, is under no compulsion to file a criminal
information where no clear legal justification has
been shown, and no sufficient evidence of guilt nor
prima facie case has been presented by the
petitioner. No reversible error may be attributed to
the court a quo when it dismissed petitioners special
civil action for mandamus.
Shipside Inc. VS. CA (2001)
Facts:
Certificates of Title were issued in favor of
Rafael Galvez, over four parcels of land. Lots 1 and
4 were conveyed in favor of Mamaril et. al. which
subsequently were sold to Lepanto Consolidated
Mining Company. Meanwhile, CFI of Bulacan
ordered the cancellation of the registration of said
lands and held that the titles were null and void.
Lepanto Consolidated Mining however sold Lots 1
and 4 to herein petitioner, Shipside Inc. Thereafter,
the CA affirmed the said order and its decision
became final and executory. A writ of execution was
subsequently served but after 24 long years, the
Office of the Solicitor General received a letter form
Victor Floresca, Vice President of John Hay Poro
Point Development Corp., stating that the said writ
have not been executed by the Register of Deeds.
The OSG then filed a complaint for revival of
judgment. Petitioner then file its Motion to Dismiss
alleging inter alia that the complaint stated no cause
of action. The trial court denied said petitioner’s
motion in which made petitioner to file a petition for
certiorari and prohibition with the CA. The CA
however dismissed said petition on the ground that
the verification and certification in the petition, under
the signature of Lorenzo Balbin, Jr., was made
without authority. Hence, the instant petition.
Issue:
W/N an authorization from petitioner’s
Board of Directors is still required in order for its
resident manager to institute or commence a legal
action for and in behalf of the corporation.
Ruling:
Yes, however in this case the merits of
petitioner’s case should be considered special
circumstances or compelling reasons that justify
tempering the requirement in regard to the
certificate of non-forum shopping. In Loyala,
Roadway, and Uy, the Court excused non-
compliance with the requirement as to the certificate
of non-forum shopping. With more reason should
we allow the instant petition since petitioner herein
did submit a certification on non-forum shopping,
failing only to show proof that the signatory was
authorized to do so. That petitioner subsequently
submitted a secretary’s certificate attesting Balbin
was authorized to file an action on behalf of
petitioner likewise mitigates this oversight.
A corporation, such as petitioner, 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 if 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.
SSS vs Coa
Facts:
A collective negotiation agreement (CNA)
executed on 10 July 1996 between the Social
Security Commission (SSC) in behalf of the SSS
and the Alert and Concerned Employees for Better
SSS (ACCESS), the sole and exclusive negotiating
agent for employees of the SSS.
 As a gesture of good will and benevolence,
the Management agrees that once the Collective
Negotiation Agreement is approved and signed by
the parties, Management shall grant each official
and employee of the SYSTEM the amount of
P5,000.00 as contract signing bonus.
However the Department of Budget and
Management (DBM) declared as illegal the contract
signing bonus which the CNA authorized to be
distributed among the personnel of the SSS. The
SSS Corporate Auditor disallowed fund releases for
the signing bonus since it was an allowance in the
form of additional compensation prohibited by the
Constitution.
ACCESS appealed the disallowance to the
Commission on Audit (COA). On 5 July 2001
despite the delay in the filing of the appeal, a
procedural matter which COA considered to be
inconsequential, COA affirmed the disallowance
and ruled that the grant of the signing bonus was
improper. It held that the provision on the signing
bonus in the CNA had no legal basis since Sec. 16
of RA 7658 (1989) had repealed the authority of the
SSC to fix the compensation of its personnel. Hence
the instant petition which, curiously, was filed in the
name of the Social Security System (and not
ACCESS) by authority of the officer-in-charge for
the SSS through its legal staff.
Issue:
Whether or not ACCESS can sue in the
name of SSS
Held:
We find no legitimate and compelling
reason to reverse the COA. To begin with, the
instant petition is fatally defective. It was filed in the
name of the SSS although no directive from the
SSC authorized the instant suit and only the officer-
in-charge in behalf of petitioner executed the
purported directive. Clearly, this is irregular since
under Sec. 4, par. 10, in relation to par. 7, RA 1161
as amended by RA 8282 (The Social Security Act of
1997, which was already effective when the instant
petition was filed), it is the SSC as a collegiate body
which has the power to approve, confirm, pass upon
or review the action of the SSS to sue in court.
Moreover, the appearance of the internal legal staff
of the SSS as counsel in the present proceedings is
similarly questionable because under both RA 1161
and RA 8282 it is the Department of Justice (DoJ)
that has the authority to act as counsel of the SSS.
It is well settled that the legality of the
representation of an unauthorized counsel may be
raised at any stage of the proceedings and that
such illicit representation produces no legal effect.
Since nothing in the case at bar shows that the
approval or ratification of the SSC has been
undertaken in the manner prescribed by law and
that the DoJ has not delegated the authority to act
as counsel and appear herein, the instant petition
must necessarily fail. These procedural deficiencies
are serious matters which this Court cannot take
lightly and simply ignore since the SSS is in reality
confessing judgment to charge expenditure against
the trust fund under its custodianship.
In Premium Marble Resources v. Court of Appeals
we held that no person, not even its officers, could
validly sue in behalf of a corporation in the absence
of any resolution from the governing body
authorizing the filing of such suit. Moreover, where
the corporate officers power as an agent of the
corporation did not derive from such resolution, it
would nonetheless be necessary to show a clear
source of authority from the charter, the by-laws or
the implied acts of the governing body.
Unfortunately there is no palpable evidence in the
records to show that the officer-in-charge could all
by himself order the filing of the instant petition
without the intervention of the SSC, nor that the
legal staff of SSS could act as its counsel and
appear therein without the intervention of the DoJ.
The power of attorney supposedly authorizing this
suit as well as the signature of the legal counsel
appearing on the signing page of the instant petition
is therefore ineffectual.
SANTIAGO ESLABAN, JR., in his capacity as
Project Manager of the National Irrigation
Administration, petitioner, vs. CLARITA VDA. DE
ONORIO, respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision[if
!supportFootnotes][1][endif] of the Court of Appeals which
affirmed the decision of the Regional Trial Court,
Branch 26, Surallah, South Cotabato, ordering the
National Irrigation Administration (NIA for brevity) to
pay respondent the amount of P107,517.60 as just
compensation for the taking of the latters property.
The facts are as follows:
Respondent Clarita Vda. de Enorio is the
owner of a lot in Barangay M. Roxas, Sto. Nio,
South Cotabato with an area of 39,512 square
meters. The lot, known as Lot 1210-A-Pad-11-
000586, is covered by TCT No. T-22121 of the
Registry of Deeds, South Cotabato. On October 6,
1981, Santiago Eslaban, Jr., Project Manager of the
NIA, approved the construction of the main irrigation
canal of the NIA on the said lot, affecting a 24,660
square meter portion thereof. Respondents
husband agreed to the construction of the NIA canal
provided that they be paid by the government for
the area taken after the processing of documents by
the Commission on Audit.
Sometime in 1983, a Right-of-Way
agreement was executed between respondent and
the NIA (Exh. 1). The NIA then paid respondent the
amount of P4,180.00 as Right-of-Way damages.
Respondent subsequently executed an Affidavit of
Waiver of Rights and Fees whereby she waived any
compensation for damages to crops and
improvements which she suffered as a result of the
construction of a right-of-way on her property (Exh.
2). The same year, petitioner offered respondent the
sum of P35,000.00 by way of amicable settlement
pursuant to Executive Order No. 1035, 18, which
provides in part that
Financial assistance may also be given to owners of
lands acquired under C.A. 141, as amended, for the
area or portion subject to the reservation under
Section 12 thereof in such amounts as may be
determined by the implementing
agency/instrumentality concerned in consultation
with the Commission on Audit and the assessors
office concerned.
Respondent demanded payment for the
taking of her property, but petitioner refused to pay.
Accordingly, respondent filed on December 10,
1990 a complaint against petitioner before the
Regional Trial Court, praying that petitioner be
ordered to pay the sum of P111,299.55 as
compensation for the portion of her property used in
the construction of the canal constructed by the
NIA, litigation expenses, and the costs.
Petitioner, through the Office of the Solicitor-
General, filed an Answer, in which he admitted that
NIA constructed an irrigation canal over the property
of the plaintiff and that NIA paid a certain landowner
whose property had been taken for irrigation
purposes, but petitioner interposed the defense that:
(1) the government had not consented to be sued;
(2) the total area used by the NIA for its irrigation
canal was only 2.27 hectares, not 24,600 square
meters; and (3) respondent was not entitled to
compensation for the taking of her property
considering that she secured title over the property
by virtue of a homestead patent under C.A. No. 141.
At the pre-trial conference, the following facts
were stipulated upon: (1) that the area taken was
24,660 square meters; (2) that it was a portion of
the land covered by TCT No. T-22121 in the name
of respondent and her late husband (Exh. A); and
(3) that this area had been taken by the NIA for the
construction of an irrigation canal.[if
!supportFootnotes][2][endif]
On October 18, 1993, the trial court rendered
a decision, the dispositive portion of which reads:
In view of the foregoing, decision is hereby
rendered in favor of plaintiff and against the
defendant ordering the defendant, National
Irrigation Administration, to pay to plaintiff the sum
of One Hundred Seven Thousand Five Hundred
Seventeen Pesos and Sixty Centavos
(P107,517.60) as just compensation for the
questioned area of 24,660 square meters of land
owned by plaintiff and taken by said defendant NIA
which used it for its main canal plus costs.[if
!supportFootnotes][3][endif]
On November 15, 1993, petitioner appealed
to the Court of Appeals which, on October 31, 2000,
affirmed the decision of the Regional Trial Court.
Hence this petition.
The issues in this case are:
1. WHETHER OR NOT THE PETITION IS
DISMISSIBLE FOR FAILURE TO COMPLY WITH
THE PROVISIONS OF SECTION 5, RULE 7 OF
THE REVISED RULES OF CIVIL PROCEDURE.
2. WHETHER OR NOT LAND GRANTED BY
VIRTUE OF A HOMESTEAD PATENT AND
SUBSEQUENTLY REGISTERED UNDER
PRESIDENTIAL DECREE 1529 CEASES TO BE
PART OF THE PUBLIC DOMAIN.
3. WHETHER OR NOT THE VALUE OF JUST
COMPENSATION SHALL BE DETERMINED
FROM THE TIME OF THE TAKING OR FROM THE
TIME OF THE FINALITY OF THE DECISION.
4. WHETHER THE AFFIDAVIT OF WAIVER OF
RIGHTS AND FEES EXECUTED BY
RESPONDENT EXEMPTS PETITIONER FROM
MAKING PAYMENT TO THE FORMER.
We shall deal with these issues in the order
they are stated.
First. Rule 7, 5 of the 1997 Revised Rules on Civil
Procedure provides
Certification against forum shopping. The plaintiff or
principal party shall certify under oath in the
complaint or other initiatory pleading asserting a
claim for relief, or in a sworn certification annexed
thereto and simultaneously filed therewith: (a) that
he has not theretofore commenced any action or
filed any claim involving the same issues in any
court, tribunal or quasi-judicial agency and, to the
best of his knowledge, no such other action or claim
is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn
that the same or similar action or claim has been
filed or is pending, he shall report the fact within five
(5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements
shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be
cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion
and after hearing . . . .
By reason of Rule 45, 4 of the 1997 Revised
Rules on Civil Procedure, in relation to Rule 42, 2
thereof, the requirement of a certificate of non-forum
shopping applies to the filing of petitions for review
on certiorari of the decisions of the Court of
Appeals, such as the one filed by petitioner.
As provided in Rule 45, 5, The failure of the
petitioner to comply with any of the foregoing
requirements regarding . . . the contents of the
document which should accompany the petition
shall be sufficient ground for the dismissal thereof.
The requirement in Rule 7, 5 that the
certification should be executed by the plaintiff or
the principal means that counsel cannot sign the
certificate against forum-shopping. The reason for
this is that the plaintiff or principal knows better than
anyone else whether a petition has previously been
filed involving the same case or substantially the
same issues. Hence, a certification signed by
counsel alone is defective and constitutes a valid
cause for dismissal of the petition.[if
!supportFootnotes][4][endif]
In this case, the petition for review was filed
by Santiago Eslaban, Jr., in his capacity as Project
Manager of the NIA. However, the verification and
certification against forum-shopping were signed by
Cesar E. Gonzales, the administrator of the agency.
The real party-in-interest is the NIA, which is a body
corporate. Without being duly authorized by
resolution of the board of the corporation, neither
Santiago Eslaban, Jr. nor Cesar E. Gonzales could
sign the certificate against forum-shopping
accompanying the petition for review. Hence, on
this ground alone, the petition should be dismissed.
Second. Coming to the merits of the case, the land
under litigation, as already stated, is covered by a
transfer certificate of title registered in the Registry
Office of Koronadal, South Cotabato on May 13,
1976. This land was originally covered by Original
Certificate of Title No. (P-25592) P-9800 which was
issued pursuant to a homestead patent granted on
February 18, 1960. We have held:
Whenever public lands are alienated, granted or
conveyed to applicants thereof, and the deed grant
or instrument of conveyance [sales patent]
registered with the Register of Deeds and the
corresponding certificate and owners duplicate of
title issued, such lands are deemed registered lands
under the Torrens System and the certificate of title
thus issued is as conclusive and indefeasible as any
other certificate of title issued to private lands in
ordinary or cadastral registration proceedings.[if
!supportFootnotes][5][endif]
The Solicitor-General contends, however,
that an encumbrance is imposed on the land in
question in view of 39 of the Land Registration Act
(now P.D. No. 1529, 44) which provides:
Every person receiving a certificate of title in
pursuance of a decree of registration, and every
subsequent purchaser of registered land who takes
a certificate of title for value in good faith shall hold
the same free from all encumbrances except those
noted on said certificate, and any of the following
encumbrances which may be subsisting, namely:
....
Third. Any public highway, way, private way
established by law, or any government irrigation
canal or lateral thereof, where the certificate of title
does not state that the boundaries of such highway,
way, irrigation canal or lateral thereof, have been
determined.
As this provision says, however, the only
servitude which a private property owner is required
to recognize in favor of the government is the
easement of a public highway, way, private way
established by law, or any government canal or
lateral thereof where the certificate of title does not
state that the boundaries thereof have been pre-
determined. This implies that the same should have
been pre-existing at the time of the registration of
the land in order that the registered owner may be
compelled to respect it. Conversely, where the
easement is not pre-existing and is sought to be
imposed only after the land has been registered
under the Land Registration Act, proper
expropriation proceedings should be had, and just
compensation paid to the registered owner thereof.[if
!supportFootnotes][6][endif]
In this case, the irrigation canal constructed
by the NIA on the contested property was built only
on October 6, 1981, several years after the property
had been registered on May 13, 1976. Accordingly,
prior expropriation proceedings should have been
filed and just compensation paid to the owner
thereof before it could be taken for public use.
Indeed, the rule is that where private property
is needed for conversion to some public use, the
first thing obviously that the government should do
is to offer to buy it.[if !supportFootnotes][7][endif] If the owner
is willing to sell and the parties can agree on the
price and the other conditions of the sale, a
voluntary transaction can then be concluded and
the transfer effected without the necessity of a
judicial action. Otherwise, the government will use
its power of eminent domain, subject to the payment
of just compensation, to acquire private property in
order to devote it to public use.
Third. With respect to the compensation which the
owner of the condemned property is entitled to
receive, it is likewise settled that it is the market
value which should be paid or that sum of money
which a person, desirous but not compelled to buy,
and an owner, willing but not compelled to sell,
would agree on as a price to be given and received
therefor.[if !supportFootnotes][8][endif] Further, just
compensation means not only the correct amount to
be paid to the owner of the land but also the
payment of the land within a reasonable time from
its taking. Without prompt payment, compensation
cannot be considered just for then the property
owner is made to suffer the consequence of being
immediately deprived of his land while being made
to wait for a decade or more before actually
receiving the amount necessary to cope with his
loss.[if !supportFootnotes][9][endif] Nevertheless, as noted in
Ansaldo v. Tantuico, Jr.,[if !supportFootnotes][10][endif] there
are instances where the expropriating agency takes
over the property prior to the expropriation suit, in
which case just compensation shall be determined
as of the time of taking, not as of the time of filing of
the action of eminent domain.
Before its amendment in 1997, Rule 67, 4
provided:
Order of condemnation. When such a motion is
overruled or when any party fails to defend as
required by this rule, the court may enter an order of
condemnation declaring that the plaintiff has a
lawful right to take the property sought to be
condemned, for the public use or purpose described
in the complaint upon the payment of just
compensation to be determined as of the date of the
filing of the complaint. . . .
It is now provided that-
SEC. 4. Order of expropriation. If the objections to
and the defense against the right of the plaintiff to
expropriate the property are overruled, or when no
party appears to defend as required by this Rule,
the court may issue an order of expropriation
declaring that the plaintiff has a lawful right to take
the property sought to be expropriated, for the
public use or purpose described in the complaint,
upon the payment of just compensation to be
determined as of the date of the taking of the
property or the filing of the complaint, whichever
came first.
A final order sustaining the right to expropriate the
property may be appealed by any party aggrieved
thereby. Such appeal, however, shall not prevent
the court from determining the just compensation to
be paid.
After the rendition of such an order, the plaintiff shall
not be permitted to dismiss or discontinue the
proceeding except on such terms as the court
deems just and equitable. (Emphasis added)
Thus, the value of the property must be
determined either as of the date of the taking of the
property or the filing of the complaint, whichever
came first. Even before the new rule, however, it
was already held in Commissioner of Public
Highways v. Burgos[if !supportFootnotes][11][endif] that the
price of the land at the time of taking, not its value
after the passage of time, represents the true value
to be paid as just compensation. It was, therefore,
error for the Court of Appeals to rule that the just
compensation to be paid to respondent should be
determined as of the filing of the complaint in 1990,
and not the time of its taking by the NIA in 1981,
because petitioner was allegedly remiss in its
obligation to pay respondent, and it was respondent
who filed the complaint. In the case of Burgos,[if
!supportFootnotes][12][endif] it was also the property owner
who brought the action for compensation against
the government after 25 years since the taking of
his property for the construction of a road.
Indeed, the value of the land may be affected
by many factors. It may be enhanced on account of
its taking for public use, just as it may depreciate.
As observed in Republic v. Lara:[if
!supportFootnotes][13][endif]
[W]here property is taken ahead of the filing of the
condemnation proceedings, the value thereof may
be enhanced by the public purpose for which it is
taken; the entry by the plaintiff upon the property
may have depreciated its value thereby; or there
may have been a natural increase in the value of
the property from the time it is taken to the time the
complaint is filed, due to general economic
conditions. The owner of private property should be
compensated only for what he actually loses; it is
not intended that his compensation shall extend
beyond his loss or injury. And what he loses is only
the actual value of his property at the time it is
taken. This is the only way that compensation to be
paid can be truly just, i.e., just not only to the
individual whose property is taken, but to the public,
which is to pay for it . . . .
In this case, the proper valuation for the
property in question is P16,047.61 per hectare, the
price level for 1982, based on the appraisal report
submitted by the commission (composed of the
provincial treasurer, assessor, and auditor of South
Cotabato) constituted by the trial court to make an
assessment of the expropriated land and fix the
price thereof on a per hectare basis.[if
!supportFootnotes][14][endif]
Fourth. Petitioner finally contends that it is exempt
from paying any amount to respondent because the
latter executed an Affidavit of Waiver of Rights and
Fees of any compensation due in favor of the
Municipal Treasurer of Barangay Sto. Nio, South
Cotabato. However, as the Court of Appeals
correctly held:
[I]f NIA intended to bind the appellee to said
affidavit, it would not even have bothered to give her
any amount for damages caused on the
improvements/crops within the appellees property.
This, apparently was not the case, as can be
gleaned from the disbursement voucher in the
amount of P4,180.00 (page 10 of the Folder of
Exhibits in Civil Case 396) issued on September 17,
1983 in favor of the appellee, and the letter from the
Office of the Solicitor General recommending the
giving of financial assistance in the amount of
P35,000.00 to the appellee.
Thus, We are inclined to give more credence to the
appellees explanation that the waiver of rights and
fees pertains only to improvements and crops and
not to the value of the land utilized by NIA for its
main canal.[if !supportFootnotes][15][endif]
WHEREFORE, premises considered, the assailed
decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATION to the extent that
the just compensation for the contested property be
paid to respondent in the amount of P16,047.61 per
hectare, with interest at the legal rate of six percent
(6%) per annum from the time of taking until full
payment is made. Costs against petitioner.
SO ORDERED.
ESLABAN VS. ONORIO [360 SCRA 230; G.R. NO.
146062; 28 JUN 2001]
Saturday, January 31, 2009 Posted by Coffeeholic
Writes
Labels: Case Digests, Political Law
Facts: Clarita Vda. De Onorio is the owner of the
land in Barangay M. Roxas, Sto. Nino, South
Cotabato. Such land is the subject for the
construction of an irrigation canal of the National
Irrigation Administration (NIA). Mr. Santiago
Eslaban Jr. is the project manager of NIA. The
parties agreed to the construction of the canal
provided that the government will pay for the area
that has been taken. A right-of-way agreement was
entered into by the parties in which respondent was
paid the amount of P4, 180.00 as right of way
damages. Subsequently, respondent executed an
Affidavit of Waiver of Rights and Fees which waives
her rights for the damage to the crops due to
construction of the right of way. After which,
respondent demands that petitioner pay P111,
299.55 for taking her property but the petitioner
refused. Petitioner states that the government had
not consented to be sued and that the respondent is
not entitled for compensation by virtue of the
homestead patent under CA no. 141. The RTC held
that the NIA should pay respondent the amount of
P107, 517.60 as just compensation for the 24,660
sq meters that have been used for the construction
of the canal. The Court of Appeals also affirmed the
decision of the RTC.
Lopez Realty Inc. v. Fontecha G.R. No.
76801 August 11, 1995
Facts:
Lopez Realty, Inc. (LRI) and Asuncion Lopez-
Gonzalez initiated a “Complaint for annulment of
sale, cancellation of title, reconveyance and
damages with prayer for the issuance of temporary
restraining order (TRO) and/or writ of preliminary
injunction against the spouses Tanjangco, Arturo
and the Registrar of Deeds of Manila.”
Previously, LRI and Dr. Jose Tanjangco (Jose)
“were the registered co-owners of three parcels of
land and the building erected thereon known as the
‘Trade Center Building’… Jose’s one-half share in
the subject properties were later transferred and
registered in the name of his son Reynaldo
Tanjangco and daughter-in-law, Maria Luisa
Arguelles (spouses Tanjangco).”
These were the stockholders of record of LRI at the
time material to this case:
1. Asuncion Lopez-Gonzalez (Asuncion,
Director & Corporate Secretary) – 7,831
shares;
2. Arturo F. Lopez (Arturo) – 7,830 shares;
3. Teresita Lopez-Marquez (Teresita) – 7,830
shares;
4. Rosendo de Leon (Rosendo, Director) – 5
shares
5. Benjamin Bernardino (Benjamin, Director) –
1 share;
6. Augusto de Leon (Augusto, Director) – 1
share; and
7. Leo Rivera (Leo, Director) – 1 share
During a special stockholders’ meeting held on 27
July 1981, the sale of 1/2 share of LRI in the Trade
Center Building was taken up. While the selling
price was at P4 M, the Tanjancos offered P3.8 M.
To this, Asuncion countered with P5 M which was
not accepted by the Tanjancos. Thus, the board
agreed to give Asuncion the priority to equal the
Tanjanco offer and the same to be exercised within
ten (10) days. Otherwise, the Tanjanco offer will be
deemed accepted. Just a day after, Teresita died
(her estate’s executor Juanito L. Santos
represented her afterwards).
As Asuncion failed to exercise her option to
purchase the subject properties, and while she was
abroad, “the remaining directors: Rosendo,
Benjamin and Leo convened in a special meeting”
passing and approving the 17 August 1981
Resolution authorizing Arturo to negotiate and
“carry out the complete termination of the sale terms
and conditions as embodied in the Resolution of
July 27, 1981”, among others. Subsequently, the
sale was perfected with payments subsequently
made.
After learning of the sale, Asuncion filed this
complaint challenging the validity of the 17 August
1982 Resolution on the ground that she was not
notified of the meeting.
Issue:
Whether the sale was valid binding the stockholders
to the acts of its board of directors.
Held:
The sale was valid. The 17 August 1981 Board
Resolution did not give Arturo the authority to act as
LRI’s representative in the sale “as the meeting of
the board of directors where such was passed was
conducted without giving any notice to Asuncion.”
This is in violation of Section 53 of the Corporation
Code which requires sending of notices for regular
or special meetings to every director.
As a result, “a meeting of the board of directors is
legally infirm if there is failure to comply with the
requirements or formalities of the law or the
corporation’s by laws and any action taken on such
meeting may be challenged as a consequence.”
Notwithstanding, “the actions taken in such a
meeting by the directors or trustees may be ratified
expressly or impliedly.” In the case of ratification, it
means that “the principal voluntarily adopts,
confirms and gives sanction to some unauthorized
act of its agent on its behalf.”
Here, “the ratification was expressed through the
July 30, 1982 Board Resolution.” Regarding
Asuncion’s claims that the 30 July 1982 Board
Resolution did not ratify the 17 August 1981
Resolution due to Juanito’s disqualification and
Leo’s negative vote. “Asuncion assails the authority
of Juanito to vote because he was not a director
and he did not own any share of stock which would
qualify him to be one. On the contrary, Juanito
defends his right to vote as the representative of
Teresita’s estate. Upon examination of the July 30,
1982 minutes of the meeting, it can be deduced that
the meeting is a joint stockholders and directors’
meeting. The Court takes into account that majority
of the board of directors except for Asuncion, had
already approved of the sale to the spouses
Tanjangco prior to this meeting. As a consequence,
the power to ratify the previous resolutions and
actions of the board of directors in this case lies in
the stockholders, not in the board of directors. It
would be absurd to require the board of directors to
ratify their own acts—acts which the same director s
already approved of beforehand. Hence, Juanito, as
the administrator of Teresita’s estate even though
not a director, is entitled to vote on behalf of
Teresita’s estate as the administrator thereof.”
Citing jurisprudence, in stock corporations,
“shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested
with the legal title to the stock and entitled to vote it.
Until a settlement and division of the estate is
effected, the stocks of the decedent are held by the
administrator or executor.”
As there exists no corporate secretary’s certification
of the minutes of the meeting, “only Juanito,
Benjamin and Roseno, whose signature appeared
on the minutes, could be considered as to have
ratified the sale to the spouses Tanjangco.” As Leo
owns only 1 share, the results are the same against
the overwhelming shares who voted in favor of
ratification.
“In sum, whatever defect there was on the sale to
the spouses Tanjangco pursuant to the August 17,
1981 Board Resolution, the same was cured
through its ratification in the July 30, 1982 Board
Resolution. It is of no moment whether Arturo was
authorized to merely negotiate or to enter into a
contract of sale on behalf of LRI as all his actions in
connection to the sale were expressly ratified by the
stockholders holding 67% of the outstanding capital
stock.”
Citing jurisprudence, “the Court held that by virtue of
ratification, the acts of the board of directors
become the acts of the stockholders themselves,
even if those acts were, at the outset,
unauthorized.”
TUASON VS. BOLANOS
Facts:
Plaintiff’s complaint against defendant was
to recover possession of a registered land. In the
complaint, the plaintiff is represented by its
Managing Partner, Gregorio Araneta, Inc., another
corporation. Defendant, in his answer, sets up
prescription and title in himself thru "open,
continuous, exclusive and public and notorious
possession under claim of ownership, adverse to
the entire world by defendant and his predecessors
in interest" from "time immemorial". After trial, the
lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in
question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly
rent. Defendant appealed directly to the Supreme
Court and contended, among others, that Gregorio
Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two
corporations to enter into a partnership
Issue:
Whether or not a corporation may enter into
a joint venture with another corporation.
Ruling:
It is true that the complaint states that the
plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one
corporation being represented by another person,
natural or juridical, in a suit in court. The contention
that Gregorio Araneta, Inc. cannot act as managing
partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership is
without merit, for the true rule is that "though a
corporation has no power to enter into a
partnership, it may nevertheless enter into a joint
venture with another where the nature of that
venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston,
80 A. L. R., 1043, citing 2. Fletcher Cyc. of Corp.,
1082.). There is nothing in the record to indicate
that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is
not in line with the corporate business of either of
them.
G.R. No. L-40620 May 5, 1979
RICARDO L. GAMBOA, LYDIA R. GAMBOA,
HONORIO DE 1A RAMA, EDUARDO DE LA
RAMA, and the HEIRS OF MERCEDES DE LA
RAMA-BORROMEO, petitioners,
vs.
HON. OSCAR R. VICTORIANO as Presiding
Judge of the Court of First Instance of Negros
Occidental, Branch II, BENJAMIN LOPUE, SR.,
BENJAMIN LOPUE, JR., LEONITO LOPUE, and
LUISA U. DACLES respondents.
Facts:
Petitioners were sued by the private respondents to
nullify the issuance of 823 shares of stock of the
Inocentes de la Rama, Inc..
The Lopue’s, are the owners of 1,328 shares of
stock of the Inocentes de la Rama, Inc., a domestic
corporation, with an authorized capital stock of
3,000 shares, with a par value of P100.00 per
share, 2,177 of which were subscribed and issued,
thus leaving 823 shares unissued;
The Lopue’s acquired of the shares of stock held by
Rafael Ledesma and Jose Sicangco, Jr., then
President and Vice-President of the corporation.
The petitioners Mercedes R. Borromeo, Honorio de
la Rama, and Ricardo Gamboa, remaining
members of the board of directors of the
corporation, to forestall the takeover by the Lopue’s
of the corporation, surreptitiously met and elected
Ricardo L. Gamboa and Honorio de la Rama as
president and vice-president of the corporation, and
thereafter passed a resolution authorizing the sale
of the 823 unissued shares of the corporation to the
Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de
la Rama, Ramon de la Rama, Paz R. Battistuzzi
Eduardo de la Rama, and Mercedes R. Borromeo,
at par value, Honorio de la Rama, Lydia de la
Rama-Gamboa, and Enzo Battistuzzi were elected
to the board of directors of the corporation;
Private respondents alleged that the sale of the
unissued 823 shares of stock of the corporation was
in violation of the plaintiffs' and pre-emptive rights
and made without the approval of the board of
directors representing 2/3 of the outstanding capital
stock, and is in disregard of the strictest relation of
trust existing between the defendants, as
stockholders thereof; and that the defendants Lydia
de la Rama-Gamboa, Honorio de la Rama, and
Enzo Battistuzzi were not legally elected to the
board of directors of the said corporation and has
unlawfully usurped or intruded into said office to the
prejudice of the plaintiffs.
-They prayed that a writ of preliminary injunction be
issued restraining the petitioners from committing,
or continuing the performance of an act tending to
prejudice, diminish or otherwise injure the plaintiffs'
rights in the corporate properties and funds of the
corporation, and from disposing, transferring,
selling, or otherwise impairing the value of the 823
shares of stock illegally issued by the defendants;
that a receiver be appointed to preserve and
administer the property and funds of the
corporation;
-that defendants Lydia de la Rama-Gamboa,
Honorio de la Rama, and Enzo Battistuzzi be
declared as usurpers or intruders into the office of
director in the corporation and, consequently,
ousting them therefrom and declare Luisa U. Dacles
as a legally elected director of the corporation; that
the sale of 823 shares of stock of the corporation be
declared null and void; and that the defendants be
ordered to pay damages and attorney's fees, as
well as the costs of suit .
The respondent judge issued the corresponding writ
of preliminary injunction restraining the defendants
and/or their representatives, agents, or persons
acting in their behalf from the commission or
continuance of any act tending in any way to
prejudice, diminish or otherwise injure plaintiffs'
rights in the corporate properties and funds of the
corporation Inocentes de la Rama, Inc.' and from
disposing, transferring, selling or otherwise
impairing the value of the certificates of stock
allegedly issued illegally in their names and ordering
them to deposit with the Clerk of Court the
corresponding certificates of stock for the 823
shares issued to said defendants, upon plaintiffs'
posting a bond in the sum of P50,000.00, to answer
for any damages and costs that may be sustained
by the defendants by reason of the issuance of the
writ, copy of the bond to be furnished to the
defendants. "
The defendants deposited with the clerk of court the
corporation's certificates of stock Nos. 80 to 86
representing the disputed 823 shares of stock of the
corporation. 3
The private respondents, entered into a
compromise agreement with Ramon de la Rama,
Paz de la Rama Battistuzzi and Enzo Battistuzzi
, 4 whereby the contracting parties withdrew their
respective claims against each other and the
petitioners waived and transferred their rights and
interests over the questioned 823 shares of stock in
favor of the plaintiffs.
The compromise agreement was approved by the
trial court. The defendants filed a motion to dismiss
the complaint upon the grounds: (1) that the
plaintiffs' cause of action had been waived or
abandoned; and (2) that they were estopped from
further prosecuting the case since they have, in
effect, acknowledged the validity of the issuance of
the disputed 823 shares of stock. The motion was
denied.
The defendants also filed a motion to declare the
defendants Ramon L. de la Rama, Paz de la Rama
Battistuzzi and Enzo Battistuzzi in contempt of
court, for having violated the writ of preliminary
injunction when they entered into the aforesaid
compromise agreement with the plaintiffs, but the
respondent judge denied the said motion for lack of
merit.
The defendants filed a motion for the
reconsideration of the order denying their motion to
dismiss the complaint' and subsequently, an
Addendum thereto, claiming that the respondent
court has no jurisdiction to interfere with the
management of the corporation by the board of
directors, and the enactment of a resolution by the
defendants, as members of the board of directors of
the corporation, allowing the sale of the 823 shares
of stock to the defendants was purely a
management concern which the courts could not
interfere with.
When the trial court denied said motion and its
addendum, the defendants filed the instant petition
for certiorari for the review of said orders.
Issue:
W/N the respondent court has jurisdictionto interfere
with the management of the corporation and the
enactment of resolution.
Ruling: As a general rule. No.
The well-known rule is that courts cannot undertake
to control the discretion of the board of directors
about administrative matters as to which they have
legitimate power of, 10 action and contracts 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 a
wanton destruction of the rights of the minority.
In the instant case, the plaintiffs aver that the
defendants have concluded a transaction among
themselves as will result to serious injury to the
interests of the plaintiffs, so that the trial court has
jurisdiction over the case.
The claim of the petitioners, in their Addendum to
the motion for reconsideration of the order denying
the motion to dismiss the complaint, questioning the
trial court's jurisdiction on matters affecting the
management of the corporation, is without merit.
The petitioners further contend that the proper
remedy of the plaintiffs would be to institute a
derivative suit against the petitioners in the name of
the corporation in order to secure a binding relief
after exhausting all the possible remedies available
within the corporation.
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein
he holds stock 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. 12
Board Members in behalf of the ASSA Law
and Associates.
a. As a partner in the said law firm, he
only filed a “Manifestation of
Extreme Urgency” in the case with
the Ombudsman and entered into
the retainer contract with the
PPSTA Board in representation of
the ASSA Law Firm.
b. For the SEC case, Ernesto alleged
that the same was being handled
by the law firm of Atty. Eduardo de
Mesa, and not ASSA.
2. After investigation, IBP CBD recommended
that Ernesto be suspended from the
practice of law for six months.

Issue: WON a lawyer, engaged by a corporation,

In the case at bar, however, the plaintiffs are
can defend members of the board of the same
alleging and vindicating their own individual
corporation in a derivative suit?
interests or prejudice, and not that of the
corporation. At any rate, it is yet too early in the
Ruling:
proceedings since the issues have not been joined.
Besides, misjoinder of parties is not a ground to 1. Definition/test for conflict of interest:
dismiss an action. 13  Definition: There is conflict of
interest when a lawyer represents
inconsistent interests of two or
more opposing parties.
 Test:
Hornilla vs. Salunat
o Whether or not in behalf of
one client, it is the lawyer’s
Facts:
duty to fight for an issue or
1. Hornilla and Ricafort filed an administrative
claim, but it is his duty to
complaint with the IBP against Atty. Ernesto
oppose it for the other
S. Salunat for illegal and unethical practice
client.
and conflict of interest alleging that Salunat
o If the acceptance of the
is a member of the ASSA Law and
new retainer will require the
Associates, the retained counsel of the
atty to perform an act w/c
PPSTA.
will injuriously affect his 1st
2. Ernesto’s brother, Aurelio S. Salunat, was a
client in any matter in w/c
member of the PPSTA Board which
he represents him and also
approved Ernesto’s engagement as
whether he will be called
retained counsel of PPSTA.
upon in his new relation to
3. Complainants, members of the Philippine
use against his 1st client
Public School Teachers Association
any knowledge acquired
(PPSTA), filed an intra-corporate case
through their connection.
against its members of the Board of
o Whether the acceptance of
Directors before the Securities and
a new relation will prevent
Exchange Commission(SEC) and a
an atty from the full
complaint before the Ombudsman for
discharge of his duty of
unlawful spending and the undervalued sale
undivided fidelity and
of real property of the PPSTA.
loyalty to his client of invite
4. Atty. Ernesto S. Salunat entered his
suspicion of unfaithfulness
appearance as counsel for the PPSTA
or double dealing.
Board members in the said cases.
2. A corporation’s board of directors is
Defense:
separate and distinct from the corporate
1. Ernesto stressed that he entered his
entity itself.
appearance as counsel for the PPSTA
  A stockholder may sue on behalf of
himself and other stockholders and
for the benefit of the corporation, to
bring about a redress of the wrong
done directly to the corporation and
indirectly to the stockholders.
 This is what is known as a
derivative suit where the
corporation is the real party in
interest while the stockholder filing
suit for the corporation’s behalf is
only nominal party.
 A lawyer engaged as counsel for a
corporation cannot represent
members of the same corporation’s
board of directors in a derivative
suit brought against them.
 To do so would be tantamount to
representing conflicting interests
which is prohibited by the Code of
Professional Responsibility.
3. Ernesto admits that ASSA Law Firm, of
which he is the Managing Partner, was the
retained counsel of PPSTA.
 By filing the pleading in the
Ombudsman case, he necessarily
entered his appearance therein.
 This constituted conflict of interests,
considering that the complaint in
the Ombudsman, although in the
name of the individual members of
the PPSTA, was brought in behalf
of and to protect the interest of the
corporation.
 Therefore, Ernesto is guilty of
representing conflicting
interests. Since first offense -
Admonish
G.R. No. 142316 November 22, 2001
FRANCISCO A.G. DE LIANO, ALBERTO O.
VILLA-ABRILLE, JR., and SAN MIGUEL
CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and BENJAMIN A.
TANGO, respondents.
FACTS:
This case involves the cancellation of two (2) real
estate mortgages in favor of petitioner San Miguel
Corporation (SMC) executed by private respondent
Benjamin A. Tango over his house and lot in
Quezon City. The mortgages were third party or
accommodation mortgages on behalf of the
spouses Bernardino and Carmelita Ibarra who were
dealers of SMC products in Aparri, Cagayan. Other
defendants in the case were Francisco A.G. De
Liano and Alberto O. Villa-Abrille, Jr., who are
senior executives of petitioner SMC.
SMC, De Liano and Abrille appealed the aforesaid
decision to the Court of Appeals. In due time, their
counsel, Atty. Edgar B. Afable, filed an Appellants'
Brief which failed to comply with Section 13, Rule
44 of the Rules of Court. The appellee (herein
private respondent) was quick to notice these
deficiencies, and accordingly filed a "Motion to
Dismiss Appeal” dated March 8, 1999.
The appellants averred that their brief had
substantially complied with the contents as set forth
in the rules. They proffered the excuse that the
omissions were only the result of oversight or
inadvertence and as such could be considered
"harmless" errors. They prayed for liberality in the
application of technical rules, adding that they have
a meritorious defense.
The Court of Appeals dismissed the appeal and
ruled that the Brief does not contain a Subject Index
nor a Table of Cases and Authorities, with page
references. Moreover, the Statement of the Case,
Statement of Facts, and Arguments in the Brief has
no page reference to the record. These procedural
lapses justify the dismissal of the appeal, pursuant
to Section 1 (f), Rule 50 of 1997 Rules of Civil
Procedure.
From the denial of their motion for reconsideration,
only petitioner SMC interposed the instant petition.
ISSUE:
Whether or not the Court of Appeals erred in
dismissing SMC’s appeal.
RULING:
The petition has no merit.
The premise that underlies all appeals is that they
are merely rights which arise from statute; therefore,
they must be exercised in the manner prescribed by
law. It is to this end that rules governing pleadings
and practice before appellate courts were imposed.
These rules were designed to assist the appellate
court in the accomplishment of its tasks, and
overall, to enhance the orderly administration of
justice.
Petitioner's contention that the appellate court
should have considered the substance of the appeal
prior to dismissing it due to technicalities does not
gain our favor.
Generally, the negligence of counsel binds his
client. Actually, Atty. Afable is also an employee
of petitioner San Miguel Corporation. Yet even
this detail will not operate in petitioner's favor. A
corporation, it should be recalled, is an artificial
being whose juridical personality is only a
fiction created by law. It can only exercise its
powers and transact its business through the
instrumentalities of its board of directors, and
through its officers and agents, when authorized
by resolution or its by-laws.
Moreover, a corporate officer or agent
may represent and bind the corporation
in transactions with third persons to the
extent that authority to do so has been
conferred upon him, and this includes
powers which have been intentionally
conferred, and also such powers as, in
the usual course of the particular
business, are incidental to, or may be
implied from, the powers intentionally
conferred, powers added by custom and
usage, as usually pertaining to the
particular officer or agent, and such
apparent powers as the corporation has
caused persons dealing with the officer
or agent to believe that it has conferred.
That Atty. Afable was clothed with sufficient
authority to bind petitioner SMC is undisputable.
Petitioner SMC's board resolution of May 5, 1999
attests to that. Coupled with the provision of law that
a lawyer has authority to bind his client in taking
appeals and in all matters of ordinary judicial
procedure, a fortiori then, petitioner SMC must be
held bound by the actuations of its counsel of
record, Atty. Afable.
G.R. No. L-43413 August 31, 1937
HIGINIO ANGELES, JOSE E. LARA and
AGUEDO BERNABE, as stockholders for an in
behalf and for the benefit of the corporation,
Parañaque Rice Mill, Inc. and the other
stockholders who may desire to join, plaintiffs-
appellees, vs.
TEODORICO B. SANTOS, ESTANISLAO
MAYUGA, APOLONIO PASCUAL, and BASILISA
RODRIGUEZ, defendant-appellants.
Facts: The plaintiff and the defendant are all
stockholders and member of the board of directors
of the "Parañaque Rice Mill, Inc., "a corporation
organized for the purpose of operating a rice mill. A
complaint was filed with the Court.
The complaint avers subtantially the following: (a)
That the plaintiffs are stockholders and constitute
the minority and the defendants are also
stockholers and constitute the majority of the board
of directors of the Parañaque Rice Mill, Inc.;
(b) that the stockholders appointed an investigation
committee of which the plaintiff Jose de Lara was
chairman and the stockholers Dionisio Tomas and
Aguedo Bernabe were members, to investigate and
determine the properties, operations, and losses of
the corporation as shown in the auditor's report, but
the defendants, particularly Teodorico B. Santos,
who was the president of the corporation, denied
access to the properties, books and record of the
corporation which were in their possession
(c) That the defendant Teodorico B. Santos, in
violation of the by-laws of the corporation, had taken
possession of the books, vouchers, and corporate
records as well as of the funds and income of the
Parañaque Rice Mill, Inc., all of which, according to
the by-laws, should be under the exclusive control
and possession of the secretary-treasurer, the
plaintiff Aguedo Bernabe;
(d) That the said Teodorico B. Santos, had
appropriated to his own benefit properties, funds,
and income of the corporation; (e) that Teodoro B.
Santos, for the purpose of illegally controlling the
affairs of the corporation, refuse to sign and issue
the corresponding certificate of stock for the 600
fully paid-up share of the plaintiff, Higinio Angeles,
( f ) that notwithstanding written requests made in
conformity with the by-laws of the corporation of
three members of the board of directors who are
holders of more than one-third of the subscribed
capital stock of the corporation, the defendant
Teodorico B. Santos as president of the corporation
refuse to call a meeting of the board of directors and
of the stockholers;
(g) that in violation of the by-laws of the corporation,
the defendant who constitute the majority of the
board of directors refused to hold ordinary monthly
meetings;
(h) that Teodorico B. Santos as president of the
corporation, in connivance with his co-defendants,
was disposing of the properties and records of the
corporation without authority from the board of
directors or the stockholders of the corporation and
without making any report of his acts to the said
board of directors or to any other officer of the
corporation, and that, to prevent any interferrence
with or examination of his arbitrary acts, he
arbitrarily suspended plaintiff Jose de Lara from the
office of general manager to which office the latter
had been lawfully elected by the stockholders;
The court issued an ex parte order of receivership
appointing Melchor de Lara as receiver of the
corporation upon the filling of a bond by the
plaintiffs-appellees.
Issue: Whether or not minority stockholders may file
a suit for and in behalf of the corporation?
Ruling: Yes, There is ample evidence in the present
case to show that the defendants have been guilty
of breach of trust as directors of the corporation and
the lower court so found. The board of directors of a
corporation is a creation of the stockholders and
controls and directs the affairs of the corporation by
allegation of the stockholders. But the board of
directors, or the majority thereof, in drawing to
themselves the power of the corporation, occupies a
position of trusteeship in relation to the minority of
the stock in the sense that the board should
exercise good faith, care and diligence in the
administration of the affairs of the corporation and
should protect not only the interest of the majority
but also those of the minority of the stock. Where a
majority of the board of directors wastes or
dissipates the funds of the corporation or
fraudulently disposes of its properties, or performs
ultra vires acts, the court, in the exercise of its
equity jurisdiction, and upon showing that
intracorporate remedy is unavailing, will entertain a
suit filed by the minority members of the board of
directors, for and in behalf of the corporation, to
prevent waste and dissipation and the commission
of illegal acts and otherwise redress the injuries of
the minority stockholders against the wrongdoing of
the majority. The action in such a case is said to be
brought derivatively in behalf of the corporation to
protect the rights of the minority stockholders
thereof (7 R. C. L., pars. 293 and 294, and authority
therein cited; 13 Fletcher, Cyc. of Corp., pars. 593,
et seq., an authorities therein cite).
It is well settled in this jurisdiction that where
corporate directors are guilty of a breach of trust —
not of mere error of judgment or abuse of discretion
— and intracorporate remedy is futile or useless, a
stockholder may institute a suit in behalf of himself
and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong
inflicted directly upon the corporation and indirectly
upon the stockholers. An illustration of a suit of this
kind is found in the case of Pascual vs. Del Sanz
Orozco (19 Phil., 82), decided by this court as early
as 1911. In that case, the Banco Español-Filipino
suffered heavy losses due to fraudulent connivance
between a depositor and an employee of the bank,
which losses, it was contened, could have been
avoided if the president and directors has been
more vigilant in the administration of the affairs of
the bank. The stockholers constituting the minority
brought a suit in behalf of the bank against the
directors to recover damages, and this over the
objection of the majority of the stockholers and the
directors. This court held that the suit properly be
maintained.
BOARD OF LIQUIDATORS
vs.
HEIRS OF MAXIMO KALAW
GR L-18805, 14 August 1967
FACTS:
National Coconut Corporation (NACOCO) is
with Maximo Kalaw as its General Manager and
Chairman of the BOD. Under his tenure NACOCO
entered into different contracts involving the trade of
coconuts. It failed, however, due to natural
calamities that greatly affected the production of
coconuts. This led to some customers of NACOCO
suing the corporation for undelivered coconuts due
to them under the contracts that they signed. This
was settled by NACOCO by paying the customers.
 Thereafter, NACOCO seeks to recover the
above sum of P1,343,274.52 from general manager
and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor
Moll. It charges Kalaw with negligence under Article
1902 of the old Civil Code (now Article 2176, new
Civil Code); and defendant board members,
including Kalaw, with bad faith and/or breach trust
for having approved the contracts.
ISSUE:
Whether or not Kalaw may be held liable by
NACOCO for the debts the corporation incurred
under his administration.
RULING:
NO.
They were done with implied authority from
the BOD. These previous contracts, it should be
stressed, were signed by Kalaw without prior
authority from the board. Said contracts were known
all along to the board members. Nothing was said
by them. The aforesaid contracts stand to prove one
thing. Obviously NACOCO board met the difficulties
attendant to forward sales by leaving the adoption
of means to end, to the sound discretion of
NACOCO's general manager Maximo M. Kalaw.
Settled jurisprudence has it that where
similar acts have been approved by the directors as
a matter of general practice, custom, and policy, the
general manager may bind the company without
formal authorization of the board of directors. In
varying language, existence of such authority is
established, by proof of the course of business, the
usages and practices of the company and by the
knowledge which the board of directors has, or must
be presumed to have, of acts and doings of its
subordinates in and about the affairs of the
corporation.
Authorities, great in number, are one in the
idea that "ratification by a corporation of an
unauthorized act or contract by its officers or others
relates back to the time of the act or contract
ratified, and is equivalent to original authority;" and
that "[t]he corporation and the other party to the
transaction are in precisely the same position as if
the act or contract had been authorized at the time."
The language of one case is expressive: "The
adoption or ratification of a contract by a corporation
is nothing more nor less than the making of an
original contract. The theory of corporate ratification
is predicated on the right of a corporation to
contract, and any ratification or adoption is
equivalent to a grant of prior authority.
Orientalist Co. and Fernandez (2001)
Facts:
The Orientalist Company is a corporation,
duly organized under the laws of the Phil. Islands,
and was engaged in business of maintaining and
conducting a theatre in the City of Manila for the
exhibition of cinematographic films. The plaintiff J.F.
Ramirez was engaged in the business of marketing
films for a manufacturer, and in the production of
distribution of cinematographic material. Certain of
the directors of the Orientalist Company became
apprised of the fact that the plaintiff had control of
the agencies for two different marks of films, namely
the Éclair Films and the Milano Films. Negotiation
have begun with said officials of the company with
Ramirez. The defendant, Fernandez, one of the
board of directors, and treasurer, was chiefly active
on this matter, believing that the securing of said
films was necessary to the success of the
corporation. Ramirez placed in the hands of
Fernandez an offer in which the latter accepted for
the exclusive agencies of said two films. The
communications indicating the acceptance were
signed by Ramirez as an individual and in his
capacity of Treasurer of the Orientalist.
Issue:
W/N Fernandez, as treasurer, had authority
to bind the company by signing it name to the letters
in question.
Ruling:
No.
A Director-Treasurer has no power to bind
the company even in transactions that are pursuant
to the primary purpose of its corporation, especially
when the by-laws specifically provided that the acts
entered into can only be done by the Board of
Directors.
It is declared in Sec. 28 of the Corporation
Law that corporate power shall be exercised, and all
corporate business conducted by the board of
directors; and this principle is recognized in the by-
laws of the corporation in question which contain a
provision declaring that the power to make contracts
shall be vested in the board of directors.
Ramirez v. Orientalist Co. and Fernandez (1918) –
Street, J.
Concept: Control and Management of Corporation
FACTS:
Orientalist Company (Orientalist for brevity)
exhibited films in a theatre in Manila. Plaintiff JF
Ramirez, a resident of Paris and represented in
Manila by his son Jose Ramirez, was engaged in
business of marketing films for manufacturers and
in the production or distribution of cinematographic
material. In 1913, there were negotiations between
the officials of Orientalist and Jose Ramirez, as
agent of JF Ramirez, for the exclusive agency of
two films in the hands of Orientalist. Jose Ramirez
placed a formal offer stating in detail the terms upon
which Ramirez would undertake to supply from
Paris the films. The board of directors approved and
accepted the offer. The most important portion of
the two letters of acceptance written by Fernandez
to Ramirez is in the following terms: “These
communications were signed in the following form,
in which it will be noted the separate signature of RJ
Fernandez, as an individual, is placed somewhat
below and to the left of the signature of the
Orientalist Company, as signed by RJ Fernandez, in
the capacity of treasurer:
THE ORIENTALIST COMPANY,
By RJ Fernandez
Treasurer.
RJ Fernandez”
The record showed that JF Ramirez himself
procured the films upon his own responsibility.
Thus, the only contracting parties in this case are JF
Ramirez (first party), and Orientalist with RJ
Fernandez (second party). The films arrived in
Manila but Orientalist had no funds to meet its
obligations. Hence, the first few drafts were
accepted in the name of Orientalist by its president
B Hernandez, and were taken up by him with his
own funds. As the drafts had been paid by
Hernandez, he treated the films as his own
property, and they never came into the actual
possession of Orientalist as owner at all. Hernandez
rented the films to Orientalist and they were
exhibited by it in the Oriental Theater under an
arrangement made between him and the theater’s
manager. Several remittances of films from Paris
arrived. All of the drafts accompanying these films
were drawn upon the Orientalist Company; and all
were accepted in the name of Orientalist by its
president, B Hernandez, except the last which was
accepted by Hernandez individually. None of the
drafts thus accepted were taken up by the drawee
or by Hernandez when they fell due; and it was
finally necessary for Ramirez to take them up as
dishonoured by non-payment.
Ramirez instituted an action against Orientalist and
RJ Fernandez. Upon application of Ramirez, the
films were sold and the amount realized from the
sale was applied to the satisfaction of the plaintiff’s
claim. Judgment was given for the balance due to
Ramiez. Orientalist was declared to be a principal
debtor and Fernandez was declared to be
subsidiarily liable as guarantor. Defendants
appealed. The Court noted that the action is
primarily founded upon the liability created by the
two acceptance letters.
ISSUES:
1. WON Fernandez’s actions bound the
company .
2. WON the company is still liable, assuming
that the company was able to deny the
authority of Fernandez.
3. What is the character of liability
assumed by Fernandez?
HELD:
1. YES. The corporation was not able to
deny the genuineness and due execution of the
contracts in question and the authority of
Fernandez to bind the Orientalist Company.
Sec. 103 of the Code of Civil Procedure
requires that the Answer setting up the defense
of lack of authority of an officer of a corporation
to bind it by a contract should be verified and
the denial contemplated must be specific. In this
case, the failure of the corporation to make any
issue in its answer with regard to the authority
of Fernandez to bind it, and particularly its
failure to deny specifically under oath the
genuineness and due execution of the contracts
sued upon, have the effect of eliminating the
question of his authority from the case.
Whether a particular officer actually possesses
the authority which he assumes to exercise is
frequently known to very, very few and the proof
of it usually is not readily accessible to the
stranger who deals with the corporation on the
faith of the ostensible authority exercised by
some of the corporate officers.
2. YES. If a corporation knowingly permits one of
its officers, or any other agent, to do acts within
the scope of an apparent authority and thus
holds him out to the public as possessing power
to do those acts, the corporation will, as against
anyone who has in good faith dealt with the
corporation through such agent, be estopped
from denying his authority; and where it is said
“if the corporation permits” this means the same
as “if the thing is permitted by the directing
power of the corporation.”
The stockholders adopted a resolution to the
effect that the agencies of the two films should
be accepted if the corporation could obtain the
money with which to meet the expenditure
involved, and to this end appointed a committee
to apply to the bank for a credit. An attempt to
obtain credit was made, but failed. Another
special meeting of stockholders was held and a
resolution was passed to the effect that the
company should pay to Hernandez, Fernandez,
Monroy and Papa an amount equal to 10% of
their outlay in importing the films, said payment
to be made in shares of the company. At the
time this meeting was held three shipments of
the film had already been received in Manila.
Therefore, the body was then cognizant that the
offer had already been accepted in the name of
Orientalist Company and that the films which
were then expected to arrive were being
imported by virtue of such acceptance.
3. In affixing his signature to the contracts,
Fernandez was a guarantor. From the
testimony of both Ramirez and Fernandez, the
Court was convinced that the responsibility of
the later was that of a guarantor. Fernandez
said that his name was signed as a guaranty
that the contract would be approved by the
corporation, while Ramirez said that the name
was put on the contract for the purpose of
guaranteeing its performance. The Court
believed that the latter was the real intention of
the parties.
EMILIANO ACUÑA
vs.
BATAC PRODUCERS
GR L-20333, 30 June 1963
FACTS:
Acuña entered into a contract with Batac
wherein he agreed to advance P20,000.00 to the
company for its tobacco planting and drying,
provided that he shall be assigned as the
company’s representative in Manila and supervise
the transport and delivery of the goods in the said
place. Batac’s Board of Directors are amenable with
the idea and thereafter issued a resolution
authorizing Manager Leon Verano to enter into the
agreement on behalf of the corporation.
The necessary contract between Acuña and
Verano was entered into, with some of the Board of
Directors acting as witness. Acuña then inquired if
the contract needs to be ratified by the Board, in
which the counsel for Batac answered in the
negative. Acuña thereafter proceeded to perform his
part of the contrac, including the advancement of
the amount promised, which was accepted by
Batac.
Batac’s BoD, however, disapproved the
contract. Acuña insisted on its performance, but the
corporation refused, stating that the contract is not
binding by reason that it was not ratified by the
board.
ISSUE:
Whether or not the contract between Acuña
and Verano is binding with the corporation.
RULING:
YES.
A perusal of the complaint reveals that it
contains sufficient allegations indicating such
approval or at least subsequent ratification. On the
first point note the following averments: that on May
9th the plaintiff met with each and all of the
individual defendants (who constituted the entire
Board of Directors) and discussed with them
extensively the tentative agreement and he was
made to understand that it was acceptable to them,
except as to plaintiff's remuneration; that it was
finally agreed between plaintiff and all said Directors
that his remuneration would be P0.30 per kilo (of
tobacco); and that after the agreement was formally
executed he was assured by said Directors that
there would be no need of formal approval by the
Board. It should be noted in this connection that
although the contract required such approval it did
not specify just in what manner the same should be
given.
On the question of ratification the complaint
alleges that plaintiff delivered to the defendant
corporation the sum of P20,000.00 as called for in
the contract; that he rendered the services he was
required to do; that he furnished said defendant
3,000 sacks at a cost of P6,000.00 and advanced to
it the further sum of P5,000.00; and that he did all of
these things with the full knowledge, acquiescence
and consent of each and all of the individual
defendants who constitute the Board of Directors of
the defendant corporation. There is abundant
authority in support of the proposition that
ratification may be expressed or implied, and that
implied ratification may take diverse forms, such as
by silence or acquiescence; by acts showing
approval or adoption of the contract; or by
acceptance and retention of benefits flowing
therefrom.
G.R. No. L-15092 May 18, 1962
ALFREDO MONTELIBANO, ET AL., plaintiffs-
appellants,
vs.
BACOLOD-MURCIA MILLING CO.,
INC., defendant-appellee.
Facts:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro
Montelibano, and the Limited co-partnership
Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee's sugar
central mill under identical milling contracts.
Said contracts were stipulated to be in force for 30
years starting with the 1920-21 crop, and that the
resulting product should be divided in the ratio of
45% for the mill and 55% for the planters.
Sometime in 1936, it was proposed to execute
amended milling contracts, increasing the planters'
share to 60% of the manufactured sugar and
resulting molasses, besides other concessions, but
extending the operation of the milling contract from
the original 30 years to 45 years. To this effect, a
printed Amended Milling Contract form was drawn
up.
The Board of Directors of the appellee Bacolod-
Murcia Milling Co., Inc., adopted a resolution
granting further concessions to the planters over
and above those contained in the printed Amended
Milling Contract.
Appellants signed and executed the printed
Amended Milling Contract but a copy of the
resolution signed by the Central's General Manager,
was not attached to the printed contract.
In 1953, the appellants initiated the present action,
contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela and San Carlos), with a
total annual production exceeding one-third of the
production of all the sugar central mills in the
province, had already granted increased
participation (of 62.5%) to their planters, and that
under paragraph 9 of the resolution, the appellee
had become obligated to grant similar concessions
to the plaintiffs (appellants herein).
The appellee Bacolod-Murcia Milling Co., inc.,
resisted the claim, and defended by urging that the
stipulations contained in the resolution were made
without consideration; that the resolution in question
was, therefore, null and void ab initio, being in effect
a donation that was ultra vires and beyond the
powers of the corporate directors to adopt.
The court rendered judgment upholding the stand of
the defendant Milling company, and dismissed the
complaint. Plaintiffs appealed to this Court.
Issue:
W/N Bacolod-Murcia Milling is obligated to grant
similar concessions to the plaintiffs (appellants
herein).
Ruling: Yes.
There can be no doubt that the directors of the
appellee company had authority to modify the
proposed terms of the Amended Milling Contract for
the purpose of making its terms more acceptable to
the other contracting parties. The rule is that —
It is a question, therefore, in each case of
the logical relation of the act to the
corporate purpose expressed in the charter.
If that act is one which is lawful in itself, and
not otherwise prohibited, is done for the
purpose of serving corporate ends, and is
reasonably tributary to the promotion of
those ends, in a substantial, and not in a
remote and fanciful sense, it may fairly be
considered within charter powers. The test
to be applied is whether the act in question
is in direct and immediate furtherance of the
corporation's business, fairly incident to the
express powers and reasonably necessary
to their exercise. If so, the corporation has
the power to do it; otherwise, not.
As the resolution in question was passed in good
faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease
the profits of the central, the court has no authority
to review them.
They hold such office charged with the duty to act
for the corporation according to their best judgment,
and in so doing they cannot be controlled in the
reasonable exercise and performance of such duty.
Whether the business of a corporation should be
operated at a loss during depression, or close down
at a smaller loss, is a purely business and economic
problem to be determined by the directors of the
corporation and not by the court. It is a well-known
rule of law that questions of policy or of
management are left solely to the honest decision of
officers and directors of a corporation, and the court
is without authority to substitute its judgment of the
board of directors; the board is the business
manager of the corporation, and so long as it acts in
good faith its orders are not reviewable by the
courts.
Philippine Stock Exchange Inc. vs Court of
Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]
Facts: The Puerto Azul Land Inc. (PALI), a
domestic real estate corporation, had sought to offer
its shares to the public in order to raise funds
allegedly to develop its properties and pay its loans
with several banking institutions. In January, 1995,
PALI was issued a permit to sell its shares to the
public by the Securities and Exchange Commission
(SEC). To facilitate the trading of its shares among
investors, PALI sought to course the trading of its
shares through the Philippine Stock Exchange Inc.
(PSEi), for which purpose it filed with the said stock
exchange an application to list its shares, with
supporting documents attached pending the
approval of the PALI’s listing application, a letter
was received by PSE from the heirs of Ferdinand
Marcos to which the latter claims to be the legal and
beneficial owner of some of the properties forming
part of PALI’s assets. As a result, PSE denied
PALI’s application which caused the latter to file a
complaint before the SEC. The SEC issued an
order to PSE to grant listing application of PALI on
the ground that PALI have certificate of title over its
assets and properties and that PALI have complied
with all the requirements to enlist with PSE.
Issue: Whether or not the denial of PALI’s
application is proper.
Held: Yes. This is in accord with the “Business
Judgement Rule” whereby the SEC and the courts
are barred from intruding into business judgements
of corporations, when the same are made in good
faith. The same rule precludes the reversal of the
decision of the PSE, to which PALI had previously
agreed to comply, the PSE retains the discretion to
accept of reject applications for listing. Thus, even if
an issuer has complied with the PSE listing rules
and requirements, PSE retains the discretion to
accept or reject the issuer’s listing application if the
PSE determines that the listing shall not serve the
interests of the investing public.
It is undeniable that the petitioner PSE is not an
ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions
as the primary channel through which the vessels of
capital trade ply. The PSEi’s relevance to the
continued operation and filtration of the securities
transaction in the country gives it a distinct color of
importance such that government intervention in its
affairs becomes justified, if not necessarily. Indeed,
as the only operational stock exchange in the
country today, the PSE enjoys monopoly of
securities transactions, and as such it yields a
monopoly of securities transactions, and as such, it
yields an immerse influence upon the country’s
economy.
The SEC’s power to look into the subject ruling of
the PSE, therefore, may be implied from or be
considered as necessary or incidental to the
carrying out of the SEC’s express power to insure
fair dealing in securities traded upon a stock
exchange or to ensure the fair administration of
such exchange. It is likewise, observed that the
principal function of the SEC is the supervision and
control over corporations, partnerships and
associations with the end in view that investment in
these entities may be encouraged and protected
and their activities for the promotion of economic
development.
A corporation is but an association of individuals,
allowed to transact under an assumed corporate
name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate
to such a body as to its corporate and management
decisions, therefore, the state will generally not
interfere with the same. Questions of policy and
management are left to the honest decision of the
officers and directors of a corporation, and the
courts are without authority to substitute their
judgements for the judgement of the board of
directors. The board is the business manager of the
corporation and so long as it acts in good faith, its
orders are not reviewable by the courts.
In matters of application for listing in the market the
SEC may exercise such power only if the PSE’s
judgement is attended by bad faith.
The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to
the best interest of the general public.
G.R. No. 144476 April 8, 2003
ONG YONG, JUANITA TAN ONG, WILSON T.
ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG, and JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW,
BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,
LOURDES C. TIU, INTRALAND RESOURCES
DEVELOPMENT CORP., MASAGANA
TELAMART, INC., REGISTER OF DEEDS OF
PASAY CITY, and the SECURITIES AND
EXCHANGE COMMISSION, respondents.
x-----------------------------x
G.R. No. 144629 April 8, 2003
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW,
BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,
LOURDES C. TIU, and INTRALAND RESOURCES
DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T.
ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG, and JULIA ONG ALONZO, respondents.
FACTS:
In 1994, the construction of the Masagana Citimall
in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink
Asia Development Corporation (FLADC), which
was owned by the Tius, encountered dire financial
difficulties. It was heavily indebted to the Philippine
National Bank (PNB) for P190 million.
To stave off foreclosure of the mortgage on the two
lots where the mall was being built, the Tius invited
the Ongs to invest in FLADC.
Under the Pre-Subscription Agreement they entered
into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC.
Furthermore, they agreed that the Tius were entitled
to nominate the Vice-President and the Treasurer
plus five directors while the Ongs were entitled to
nominate the President, the Secretary and six
directors (including the chairman) to the board of
directors of FLADC.
Moreover, the Ongs were given the right to manage
and operate the mall.
The business harmony between the Ongs and the
Tius in FLADC, however, was shortlived because
the Tius, on February 23, 1996, rescinded the Pre-
Subscription Agreement. The Tius accused the
Ongs of:
(1) refusing to credit to them the FLADC
shares covering their real property
contributions;
(2) preventing David S. Tiu and Cely Y. Tiu
from assuming the positions of and
performing their duties as Vice-President
and Treasurer, respectively, and
(3) refusing to give them the office spaces
agreed upon.
In their defense, the Ongs said that David S. Tiu
and Cely Y. Tiu had in fact assumed the positions of
Vice-President and Treasurer of FLADC but that it
was they who refused to comply with the corporate
duties assigned to them.
This case was commenced by the Tius on February
27, 1996 at the SEC, seeking confirmation of their
rescission of the Pre-Subscription Agreement. After
hearing, the SEC issued a decision confirming the
rescission sought by the Tius.
SEC en banc affirmed and confirmed the rescission
of the Pre-Subscription Agreement.
On appeal, the Court of Appeals likewise affirmed
the SEC decision. However, the CA concluded that
both the Ongs and the Tius were in pari delicto
(which would not have legally entitled them to
rescission) but, "for practical considerations," that is,
their inability to work together, it was best to
separate the two groups by rescinding the Pre-
Subscription Agreement, returning the original
investment of the Ongs and awarding practically
everything else to the Tius.
Both parties filed separate petitions for review
before the Supreme Court.
This Court affirmed the fact that both the Ongs and
the Tius violated their respective obligations under
the Pre-Subscription Agreement. The Ongs
prevented the Tius from assuming the positions of
Vice-President and Treasurer of the corporation. On
the other hand, the Decision established that the
Tius failed to turn over FLADC funds to the Ongs
and that the Tius diverted rentals due to FLADC to
their MATTERCO account. Consequently, it held
that rescission was not possible since both parties
were in pari delicto.

However, this Court agreed with the Court of
Appeals that the remedy of specific performance, as
espoused by the Ongs, was not practical and sound
either and would only lead to further "squabbles and
numerous litigations" between the parties.
ISSUE:
Whether or not the Tius could legally rescind the
Pre-Subscription Agreement.
RULING:
In the instant case, the rescission of the Pre-
Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and
property of the corporation, thereby violating the
Trust Fund Doctrine and the Corporation Code,
since rescission of a subscription agreement is not
one of the instances when distribution of capital
assets and property of the corporation is allowed.
Contrary to the Tius' allegation, rescission will, in
the final analysis, result in the premature liquidation
of the corporation without the benefit of prior
dissolution in accordance with Sections 117, 118,
119 and 120 of the Corporation Code.
The Tius maintain that rescinding the subscription
contract is not synonymous to corporate liquidation
because all rescission will entail would be the
simple restoration of the status quo ante and a
return to the two groups of their cash and property
contributions. We wish it were that simple. Very
noticeable is the fact that the Tius do not explain
why rescission in the instant case will not effectively
result in liquidation. The Tius merely refer in cavalier
fashion to the end-result of rescission (which
incidentally is 100% favorable to them) but turn a
blind eye to its unfair, inequitable and disastrous
effect on the corporation, its creditors and the Ongs.
The Tius claim that rescission of the agreement will
not result in an unauthorized liquidation of the
corporation because their case is actually a petition
to decrease capital stock pursuant to Section 38
of the Corporation Code. Section 122 of the law
provides that "(e)xcept by decrease of capital
stock…, no corporation shall distribute any of its
assets or property except upon lawful dissolution
and after payment of all its debts and liabilities." The
Tius claim that their case for rescission, being a
petition to decrease capital stock, does not violate
the liquidation procedures under our laws. All that
needs to be done, according to them, is for this
Court to order (1) FLADC to file with the SEC a
petition to issue a certificate of decrease of capital
stock and (2) the SEC to approve said decrease.
This new argument has no merit.
The Tius' case for rescission cannot validly be
deemed a petition to decrease capital stock
because such action never complied with the formal
requirements for decrease of capital stock under
Section 33 of the Corporation Code. No majority
vote of the board of directors was ever taken.
Neither was there any stockholders meeting at
which the approval of stockholders owning at least
two-thirds of the outstanding capital stock was
secured. There was no revised treasurer's affidavit
and no proof that said decrease will not prejudice
the creditors' rights. On the contrary, all their
pleadings contained were alleged acts of violations
by the Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion
into the internal affairs of the corporation to
compel FLADC to file at the SEC a petition for
the issuance of a certificate of decrease of
stock. Decreasing a corporation's authorized
capital stock is an amendment of the Articles of
Incorporation. It is a decision that only the
stockholders and the directors can make,
considering that they are the contracting parties
thereto. In this case, the Tius are actually not just
asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a
corporate decision for FLADC. We decline to
intervene and order corporate structural changes
not voluntarily agreed upon by its stockholders and
directors.
Truth to tell, a judicial order to decrease capital
stock without the assent of FLADC's directors and
stockholders is a violation of the "BUSINESS
JUDGMENT RULE" which states that:
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.29
The reason behind the rule is aptly explained by
Dean Cesar L. Villanueva, an esteemed author in
corporate law, thus:
 Courts and other tribunals are wont to
override the business judgment of the board
mainly because, courts are not in the
business of business, and the laissez faire
rule or the free enterprise system prevailing
in our social and economic set-up dictates
that it is better for the State and its organs
to leave business to the businessmen;
especially so, when courts are ill-equipped
to make business decisions. More
importantly, the social contract in the
corporate family to decide the course of the
corporate business has been vested in the
board and not with courts.30
Apparently, the Tius do not realize the illegal
consequences of seeking rescission and control of
the corporation to the exclusion of the Ongs. Such
an act infringes on the law on reduction of capital
stock. Ordering the return and distribution of the
Ongs' capital contribution without dissolving the
corporation or decreasing its authorized capital
stock is not only against the law but is also
prejudicial to corporate creditors who enjoy absolute
priority of payment over and above any individual
stockholder thereof.
Stripped to its barest essentials, the issue of
rescission in this case is not difficult to understand.
If rescission is denied, will injustice be inflicted on
any of the parties? The answer is no because the
financial interests of both the Tius and the Ongs will
remain intact and safe within FLADC. On the other
hand, if rescission is granted, will any of the parties
suffer an injustice? Definitely yes because the Ongs
will find themselves out in the streets with nothing
but the money they had in 1994 while the Tius will
not only enjoy a windfall estimated to be anywhere
from P450 million to P900 million but will also take
over an extremely profitable business without much
effort at all.
G.R. No. 89070 May 18, 1992
BENGUET ELECTRlC COOPERATIVE, INC.,
petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION,
PETER COSALAN and BOARD OF DIRECTORS
OF BENGUET ELECTRIC COOPERATIVE, INC., *
respondents.
Facts: Private respondent Peter Cosalan was the
General Manager of Petitioner Benguet Electric
Cooperative, Inc. ("Beneco"). respondent Cosalan
received Audit Memorandum issued by the
Commission on Audit ("COA"). This Memorandum
noted that cash advances received by officers and
employees of petitioner Beneco had been virtually
written off in the books of Beneco. In the Audit
Memorandum, the COA directed petitioner Beneco
to secure the approval of the National Electrification
Administration ("NEA") before writing off or
condoning those cash advances, and
recommended the adoption of remedial measures.
Having been made aware of the serious financial
condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated
implementation of the remedial measures
recommended by the COA. The respondent
members of the Board of Beneco reacted by
adopting a series of resolutions. These Board
Resolutions abolished the housing allowance of
respondent Cosalan; reduced his salary and his
representation and commutable allowances;
directed him to hold in abeyance all pending
personnel disciplinary actions; and struck his name
out as a principal signatory to transactions of
petitioner Beneco.
The respondent Beneco Board members adopted
another series of resolutions which resulted in the
ouster of respondent Cosalan as General Manager
of Beneco and his exclusion from performance of
his regular duties as such, as well as the
withholding of his salary and allowances.
Cosalan then filed a complaint for illegal dismissal
against the BENECO Board Members, he later
impleaded BENECO itself. The Labor Arbiter (LA)
ruled in favor of Cosalan. The National Labor
Relations Commission (NLRC) affirmed the decision
of the LA but modified it so as to absolve the Board
Members from liability as it held that the Board
Members merely acted in their official capacity.
BENECO, being the only party adjudged to be
liable, then appealed said decision.
Issue: Whether or not the National Labor Relations
Commission is correct?
Ruling: No. The act of the Board Members is ultra
vires. There was no legal basis for them to suspend
Cosalan indefinitely for under the Implementing
Rules of the Labor Code the maximum period form
preventive suspension should not go beyond 30
days. Further, it was found that Cosalan was never
informed of the charges against him nor was he
afforded the opportunity to present his case. He was
deprived of due process. Nor was Cosalan’s
suspension approved by the NEA, which is also
required for due process purposes.
These acts by the Board Members are tainted with
bad faith. A very strong presumption arises that the
Board Members are acting in reprisal against the
reforms sought to be introduced by Cosalan in order
to address the irregularities within BENECO. The
Board Members are therefore liable for damages
under Section 31 of the Corporation Code. And
even though BENECO is a cooperative, it is still
covered by the Corporation Code because under
PD 269, cooperatives are considered as
corporations.
The Supreme Court ruled that BENECO and the
BENECO Board Members are liable for the
damages caused against Cosalan. However
BENECO can seek reimbursement from the Board
Members so as not to unduly penalize the innocent
members of BENECO.
JOHN GOKONGWEI, JR., petitioner
vs.
SECURITIES AND EXCHANGE COMMISSION,
ANDRES M. SORIANO et.al. respondents.
G.R. No. L-45911 April 11, 1979.
FACTS:
Petitioner alleged that on September 18,
1976, individual respondents amended the by-laws
of the corporation, basing their authority to do so on
a resolution of the stockholders adopted on March
13, 1961. It was contended that according to section
22 of the Corporation Law and Article VIII of the by-
laws of the corporation, the power to amend,
modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the
affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at
the time of the amendment. Since the amendment
was based on the 1961 authorization, petitioner
contended that the Board acted without authority
and in usurpation of the power of the stockholders.
Petitioner averred that the membership of the Board
of Directors had changed since the authority was
given in 1961, there being six (6) new directors.
It was claimed that prior to the questioned
March 13, 1961 amendment, petitioner had all the
qualifications to be a director of respondent
corporation, being a substantial stockholder thereof;
that as a stockholder, petitioner had acquired rights
inherent in stock ownership, such as the rights to
vote and to be voted upon in the election of
directors; and that in amending the by-laws,
respondents purposely provided for petitioner's
disqualification and deprived him of his vested right
as afore-mentioned, hence the amended by-laws
are null and void.
ISSUE:
Whether or not the disqualification of
Gokongwei Jr. to run for directorship of the
corporation valid, as such was only provided in the
amended by-laws of the corporation.
RULING:
YES.
It is recognized by all authorities that 'every
corporation has the inherent power to adopt by-laws
'for its internal government, and to regulate the
conduct and prescribe the rights and duties of its
members towards itself and among themselves in
reference to the management of its affairs.'" At
common law, the rule was "that the power to make
and adopt by-laws was inherent in every corporation
as one of its necessary and inseparable legal
incidents.
Any person "who buys stock in a
corporation does so with the knowledge that its
affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the
will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law."
Under section 22 of the same law, the
owners of the majority of the subscribed capital
stock may amend or repeal any by-law or adopt
new by-laws. It cannot be said, therefore, that
petitioner has a vested right to be elected director,
in the face of the fact that the law at the time such
right as stockholder was acquired contained the
prescription that the corporate charter and the by-
law shall be subject to amendment, alteration and
modification.
Detective & Protective Bureau INC. vs Cloribel
Facts:
Detective and Protective Bureau, Inc., therein
plaintiff (petitioner herein) against Fausto S. Alberto,
therein defendant (respondent herein), for
accounting with preliminary injunction and
receivership.
plaintiff was a corporation duly organized and
existing under the laws of the Philippines; that
defendant was managing director of plaintiff
corporation from 1952 until January 14, 1964; that
in June, 1963, defendant illegally seized and took
control of all the assets as well as the books,
records, vouchers and receipts of the corporation
from the accountant-cashier, concealed them
illegally and refused to allow any member of the
corporation to see and examine the same; that on
January 14, 1964, the stockholders, in a meeting,
removed defendant as managing director and
elected Jose de la Rosa in his stead; that defendant
not only had refused to vacate his office and to
deliver the assets and books to Jose de la Rosa,
but also continued to perform unauthorized acts for
and in behalf of plaintiff corporation; that defendant
had been required to submit a financial statement
and to render an accounting of his administration
from 1952 but defendant has failed to do so; that
defendant, contrary to a
resolution adopted by the Board of Directors on
November 24, 1963, had been illegally disposing of
corporate funds; that defendant, unless immediately
restrained ex-parte, would continue discharging the
functions of managing director; and that it was
necessary to appoint a receiver to take charge of
the assets and receive the income of the
corporation. Plaintiff prayed that a preliminary
injunction ex-parte be issued restraining defendant
from exercising the functions of managing director
and from disbursing and disposing of its funds; that
Jose M. Barredo be appointed receiver; that, after
judgment, the injunction be made permanent and
defendant be ordered to render an accounting.
The preliminary injunction was not approved by the
respondent judge because respondent alberto filed
a counter-bond. Which prompt plaintiff file a
certiorari case alleging grave abuse of discretion on
the part of the judge and public interest demanded
that the writ enjoining respondent Fausto Alberto
from exercising the functions of managing director
be maintained. Petitioner contended that
respondent Alberto had arrogated to himself the
power of the Board of Directors of the corporation
because he refused to vacate the office and
surrender the same to Jose de la Rosa who had
been elected managing director by the Board to
succeed him. This assertion, however, was disputed
by respondent Alberto who stated that Jose de la
Rosa could not be elected managing director
because he did not own any stock in the
corporation.
Issue:
Whether or not a person maybe elected as a
managing director even if he has no does not own
any stock in the corporation
Held:
There is in the record no showing that Jose de la
Rosa owned a share of stock in the corporation. If
he did not own any share of stock, certainly he
could not be a director pursuant to the mandatory
provision of Section 30 of the Corporation Law,
which in part provides:
Sec. 30. Every director must own in his own right at
least one share of the capital stock of the stock
corporation of which he is a director, which stock
shall stand in his name on the books of the
corporations....
If he could not be a director, he could also not be a
managing director of the corporation, pursuant to
Article V, Section 3 of the By-Laws of the
Corporation which provides that:
The manager shall be elected by the Board of
Directors from among its members.... (Record, p.
48)
If the managing director-elect was not qualified to
become managing director, respondent Fausto
Alberto could not be compelled to vacate his office
and cede the same to the managing director-elect
because the bylaws of the corporation provides in
Article IV, Section 1 that "Directors shall serve until
the election and qualification of their duly qualified
successor."
RAMON C. LEE and ANTONIO DM. LACDAO
vs.
THE HON. COURT OF APPEALS, SACOBA
MANUFACTURING CORP., PABLO GONZALES,
JR. and THOMAS GONZALES
G.R. No. 93695 February 4, 1992
FACTS:
In 1985, a complaint for sum of money was
filed by the International Corporate Bank, Inc.
against the private respondents who, in turn, filed a
third party complaint against Alfa Integrated Textile
Mills (ALFA) and the petitionersRamon C. Lee and
Antonio Dm. Lacdao who were officers of ALFA.
Meanwhile, in 1988, the trial court issued an order
requiring the issuance of an alias summons upon
ALFA through the DBP as a consequence of the
petitioners' letter informing the court that the
summons for ALFA was erroneously served upon
them considering that the management of ALFA
had been transferred to the Development Bank of
the Philippines (DBP).
In a manifestation, the DBP claimed that it
was not authorized to receive summons on behalf of
ALFA since the DBP had not taken over the
company which has a separate and distinct
corporate personality and existence.
ISSUE:
Whether or not despite the execution of the
Voting Trust Agreement, the summons be served
upon the petitioners who were officers and directors
of ALFA (the trustor).
RULING:
NO.
There is no dispute as to the most
immediate effect of a voting trust agreement on the
status of a stockholder who is a party to its
execution from legal titleholder or owner of the
shares subject of the voting trust agreement, he
becomes the equitable or beneficial owner.
Note that in order to be eligible as a
director, what is material is the legal title to, not
beneficial ownership of, the stock as appearing on
the books of the corporation
Considering that the voting trust agreement
between ALFA and the DBP transferred legal
ownership of the stocks covered by the agreement
to the DBP as trustee, the latter became the
stockholder of record with respect to the said shares
of stocks. In the absence of a showing that the DBP
had caused to be transferred in their names one
share of stock for the purpose of qualifying as
directors of ALFA, the petitioners can no longer be
deemed to have retained their status as officers of
ALFA which was the case before the execution of
the subject voting trust agreement. There appears
to be no dispute from the records that DBP has
taken over full control and management of the firm.
PREMIUM MARBLE RESOURCES, INC.
vs.
THE COURT OF APPEALS and
INTERNATIONAL CORPORATE BANK
1996 Nov 4, G.R. No. 96551
FACTS:
Herein petitioner filed a case for damages
against respondent for allowing clearance of checks
by unauthorized officers of the former, to the
former’s prejudice. However this case was opposed
by some members of the petitioner on the ground
that the filing of the complaint was not authorized by
the Board. Hence, a resolution of this case was
necessary to litigate the claim of the petitioner for
damages against the respondent bank.
ISSUE:
Whether or not the filing was authorized by
a duly constituted Board of Directors of the
petitioner corporation.
RULING:
NO.
The petitioners asserted that the Board
authorized such filing. However, from the records of
the case as well as that of the corporation, no
evidence was seen and shown that the results of
the election where the supposed members of the
Board who allegedly authorized the filing were filed
with the Securities and Exchange Commission. The
Corporation Code mandates that 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. Failure to comply with
such requirement, the elected members cannot be
considered as the duly constituted and elected
members of the Board. Hence, being not duly
constituted, the filing of the case was not authorized
by the Board.
Grace Christian High School vs. Court of
Appeals
[GR 108905, 23 October 1997]
Second Division, Mendoza (J): 2 concur, 1 on leave
Facts: Grace Christian High School is an
educational institution offering preparatory,
kindergarten and secondary courses at the Grace
Village in Quezon City. Grace Village Association,
Inc., on the other hand, is an organization of lot
and/or building owners, lessees and residents at
Grace Village, while Alejandro G. Beltran and
Ernesto L. Go were its president and chairman of
the committee on election, respectively, in 1990,
when this suit was brought. As adopted in 1968, the
by-laws of the association provided in Article IV, that
"the annual meeting of the members of the
Association shall be held on the first Sunday of
January in each calendar year at the principal office
of the Association at 2:00 P.M. where they shall
elect by plurality vote and by secret balloting, the
Board of Directors, composed of 11 members to
serve for one year until their successors are duly
elected and have qualified." It appears, that on 20
December 1975, a committee of the board of
directors prepared a draft of an amendment to the
by-laws, providing that "The Annual Meeting of the
members of the Association shall be held on the
second Thursday of January of each year. Each
Charter or Associate Member of the Association is
entitled to vote. He shall be entitled to as many
votes as he has acquired thru his monthly
membership fees only computed on a ratio of TEN
(P10.00) PESOS for one vote. The Charter and
Associate Members shall elect the Directors of the
Association. The candidates receiving the first 14
highest number of votes shall be declared and
proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of
the ASSOCIATION." This draft was never
presented to the general membership for approval.
Nevertheless, from 1975, after it was presumably
submitted to the board, up to 1990, Grace Christian
High School was given a permanent seat in the
board of directors of the association. On 13
February 1990, the association's committee on
election in a letter informed James Tan, principal of
the school, that "it was the sentiment that all
directors should be elected by members of the
association" because "to make a person or entity a
permanent Director would deprive the right of voters
to vote for 15 members of the Board," and "it is
undemocratic for a person or entity to hold office in
perpetuity." For this reason, Tan was told that "the
proposal to make the Grace Christian High School
representative as a permanent director of the
association, although previously tolerated in the
past elections should be reexamined." Following
this advice, notices were sent to the members of the
association that the provision on election of
directors of the 1968 by-laws of the association
would be observed. The school requested the
chairman of the election committee to change the
notice of election by following the procedure in
previous elections, claiming that the notice issued
for the 1990 elections ran "counter to the practice in
previous years" and was "in violation of the by-laws
(of 1975)" and "unlawfully deprive[d] Grace
Christian High School of its vested right [to] a
permanent seat in the board." As the association
denied its request, the school brought suit for
mandamus in the Home Insurance and Guaranty
Corporation to compel the board of directors of the
association to recognize its right to a permanent
seat in the board. The school based its claim on the
following portion of the proposed amendment which,
it contended, had become part of the by-laws of the
association as Article VI, paragraph 2. It appears
that the opinion of the Securities and Exchange
Commission on the validity of this provision was
sought by the association and that in reply to the
query, the SEC rendered an opinion to the effect
that the practice of allowing unelected members in
the board was contrary to the existing by-laws of the
association and to §92 of the Corporation Code.
The association cited the SEC opinion, among
others, in its answer. A preliminary conference was
held on 29 March 1990 but nothing substantial was
agreed upon. A subsequent meeting was held on 17
April 1990, but the parties failed to reach an
agreement. Instead, the board adopted a resolution
declaring the 1975 provision null and void for lack of
approval by members of the association and the
1968 by-laws to be effective. On 20 June 1990, the
hearing officer of the HIGC rendered a decision
dismissing the school's action. The appeals board
of the HIGC affirmed the decision of the hearing
officer in its resolution dated 13 September 1990.
Petitioner appealed to the Court of Appeals but the
school again lost as the appellate court on 9
February 1993, affirmed the decision of the HIGC.
The school filed the petition for review.
Issue: Whether the school's representative should
be elected to have the right to sit in the board of
directors of Grace Village Association, Inc. as a
member thereof.
Held: It is actually §§28 and 29 of the Corporation
Law — § 23 of the present law; not §92 of the
present law or §29 of the former one — which
require members of the boards of directors of
corporations to be elected. The board of directors of
corporations must be elected from among the
stockholders or members. There may be
corporations in which there are unelected members
in the board but it is clear that in the examples cited
by the school, the unelected members sit as ex
officio members, i.e., by virtue of and for as long as
they hold a particular office. But in the case of the
school itself, there is no reason at all for its
representative to be given a seat in the board. Nor
does the school claim a right to such seat by virtue
of an office held. In fact it was not given such seat in
the beginning. It was only in 1975 that a proposed
amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law,
the fact that for 15 years it has not been questioned
or challenged but, on the contrary, appears to have
been implemented by the members of the
association cannot forestall a later challenge to its
validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is
beyond the power of the members of the
association to waive its invalidity. For that matter the
members of the association may have formally
adopted the provision in question, but their action
would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law. It is
probable that, in allowing the school's
representative to sit on the board, the members of
the association were not aware that this was
contrary to law. It should be noted that they did not
actually implement the provision in question except
perhaps insofar as it increased the number of
directors from 11 to 15, but certainly not the
allowance of the school's representative as an
unelected member of the board of directors. It is
more accurate to say that the members merely
tolerated the school's representative and tolerance
cannot be considered ratification. Nor can the
school claim a vested right to sit in the board on the
basis of "practice." Practice, no matter how long
continued, cannot give rise to any vested right if it is
contrary to law. Even less tenable is the school's
claim that its right is "coterminus with the existence
of the association."
The Government of the Philippine Islands vs. El
Hogar Filipino
G.R. No. L-26649 July 13, 1917
Facts:
The Philippine Commission enacted Act No. 1459,
also known as the Corporation Law, on March 1,
1906. El Hogar Filipino, organized in 1911 under the
laws of the Philippine Islands, was the first
corporation organized under Sec. 171-190 Act No.
1459, devoted to the subject of building and loan
associations, their organization and administration.
In the said law, the capital of the corporation was
not permitted to exceed P3M, but Act No. 2092
amended the statute, permitting capitalization to the
amount of ten millions.
El Hogar took advantage of the amendment of Act
No. 1459 and amended its AOI as a result thereof,
stating that the amount of capital must not exceed
what has been stated in Act No. 2092. This resulted
to El Hogar having 5,826 shareholders, 125,750
shares with paid-up value of P8.7M. The
corporation paid P7.16M to its withdrawing
stockholders.
The Government of the Philippine Islands filed an
action against El Hogar due to the alleged illegal
holding title to real property for a period exceeding
five (5) years after the same was bought in a
foreclosure sale. Sec. 13(5) of the Corporation Law
states that corporations must dispose of real estate
obtained within 5 years from receiving the title. The
Philippine Government also prays that El Hogar be
excluded from all corporate rights and privileges
and effecting a final dissolution of said corporation.
It appears from the records that El Hogar was the
holder of a recorded mortgage on the San Clemente
land as security for a P24K loan to El Hogar.
However, shareholders and borrowers defaulted in
payment so El Hogar foreclosed the mortgage and
purchased the land during the auction sale. A deed
of conveyance in favor of El Hogar was executed
and sent to the Register of Deeds of Tralac with a
request that the certificate of title be cancelled and a
new one be issued in favor of El Hogar from the
Register of Deeds of Tarlac. However, no reply was
received.
El Hogar filed a complaint with the Chief of the
General Land Registration Office. The certificate of
title to the San Clemente land was received by El
Hogar and a board resolution authorizing Benzon to
find a buyer was issued. Alcantara, the buyer of the
land, was given extension of time to make payment
but defaulted so the contract treated rescinded.
Efforts were made to find another buyer.
Respondent acquired title in December 1920 until
the property was finally sold to Felipa Alberto in July
1926. The interval exceeded 5 years but the period
did not commence to run until May 7, 1921 when
the register of deeds delivered the new certificate of
title. It has been held that a purchaser of land
registered under the Torrens system cannot acquire
the status of an innocent purchaser for value unless
the vendor is able to place the owner’s duplicate in
his hands showing the title to be in the vendor.
During the period before May 1921, El Hogar was
not in a position to pass an indefeasible title to any
purchaser. Therefore, El Hogar cannot be held
accountable for this delay which was not due to its
fault. Likewise, the period from March 25, 1926 to
April 20, 1926 must not be part of the five-year
period because this was the period where
respondent was under the obligation to sell the
property to Alcantara prior to the contract’s
rescission due to Alcantara’s non-payment.
Another circumstance causing the delay is the fact
that El Hogar purchased the property in the full
amount of the loan made by the former owner which
is nearly P24K when it was subsequently found that
the property was not salable and later sold for P6K
notwithstanding El Hogar’s efforts to find a
purchaser upon better terms.
ISSUE:
W/N the practice of the directorate of filling
vacancies by the action of the directors themselves
is valid
Ruling: Yes.
Art. 61 of El Hogar’s by-laws which states that
“attendance in person or by proxy by shareholders
owning one-half plus one of the shareholders shall
be necessary to constitute a quorum for the election
of directors” is contrary to Sec. 31 of the Corpo Law
which provides that owners of the majority of the
subscribed capital stock entitled to vote must be
present either in person or by proxy at all elections
of directors.
Unless the law or the charter of a corporation
expressly provides that an office shall become
vacant at the expiration of the term of office for
which the officer was elected, the general rule is to
allow the officer to holdover until his successor is
duly qualified. Mere failure of a corporation to elect
officers does not terminate the terms of existing
officers nor dissolve the corporation.
The doctrine above stated finds expressions in
article 66 of the by-laws of the respondent which
declares in so many words that directors shall hold
office "for the term of one year on until their
successors shall have been elected and taken
possession of their offices." No fault can be imputed
to the corporation on account of the failure of the
shareholders to attend the annual meetings and
their non-attendance in meetings is doubtless to be
interpreted in part as expressing their satisfaction of
the way in which things have been conducted.
It result that the practice of the directorate of filling
vacancies by the action of the directors themselves
is valid. Nor can any exception be taken to then
personality of the individuals chosen by the
directors to fill vacancies in the body. Certainly it is
no fair criticism to say that they have chosen
competent businessmen of financial responsibility
instead of electing poor persons to so responsible a
position. The possession of means does not
disqualify a man for filling positions of responsibility
in corporate affairs.
DOMINGO PONCE AND BUHAY PONCE
vs.
DEMETRIO B. ENCARNACION AND
POTENCIANO GAPOL
G.R. NO. L-5883 NOVEMBER 28, 1953
FACTS:

Daguhoy Enterprises, Inc., was duly
registered as such on 24 June 1948. On 16 April
1951 at a meeting duly called, the voluntary
dissolution of the corporation and the appointment
of Gapol as receiver were agreed upon and to that
end a petition for voluntary dissolution was drafted
which was sent to, and signed by, the petitioner
Domingo Ponce. Instead of filing the petition for
voluntary dissolution of the corporation as agreed
upon, Gapol, who is the largest stockholder,
changed his mind and filed a complaint in the CFI of
Manila to compel the petitioners to render an
accounting of the funds and assets of the
corporation, to reimburse it, jointly and severally, a
total sum of P18,690, plus interest, which have
been converted by the petitioner Domingo Ponce to
his own use and benefit.
On 18 May 1951 Gapol filed a motion
praying that the petitioners be removed as members
of the board of directors which was denied by the
court. On 3 January 1952 Gapol filed a petition
praying for an order directing him to call a meeting
of the stockholders of the corporation and to preside
at such meeting in accordance with section 26 of
the Corporation Law. Two-days later, without notice
to the petitioners and to the other members of the
board of directors and in violation of the Rules of
Court which require that the adverse parties be
notified of the hearing of the motion three days in
advance, the respondent court issued the order as
prayed for.
ISSUE:
Whether or not under and pursuant to
section 26 of the Corporation Law, the respondent
court may issue the order complained of.
RULING:
NO.
Article 9 of the by-laws of the Daguhoy
Enterprises, Inc., provides: The Board of Directors
shall compose of five (5) members who shall be
elected by the stockholders in a general meeting
called for that purpose which shall be held every
even year during the month of January. Article 22 of
the by-laws provides: The Chairman shall have the
right to fix the date, the time and the place where
the general meeting shall be held, either special or
general.
Section 26 of the Corporation Code
provides: - Whenever, from any cause, there is no
person authorized to call a meeting, or when the
officer authorized to do so refuses, fails, or neglects
to call a meeting, any judge of a Court of First
Instance, on the showing of good cause therefor,
may issue an order to any stockholder or member of
a corporation, directing him to call a meeting of the
corporation by giving the proper notice required by
this Act or the by-laws; and if there be no person
legally authorized to preside at such meeting, the
judge of the Court of First Instance may direct the
person calling the meeting to preside at the same
until a majority of the members or stockholders
representing a majority of the stock present and
permitted by law to be voted have chosen one of
their number to act as presiding officer for the
purposes of the meeting.
Petitioners were not deprived of their right
without due process of law. They had no right to
continue as directors of the corporation unless
reelected by the stockholders in a meeting called for
that purpose every even year.
G.R. No. L-26555 November 16, 1926
BALDOMERO ROXAS, ENRIQUE ECHAUS and
ROMAN J. LACSON, petitioners,
vs.
Honorable MARIANO DE LA ROSA, Auxiliary
Judge of First Instance of Occidental Negros,
AGUSTIN CORUNA, MAURO LEDESMA and
BINALBAGAN ESTATE, INC., respondents.
DOCTRINE: CONTROL AND MANAGEMENT OF
CORPORATION
Removal of Directors: Under the law the directors of
a corporation can only be removed from office by a
vote of the stockholders representing at least two-
thirds of the subscribed capital stock entitled to vote
(Act No. 1459, sec. 34); while vacancies in the
board, when they exist, can be filled by mere
majority vote, (Act No. 1459, sec. 25).
Moreover, the law requires that when action is to be
taken at a special meeting to remove the directors,
such purpose shall be indicated in the call (Act No.
1459, sec. 34)
SUMMARY:
Representatives of the voting trust, holding majority
of the shares, calls for a shareholders meeting with
the purpose of electing the members of the board of
directors notwithstanding the fact that all the
positions in the board are occupied by the members
elected in a previous shareholders meeting. A civil
action was filed to enjoin such meeting and the
petitioners filed a certiorari proceeding for the
issuance of the CFI judge of a restraining order to
enjoin the meeting. SC held that the restraining
order was valid because in order to remove the
current members of the BOD, a vote of at least 2/3
of the shareholders is necessary.
FACTS:
Binalbagan Estate, Inc. (BEI), is a corporation
having its principal plant in Occidental Negros
where it is engaged in the manufacture of raw sugar
from canes grown upon farms accessible to its
central.
In July, 1924, the possessors of a majority of the
shares of the Binalbagan Estate, Inc., formed a
voting trust composed of three members, namely,
Salvador Laguna, Segunda Monteblanco, and
Arthur F. Fisher, as trustee.
By the document constituting this voting trust, the
trustees were authorized to represent and vote the
shares pertaining to their constituents, and to this
end the shareholders undertook to assign their
shares to the trustees on the books of the company.
The total number of outstanding shares of the
corporation is somewhat over 5,500, while the
number of shares controlled by the voting trust
is less than 3,000.
On 26 Feb 1926, BEI held its General Annual
Shareholders Meeting at which Mr. J. P. Heilbronn
appeared as representative of the voting trust,
his authority being recognized by the holders of all
the other shares present at this meeting.
Heilbronn having the control of the majority of
the shares (the case didn’t say how that happened
– maybe he owned several shares plus the shares
of the voting trust he was representing to make up
the majority – it’s just an inference) was able to
nominate and elect a board of directors to his
own liking, without opposition from the
minority.
After the board of directors had been thus elected
and had qualified, they chose a set of officers
constituting of Jose M. Yusay, president, Timoteo
Unson, vice-president, Jose G. Montalvo, secretary-
treasurer, and H. W. Corp and Agustin Coruna, as
members. Said officials immediately entered upon
the discharged of their duties and have continued in
possession of their respective offices until the
present time.
Since the creation of the voting trust there have
been a number of vacancies caused by resignation
or the absence of members from the Philippine
Islands, with the result that various substitutions
have been made in the personnel of the voting trust.
At the present time the petitioners Roxas,
Echaus, and Lacson presumably constitute its
membership.
The current members of the voting trust (petitioners)
wanted to oust the current officers/directors of the
corporation, even though it was the previous
representative of the voting trust (Heilbronn) who
elected them. Thus, the petitioners in their character
as members of the voting trust, on August 2, 1926,
caused the secretary of the Binalbagan Estate, Inc.,
to issue to the shareholders a notice calling for a
special general meeting of shareholders to be
held at 10 a. m., on August 16, 1926, "for the
election of the board of directors, for the
amendment of the By-Laws, and for any other
business that can be dealt with in said meeting."
Respondents Coruna and Ledesma, as director and
shareholder of the corporation respectively, filed a
civil action before CFI to enjoin the meeting to be
held on Aug. 16, 1926. Respondent judge De La
Rosa issued a restraining order or preliminary
injunction to enjoin the meeting which gave rise to
the present certiorari proceeding filed by petitioners.
ISSUE:
Whether or not it was within the judicial powers of
Judge De La Rosa to issue the restraining order or
preliminary injunction? (YES)
MAIN ISSUE: W/N the petitioners can hold another
shareholders meeting for the election of board of
directors even though no vacancies have occurred
to justify such election? (NO)
RULING:
Vacancies in the Board of Directors occur either due
to death, resignation, removal, or otherwise. The
law requires that for a director to be removed, a
vote of at least two-thirds of the subscribed capital
stock is necessary. In this case, the voting trust only
has the majority of the shares. Majority is not
equivalent to two-thirds.
It must be noted that there are no vacancies in the
board of directors. Therefore, a call for an election
of the board of directors made by the petitioners is
tantamount to an ousting of the current members of
the board. The present board of directors are de
facto incumbents of the office whose acts will be
valid until they shall be lawfully removed from the
office or cease from the discharge of their functions.
In this case it is not necessary for us to agitate
ourselves over the question whether the respondent
judge properly exercised his judicial discretion in
granting the order complained of. If suffices to know
that in making the order he was acting within the
limits of his judicial powers.
Now, upon examining into the number of shares
controlled by the voting trust, it will be seen that,
while the trust controls a majority of the stock, it
does not have a clear two-thirds majority. It was
therefore impolitic for the petitioners, in forcing the
call for the meeting of August 16, to come out
frankly and say in the notice that one of the purpose
of the meeting was to removed the directors of the
corporation from office. Instead, the call was limited
to the election of the board of directors, it being the
evident intention of the voting trust to elect a new
board as if the directorate had been then vacant.
But the complaint in civil No. 3840 directly asserts
that the members of the present directorate were
regularly elected at the general annual meeting held
in February, 1926; and if that assertion be true, the
proposal to elect, another directorate, as per the call
of August 2, if carried into effect, would result in the
election of a rival set of directors, who would
probably need the assistance of judgment of court
in an independent action of quo warranto to get
them installed into office, even supposing that their
title to the office could be maintained. That the trial
judge had jurisdiction to forestall that step and
enjoin the contemplated election is a matter about
which there cannot be the slightest doubt. The law
contemplates and intends that there will be one of
directors at a time and that new directors shall be
elected only as vacancies occur in the directorate
by death, resignation, removal, or otherwise.
SALVADOR P. LOPEZ
vs.
ERICTA
G.R. No. L-32991 June 29, 1972
FACTS:
The first such appointment was extended
on April 27, 1970, "effective May 1, 1970 until April
30, 1971, unless sooner terminated and subject to
the appproval of the Board of Regents and to
pertinent University regulations." Pursuant thereto
Dr. Blanco assumed office as ad interim Dean on
May 1, 1970.
The Board of Regents met on May 26,
1970, and President Lopez submitted to it the ad
interim appointment of Dr. Blanco for
reconsideration. The minutes of that meeting
disclose that "the Board voted to defer action on the
matter in view of the objections cited by Regent
Kalaw based on the petition against the
appointment, addressed to the Board, from a
majority of the faculty and from a number of alumni
Dr. Blanco's appointment had lapsed.
On May 26, 1970, President Lopez
extended another ad interim appointment to her,
effective from May 26, 1970 to April 30, 1971, with
the same conditions as the first.However, such ad
interim appointment had not been confirmed by the
Board of Regents. Due to the following votes: 5-yes,
3-no and 4-abstain.
On August 18, 1970 Dr. Blanco wrote the
President of the University, protesting the
appointment of Oseas A. del Rosario as Officer-in-
Charge of the College of Education. Neither
communication having elicited any official reply, Dr.
Blanco went to the Court of First Instance of
Quezon City on a petition for certiorari and
prohibition with preliminary injunction.
ISSUE:
Whether or not respondent Dr. Consuelo S.
Blanco was duly elected Dean of the College of
Education, University of the Philippines, in the
meeting of the Board of Regents on July 9, 1970.
RULING:
NO.
The votes of abstention, viewed in their
setting, can in no way be construed as votes for
confirmation of the appointment. There can be no
doubt whatsoever as to the decision and
recommendation of the three members of the
Personnel Committee: it was for rejection of the
appointment. No inference can be drawn from this
that the members of the Personnel Committee, by
their abstention, intended to acquiesce in the action
taken by those who voted affirmatively. Neither, for
that matter, can such inference be drawn from the
abstention that he was abstaining because he was
not then ready to make a decision.
Dr. Blanco was clearly not the choice of a
majority of the members of the Board of Regents,
as unequivocally demonstrated by the transcript of
the proceedings. This fact cannot be ignored simply
because the Chairman, in submitting the question to
the actual vote, did not frame it as accurately as the
preceding discussion called for, such that two of the
Regents present (Silva and Kalaw) had to make
some kind of clarification.
Western Institute of Technology Inc. vs. Salas
[GR 113032, 21 August 1997]
First Division, Hermosisima Jr. (J): 4 concur
Facts: Ricardo T. Salas, Salvador T. Salas,
Soledad Salas-Tubilleja, 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), a stock corporation engaged in the operation,
among others, of an educational institution.
According to Homero L. Villasis, Dimas Enriquez,
peston F. Villasis, and Reginald F. Villasis, the
minority stockholders of WIT, sometime on 1 June
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 Reginald Villasis. Prior to said Special
Board Meeting, copies of notice thereof, dated 24
May 1986, were distributed to all Board Members.
The notice allegedly indicated that the meeting to be
held on 1 June 1986 included Item 6 which states
that "Possible implementation of Art. III, Sec. 6 of
the Amended By-Laws of Western Institute of
Technology, Inc. on compensation of all officers of
the corporation." In said meeting, the Board of
Trustees passed Resolution 48, series 1986,
granting monthly compensation to Salas, et. al. as
corporate officers retroactive 1 June 1985, in the
following amounts: “Chairman 9,000.00/month, Vice
Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary
P3,500.00/month, retroactive June 1, 1985 and the
ten percentum of the net profits shall be distributed
equally among the ten members of the Board of
Trustees. This shall amend and supercede any
previous resolution.” A few years later, or on 13
March 1991, Homero Villasis, Preston Villasis,
Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint against Salas, et. al. before the
Office of the City Prosecutor of Iloilo, as a result of
which 2 separate criminal informations, one for
falsification of a public document under Article 171
of the Revised Penal Code and the other for estafa
under Article 315, par. 1(b) of the RPC, were filed
before Branch 33 of the Regional Trial Court of Iloilo
City. The charge for falsification of public document
was anchored on Salas, et. al.'s submission of
WIT's income statement for the fiscal year 1985-
1986 with the Securities and Exchange Commission
(SEC) reflecting therein the disbursement of
corporate funds for the compensation of Salas, et.
al. based on Resolution 4, series of 1986, making it
appear that the same was passed by the board on
30 March 1986, when in truth, the same was
actually passed on 1 June 1986, a date not covered
by the corporation's fiscal year 1985-1986
(beginning May 1, 1995 and ending April 30, 1986).
Thereafter, trial for the two criminal cases (Criminal
Cases 37097 and 37098), was consolidated. After a
full-blown hearing, Judge Porfirio Parian handed
down a verdict of acquittal on both counts dated 6
September 1993 without imposing any civil liability
against the accused therein. Villasis, et. al. filed a
Motion for Reconsideration of the civil aspect of the
RTC Decision which was, however, denied in an
Order dated 23 November 1993. Villasis, et. al. filed
the petition for review on certiorari. Significantly on
8 December 1994, a Motion for Intervention, dated
2 December 1994, was filed before this Court by
Western Institute of Technology, Inc., disowning its
inclusion in the petition and submitting that Atty.
Tranquilino R. Gale, counsel for Villasis, et. al., had
no authority whatsoever to represent the
corporation in filing the petition. Intervenor likewise
prayed for the dismissal of the petition for being
utterly without merit. The Motion for Intervention
was granted on 16 January 1995.
Issue: Whether the grant of compensation to Salas,
et. al. is proscribed under Section 30 of the
Corporation Code.
Held: Directors or trustees, as the case may be, are
not entitled to salary or other compensation when
they perform nothing more than the usual and
ordinary duties of their office. This rule is founded
upon a presumption that directors/trustees render
service gratuitously, and that the return upon their
shares adequately furnishes the motives for service,
without compensation. Under Section 30 of the
Corporation Code, there are only two (2) ways by
which members of the board can be granted
compensation apart from reasonable per diems: (1)
when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders
representing a majority of the outstanding capital
stock at a regular or special stockholders' meeting
agree to give it to them. Also, the proscription,
however, against granting compensation to
director/trustees of a corporation is not a sweeping
rule. Worthy of note is the clear phraseology of
Section 30 which state: "[T]he directors shall not
receive any compensation, as such directors." The
phrase as such directors is not without significance
for it delimits the scope of the prohibition to
compensation given to them for services performed
purely in their capacity as directors or trustees. The
unambiguous implication is that members of the
board may receive compensation, in addition to
reasonable per diems, when they render services to
the corporation in a capacity other than as
directors/trustees. Herein, resolution 48, s. 1986
granted monthly compensation to Salas, et. al. not
in their capacity as members of the board, but
rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer
and Secretary of Western Institute of Technology.
Clearly, therefore, the prohibition with respect to
granting compensation to corporate
directors/trustees as such under Section 30 is not
violated in this particular case. Consequently, the
last sentence of Section 30 which provides that "In
no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the
corporation during the preceding year" does not
likewise find application in this case since the
compensation is being given to Salas, et. al. in their
capacity as officers of WIT and not as board
members.
PALTING
vs.
SAN JOSE PETROLEUM INC.
G.R. No.L-14441. December 17, 1966
FACTS:
SAN JOSE OIL, is a domestic mining
corporation, 90% of the outstanding capital stock of
which is owned by respondent SAN JOSE
PETROLEUM, a foreign (Panamanian) corporation,
the majority interest of which is owned by OIL
INVESTMENTS, INC., another foreign
(Panamanian) company.
This latter corporation in turn is wholly
(100%) owned by PANTEPEC OIL COMPANY, C.
A., and PANCOASTAL PETROLEUM COMPANY,
C. A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were
9,979 stockholders of PANCOASTAL PETROLEUM
found in 49 American states and U.S. territories,
holding 3,476,988 shares of stock; whereas, as of
November 30, 1956, PANTEPEC OIL COMPANY
was said to have 3,077,916 shares held by 12,373
stockholders scattered in 49 American states.
In the two lists of stockholders, there is no
indication of the citizenship of these stockholders, or
of the total number of authorized stocks of each
corporation for the purpose of determining the
corresponding percentage of these listed
stockholders in relation to the respective capital
stock of said corporation.
ISSUE:
Whether or not the "tie-up" between the two
corporations is violative of the Constitution, the
Laurel-Langley Agreement, the Petroleum Act of
1949, and the Corporation Law.
RULING:
YES.
The privilege to utilize, exploit, and develop
the natural resources of this country was granted,
by Article III of the Constitution, to Filipino citizens
or to corporations or associations 60% of the capital
of which is owned by such citizens. With the Parity
Amendment to the Constitution, the same right was
extended to citizens of the United States and
business enterprises owned or controlled, directly or
indirectly, by citizens of the United States.
There could be no serious doubt as to the
meaning of the word "citizens" used in the
aforementioned provisions of the Constitution. The
right was granted to 2 types of persons: natural
persons (Filipino or American citizens) and juridical
persons (corporations 60% of which capital is
owned by Filipinos and business enterprises owned
or controlled directly or indirectly, by citizens of the
United States). In American law, "citizen" has been
defined as "one who, under the constitution and
laws of the United States, has a right to vote for
representatives in congress and other public
officers, and who is qualified to fill offices in the gift
of the people."
SAN JOSE PETROLEUM an American
business is not entitled to parity rights in the
Philippines. In the circumstances, we have to hold
that the respondent SAN JOSE PETROLEUM, as
presently constituted, is not a business enterprise
that is authorized to exercise the parity privileges
under the Parity Ordinance, the Laurel-Langley
Agreement and the Petroleum Law. Its tie-up with
SAN JOSE OIL is, consequently, illegal.
Palting VS. San Jose Petroleum, Inc. (1966)
Facts:
San Jose Petroleum filed with the SEC a
sworn registration statement for the registration
and licensing for sale in the Philippine voting trust
certificate representing 2 million shares of its
capital stock of a par value of $0.35/share at
P1/share. It was alleged that the proceeds thereof
will be used to finance the operations of San Jose
Oil Co. which has 14 petroleum exploration
concessions in various provinces. It was
expressly conditioned that instead of stock
certificates, registered or bearer-voting trust
certificates from voting trustees (Americans) will
be given. San Jose Petroleum amended the
application from P2M to P5M a reduced offering at
P0.70/share.
Palting, et.al filed with the SEC an
opposition to said registration on the following
grounds: (1) the tie-up between SJP, a
Panamanian corporation and SJO, a domestic
corporation violates the Constitution, the Corp. Law
and the Petroleum Act of 1949 (2) the issuer is not
licensed to transact business in the Philippines (3)
the sale of shares is fraudulent (4) the issuer is
based on unsound business principles (sic).
Some of the provisions of the Articles of
Incorporation of respondent SAN JOSE
PETROLEUM are noteworthy; viz:
(1) the directors of the Company need not
be shareholders;
(2) that in the meetings of the board of
directors, any director may be represented and may
vote through a proxy who also need not be a
director or stockholder; and
(3) that no contract or transaction between
the corporation and any other association or
partnership will be affected, except in case of fraud,
by the fact that any of the directors or officers of the
corporation is interested in, or is a director or officer
of, such other association or partnership, and that
no such contract or transaction of the corporation
with any other person or persons, firm, association
or partnership shall be affected by the fact that any
director or officer of the corporation is a party to or
has an interest in, such contract or transaction, or
has in anyway connected with such other person or
persons, firm, association or partnership; and finally,
that all and any of the persons who may become
director or officer of the corporation shall be relieved
from all responsibility for which they may otherwise
be liable by reason of any contract entered into with
the corporation, whether it be for his benefit or for
the benefit of any other person, firm, association or
partnership in which he may be interested.
Issue:
W/N said provisions are contrary to the
corporation law.
Ruling:
Yes, these provisions are in direct
opposition to our corporation law and corporate
practices in this country. These provisions alone
would outlaw any corporation locally organized or
doing business in this jurisdiction. Consider the
unique and unusual provision that no contract or
transaction between the company and any other
association or corporation shall be affected except
in case of fraud, by the fact that any of the directors
or officers of the company may be interested in or
are directors or officers of such other association or
corporation; and that none of such contracts or
transactions of this company with any person or
persons, firms, associations or corporations shall be
affected by the fact that any director or officer of this
company is a party to or has an interest in such
contract or transaction or has any connection with
such person or persons, firms associations or
corporations; and that any and all persons who may
become directors or officers of this company are
hereby relieved of all responsibility which they
would otherwise incur by reason of any contract
entered into which this company either for their own
benefit, or for the benefit of any person, firm,
association or corporation in which they may be
interested.
The impact of these provisions upon the
traditional judiciary relationship between the
directors and the stockholders of a corporation is
too obvious to escape notice by those who are
called upon to protect the interest of investors. The
directors and officers of the company can do
anything, short of actual fraud, with the affairs of the
corporation even to benefit themselves directly or
other persons or entities in which they are
interested, and with immunity because of the
advance condonation or relief from responsibility by
reason of such acts. This and the other provision
which authorizes the election of non-stockholders
as directors, completely disassociate the
stockholders from the government and
management of the business in which they have
invested.
Prime White Cement Corporation
vs.
Intermediate Appellate Court
GR 68555, 19 March 1993
FACTS:
On or about 16 July 1969, Alejandro Te and
Prime White Cement Corporation (PWCC) thru its
President, Mr. Zosimo Falcon and Justo C. Trazo,
as Chairman of the Board, entered into a dealership
agreement whereby Te was obligated to act as the
exclusive dealer and/or distributor of PWCC of its
cement products in the entire Mindanao area for a
term of 5 years.
Right after Te entered into the dealership
agreement, he placed an advertisement in a
national, circulating newspaper the fact of his being
the exclusive dealer of PWWC's white cement
products in Mindanao area, more particularly, in the
Manila Chronicle dated 16 August 1969 and was
even congratulated by his business associates, so
much so, he was asked by some of his
businessmen friends and close associates if they
can be his sub-dealer in the Mindanao area.
ISSUE:
Whether the "dealership agreement"
referred by the President and Chairman of the
Board of PWCC is a valid and enforceable contract.
RULING:
NO.
 The “dealership agreement” is not valid and
unenforceable. Under the Corporation Law, which
was then in force at the time the case arose, as well
as under the present Corporation Code, all
corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by law.
Although it cannot completely abdicate its power
and responsibility to act for the juridical entity, the
Board may expressly delegate specific powers to its
President or any of its officers.
In the absence of such express delegation,
a contract entered into by its President, on behalf of
the corporation, may still bind the corporation if the
board should ratify the same expressly or impliedly.
Implied ratification may take various forms — like
silence or acquiescence; by acts showing approval
or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom. Furthermore,
even in the absence of express or implied authority
by ratification, the President as such may, as a
general rule, bind the corporation by a contract in
the ordinary course of business, provided the same
is reasonable under the circumstances. These rules
are basic, but are all general and thus quite flexible. made a diligent effort to collect them, and that he
They apply where the President or other officer,
purportedly acting for the corporations, is dealing
with a third person, i.e., a person outside the
corporation. The situation is quite different where a
director or officer is dealing with his own
corporation. Herein, Te was not an ordinary
stockholder; he was a member of the Board of
Directors and Auditor of the corporation as well. He
was what is often referred to as a "self-dealing"
director.
C. H. STEINBERG, as Receiver of the Sibugueyover
vs.
GREGORIO VELASCO, ET AL.
G.R. No. L-30460. March 12, 1929
FACTS:
Plaintiff is the receiver of the Sibuguey
Trading Company, a domestic corporation. The
defendants are residents of the Philippine Islands. It
is alleged that the defendants, Gregorio Velasco, as
president, Felix del Castillo, as vice-president,
Andres L. Navallo, as secretary-treasurer, and
Rufino Manuel, as director of Trading Company, at
a meeting of the board of directors, approved and
authorized various lawful purchases already made
of a large portion of the capital stock of the
company from its various stockholders with total
amount of the capital stock unlawfully purchased
was P3,300. At the time of such purchase, the
corporation had accounts payable amounting to
P13,807.50, most of which were unpaid at the time
petition for the dissolution of the corporation was its FACTS:
financial condition, in contemplation of an
insolvency and dissolution. That on September 11,
1923, 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.
ISSUE:
Whether or not the Corporation acted in bad
faith in acquiring its own shares of stocks.
RULING:
YES.
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 on February 28, 1924, the receiver
was unable to do so, and it also appears from the
minutes of the board of directors that the president
and manager "recommended that P3,000 — out of
the surplus account to be set aside for dividends
payable, and that payments be made in installments
so as not to effect the financial condition of the
corporation."
It is very apparent that on June 24, 1922,
the board of directors acted on assumption that,
because it appeared from the books of the
corporation that it had accounts receivable of the
face value of P19,126.02, therefore it had a surplus
Trading Company,
and above Incorporated
its debts and liabilities. Thus, 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. 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."
Creditors of a corporation have the right to
assume so long as there are outstanding debts and
liabilities, the board of directors will not use the
assets of the corporation to purchase its own stock,
and that it will not declare dividends to stockholders
when the corporation is insolvent.
CHARLES W. MEAD
vs.
E.C. MCCULLOUGH, et. al.
GR 6217, 26 December 2011

On March 15, 1902, the plaintiff (Mead will
be referred to as the plaintiff in this opinion unless it
is otherwise stated) and the defendant organized
the "Philippine Engineering and Construction
Company.
Shortly after the organization, the directors
held a meeting and elected the plaintiff as general
manager. The plaintiff 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.
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 the plaintiff 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 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:
Whether or not the respondents are self-
dealing directors.
RULING:
NO.
While a corporation remains solvent, there
is no reason why a director or officer, by the
authority of a majority of the stockholders or board
of managers, may not deal with the corporation,
loan it money or buy property from it, in like manner
as a stranger. So long as a purely private
corporation remains solvent, its directors are agents
or trustees for the stockholders. They owe no duties
or obligations to others. But the moment such a
corporation becomes insolvent, its directors are
trustees of all the creditors, whether they are
members of the corporation or not, and must
manage its property and assets with strict regard to
their interest; and if they are themselves creditors
while the insolvent corporation is under their
management, they will not be permitted to secure to
themselves by purchasing the corporate property or
otherwise any personal advantage over the other
creditors. Nevertheless, a director or officer may in
good faith and for an adequate consideration
purchase from a majority of the directors or
stockholders the property even of an insolvent
corporation, and a sale thus made to him is valid
and binding upon the minority.
JOHN GOKONGWEI
vs.
SEC, ANDRES SORIANO, et al.
GR L-45911, 11 April 1979
FACTS:
Gokonwei alleged that on September 18,
1976, individual respondents amended by bylaws of
San Miguel Corporation, basing their authority to do
so on a resolution of the stockholders adopted on
March 13, 1961, when the outstanding capital stock
of respondent corporation was only
P70,139.740.00, divided into 5,513,974 common
shares at P10.00 per share and 150,000 preferred
shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of
P301,270,430.00. It was contended that according
to section 22 of the Corporation Law and Article VIII
of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may
be delegated to the Board of Directors only by the
affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at
the time of the amendment. Since the amendment
was based on the 1961 authorization, petitioner
contended that the Board acted without authority
and in usurpation of the power of the stockholders.
It was claimed that prior to the questioned
amendment, petitioner had all the qualifications to
be a director of respondent corporation, being a
substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent
in stock ownership, such as the rights to vote and to
be voted upon in the election of directors; and that
in amending the by-laws, respondents purposely
provided for petitioner's disqualification and
deprived him of his vested right as afore-mentioned,
hence the amended by-laws are null and void.
ISSUE:
 Whether or not SMC’s BoD acted in bad
faith in making the amendment which disqualified
Gokongwei from being elected as Director.
RULING:
NO.
SMC is merely protecting its interest from
Gokongwei, who owns companies in direct
competition with SMC’s business. Although in the
strict and technical sense, directors of a private
corporation are not regarded as trustees, there
cannot be any doubt that their character is that of a
fiduciary insofar as the corporation and the
stockholders as a body are concerned. As agents
entrusted with the management of the corporation
for the collective benefit of the stockholders, they
occupy a fiduciary relation, and in this sense the
relation is one of trust. It springs from the fact that
directors have the control and guidance of corporate
affairs and property; hence of the property interests
of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries
thereof
It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a
competing corporation, from taking advantage of the
information which he acquires as director to
promote his individual or corporate interests to the
prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the
by-laws was made.
Certainly, where two corporations are
competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he
were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the
performance of his corporation duties above his
personal concerns.
ELEANOR ERICA STRONG, ET AL.
vs.
FRANCISCO GUTIERREZ REPIDE
G.R. No. L-7154. February 21, 1912
FACTS:
Eleanor Strong was the owner of 800
shares of the capital stock of Philippine Sugar
Estate Development Company. Gutierrez Rapide,
owner of three-fourths shares of the company’s
stock , 1 of the 5 directors of the company and was
elected by the board as administrator general of
such company, took steps to purchase the 800
shares owned by Strong, which he knew were in the
possession of F. Stuart Jones, as her agent. Instead
of seeing Jones, who had an office next door,
Repide employed one Kauffman. Kaufmann, in turn,
employed Mr. Sloan, a broker, to purchase the
stock for him. Kauffman told Sloan that the stock to
be purchased was for a member of his wife’s family.
This action by Repide was due to the negotiations
initiated by the government where the latter will
purchase the company’s lands (together with other
friar lands) at a price which greatly enhance the
value of the stock.
As a result of the negotiations, Jones,
assuming he had the power and without consulting
Strong, sold the 800 shares. Strong filed a case to
recover the shares from Repide on the ground that
the shares had been sold and delivered by Strong’s
agent without authority to do so and on the ground
that Repide fraudulently concealed from Strong’s
agent the facts affecting the value of the stock so
sold and delivered.
ISSUE:
Whether or notRepide, acting in good faith,
has the duty to disclose to the agent of Strong the
facts bearing upon or which might affect the value of
the stocks.
RULING:
YES.
The Court ruled that there is no relationship
of a fiduaciary nature exists between a director and
a shareholder in a business corporation. There are
cases, however, where, by reason of special facts,
such duty of a director to disclose to a shareholder
the knowledge which he may possess regarding the
value of the shares of the company before he
purchases any from a shareholder. Some special
facts are present in this case such as the fact the
Repide is not only a director of the corporation but
an owner of three-fourths shares of its stock. He
was the chief negotiator for the sale of all the lands
and was acting substantially as the agent of the
shareholders by reason of his ownership of the
shares. Thus, a purchase of stock in a corporation
by a director and owner of three-fourths of the entire
capital stock, who was also administrator general of
the company and engaged in the negotiations which
finally led to the sale of company’s lands to the
government at a price which greatly enhanced the
value of the stock, was fraudulent as procured by
insidious machination where he employed an agent
to make the purchase, concealing both his identity
as purchaser and his knowledge of the state of the
negotiations and their probable successful result
G.R. No. L-17131 June 30, 1922
SING JUCO and SING BENGCO, plaintiffs-
appellees, vs.
ANTONIO SUNYANTONG and his wife VICENTA
LLORENTE DE SUNYANTONG, defendants-
appellants.
Facts: the plaintiffs obtained from Maria Gay a
written option to purchase an estate known as "San
Antonio Estate,” The term of the option expired, but
the plaintiffs had it extended verbally.
The defendant Antonio Sunyantong was at the time
an employee of the plaintiffs.
The defendant advised the plaintiffs to let some
days elapse before accepting the terms of the
transfer as proposed by Maria Gay, in order that the
latter might not think that they were coveting said
property. Defendant met Alipio de los Santos after
the latter's return to Iloilo, sent by the plaintiffs to
examine the estate and satisfy himself of its
condition, and Alipio de los Santos told him of his
favorable impression of the estate, he advised De
los Santos not to report the estate to the plaintiffs as
being so highly valuable, for if it proved failure they
might blame him, De los Santos. One becomes
more strongly convinced that this defendant has
been unfaithful to his principals, the plaintiffs, when
on the midday of which the term of plaintiff's option
to purchase was to expire, defendant Antonio
Sunyantong called Mari Gay, and offered to buy the
estate on the same terms proposed by her not yet
accepted by the plaintiffs, making the offer to buy
not for the benefit of the plaintiff's, but for own wife,
his codefendant Vicenta Llorente de Sunyatong.
Maria Gay communicated by telephone with Manuel
Sotelo, who was acting as broker for the plaintiffs in
these transactions, and told him that another buyer
of the estate had presented himself who would
accept the terms proposed by her and that she
would like to know immediately what decision had
been reached by the plaintiffs on the matter. In view
of Maria Gay's insistence that the plaintiff give a
categorical answer, Sing Bengco, one of the
plaintiffs who happened to be present at the time
the telephone conversation between Maria Gay and
Manuel Sotelo took place, instructed Sotelo to
inform her at the time that if she did not care to wait
until 12 o'clock, she could do as she pleased.
Interpreting the phrase to mean that the plaintiffs
waived their option to buy, Maria Gay closed the
sale of the estate in favor of the defendant Antonio
Sunyantong.
Issue: Whether or not the defendant guilty of
infidelity?
Ruling: Yes. The action of the defendant
Sunyantong in intervening in the negotiations in the
manner in which he did does not make him innocent
of infidelity in view of the fact that he was an
employee of the plaintiffs to whom he owed loyalty
and faithfullnes.
Even though it be concede that when he closed the
contract of sale with Maria Gay the plaintiffs' option
had expired, but the fact cannot be denied that he
was the cause of the option having precipitously
come to such an end. His disloyalty to his
employers was responsible for Maria Gay not
accepting the terms proposed by the plaintiffs,
because of being certain of another less exigent
buyer. Without such intervention on the part of the
defendant it is presumed, taking into account all the
circumstances of the case, that the sale of the
estate in question would have been consummated
between Maria Gay and the plaintiffs, perhaps with
such advantages to the plaintiffs, as they expected
to obtain by prolonging negotiations.
Such an act of infidelity committed by a trusted
employee calculated to redound to his own benefit
and to the detriment of his employers cannot pass
without legal sanction. Nemo debet aliena jactura
locupletari; nemo ex suo delicto meliorem suam
conditionem facere potest. It is an illicit act
committed with culpa and, therefore, its agent is
liable (art. 1089, Civil Code), for the damage caused
(art. 1902, ibidem). Not identical, but similar, to this
infidelity is the abuse of the confidence sanctioned
in our Penal Code as a generic circumstances, nay
as specific aggravating one, and even as an
essential element of certain crimes.
Such principle, however, in case of this nature is
generally recognized in our laws, since the case of
commercial agents (factories) it is expressly
established. Undoubtedly, formerly under the
circumstances then prevailing such sanction was
not necessary in the field of civil law, because is
sphere of action is the general relations of society;
but event then it was deemed necessary expressly
to protect with such sanction the commercial
relations wherein the question of gain was involved,
which is sometimes so imperatives as to ignore
everything, even the very principles of loyalty,
honesty, and fidelity.
This specific relief, however, has already come to
be applied in this jurisdiction in similar cases,
among which can be cited that of Camacho vs.
Municipality of Baliuag (28 Phil., 466.)
And in the North American law such sanction is
expressly recognized, and the transaction of this
nature might be regarded as an "equitable trust" by
virtue of which the things acquired by an employee
is deemed not to have been acquired for his own
benefit or that of any other person but for his
principal, and held in trust for the latter (21 R. C. L.,
825; 2 Corpus Juris, 353).
DEVELOPMENT BANK OF THE PHILIPPINES
vs.
COURT OF APPEALS, REMINGTON
INDUSTRIAL SALES
GR 126200, 16 August 2001
FACTS:
Between July 1981 and April 1984,
Marinduque Mining entered into 3 mortgage
agreements with PNB and DBP involving its real
properties located in Surigao del Norte, Negros
Occidental, and Rizal, as well as its equipment
located therein. Marinduque failed to pay its loans,
causing the foreclosure of the said mortgages. PNB
and DBP thereafter gained control of the said
properties.
In the meantime, between July 16, 1982 to
October 4, 1983, Marinduque Mining purchased and
caused to be delivered construction materials and
other merchandise from Remington Industrial Sales
Corporation. The purchases remained unpaid as of
August 1, 1984 when Remington filed a complaint
for a sum of money and damages against
Marinduque Mining for the value of the unpaid
construction materials and other merchandise
purchased by Marinduque Mining, as well as
interest, attorney’s fees and the costs of suit.
Remington’s original complaint was
amended to include PNB, DBP, Maricalum Mining
Corporation (Maricalum Mining) and Island Cement
Corporation (Island Cement) as co-defendants.
Remington asserted that Marinduque Mining, PNB,
DBP, Nonoc Mining, Maricalum Mining and Island
Cement must be treated in law as one and the
same entity by disregarding the veil of corporate
fiction since the personnel, key officers and rank-
and-file workers and employees of co-defendants
NMIC, Maricalum and Island Cement creations of
co-defendants PNB and DBP were the personnel of
co-defendant MMIC such that practically there has
only been a change of name for all legal purpose
and intents.
ISSUE:
Whether or not the takeover of PNB and
DBP over Marinduque Mining is in bad faith.
RULING:
NO.
Their actions are mandated under the law.
Where the corporations have directors and officers
in common, there may be circumstances under
which their interest as officers in one company may
disqualify them in equity from representing both
corporations in transactions between the two. Thus,
where one corporation was ‘insolvent and indebted
to another, it has been held that the directors of the
creditor corporation were disqualified, by reason of
self-interest, from acting as directors of the debtor
corporation in the authorization of a mortgage or
deed of trust to the former to secure such
indebtedness In the same manner that when the
corporation is insolvent, its directors who are its
creditors cannot secure to themselves any
advantage or preference over other creditors. They
cannot thus take advantage of their fiduciary
relation and deal directly with themselves, to the
injury of others in equal right. If they do, equity will
set aside the transaction at the suit of creditors of
the corporation or their representatives, without
reference to the question of any actual fraudulent
intent on the part of the directors, for the right of the
creditors does not depend upon fraud in fact, but
upon the violation of the fiduciary relation to the
directors.
Directors of insolvent corporation, who are
creditors of the company, can not secure to
themselves any preference or advantage over other
creditors in the payment of their claims. It is not
good morals or good law. The governing body of
officers thereof are charged with the duty of
conducting its affairs strictly in the interest of its
existing creditors, and it would be a breach of such
trust for them to undertake to give any one of its
members any advantage over any other creditors in
securing the payment of his debts in preference to
all others.

Gurrea vs. Lezama
Facts:
Plaintiff instituted this action in the Court of First
Instance of Iloilo to have Resolution No. 65 of the
Board of Directors of the La Paz Ice Plant and Cold
Storage Co., Inc., removing him from his position of
manager of said corporation declared null and void
and to recover damages incident thereto. The action
is predicated on the ground that said resolution was
adopted in contravention of the provisions of the by-
laws of the corporation, of the Corporation Law and
of the understanding, intention and agreement
reached among its stockholders.
Defendant answered the complaint setting up as
defense that plaintiff had been removed by virtue of
a valid resolution.
Issue:
Whether or not managers are considered officers of
the corporation.
Ruling:
No.
Section 33 of the Corporation Law provides:
"Immediately after the election, the directors of a
corporation must organize by the election of a
president, who must be one of their number, a
secretary or clerk who shall be a resident of the
Philippines . . . and such other officers as may be
provided for in the by-laws." The by-laws of the
instant corporation in turn provide that in the board
of directors there shall be a president, a vice-
president, a secretary and a treasurer. These are
the only ones mentioned therein as officers of the
corporation. The manager is not included although
the latter is mentioned as the person in whom the
administration of the corporation is vested, and with
the exception of the president, the by-laws provide
that the officers of the corporation may be removed
or suspended by the affirmative vote of 2/3 of the
corporation.
From the above the following conclusion is clear:
that we can only regard as officers of a corporation
those who are given that character either by the
Corporation Law or by its by-laws. The rest can be
considered merely as employees or subordinate
officials. And considering that plaintiff has been
appointed manager by the board of directors and as
such does not have the character of an officer, the
conclusion is inescapable that he can be suspended
or removed by said board of directors under such
terms as it may see fit and not as provided for in the
by-laws. Evidently, the power to appoint carries with
it the power to remove, and it would be incongruous
to hold that having been appointed by the board of
directors he could only be removed by the
stockholders.
Therefore hold that plaintiff has been properly
removed when the board of directors of the instant
corporation approved its Resolution No. 65 on June
3, 1948.
MITA PARDO DE TAVERA V. PHILIPPINE
TUBERCULOSIS SOCIETY G.R.
NO. L-48928
Facts:
Plaintiff is a doctor of Medicine by profession and a
recognized specialist in the treatment of
tuberculosis. She is a member of the Board of
Directors of the defendant Society, in representation
of the PCSO. She was duly appointed as Executive
Secretary of the Society. On May 29, 1974, the past
Board of Directors removed her summarily from her
position, the lawful cause of which she was not
informed, through the simple expedient of declaring
her position vacant. Defendant Romulo was
appointed to the position and defendants Pardo,
Nubla, Garcia and Adil, not being members of
defendant Society were elevated as members of the
Board of Directors. Not being qualified, petitioner
alleged said acts to be null and void. The court a
quo rendered a decision holding that the present
suit being one for quo warranto it should be filed
within one year from plaintiff's ouster from office;
that nevertheless, plaintiff was not illegally removed
from her position as Executive Secretary in The
Society since plaintiff was holding an appointment
at the pleasure of the appointing power and hence
temporary.
Issue:
Whether or not petitioner was illegally removed from
her position as Executive Secretary in violation of
Code of By-Laws of the society.
Ruling:
NO.
Although the minutes of the organizational meeting
show that the Chairman mentioned the need of
appointing a “permanent” Executive Secretary, such
statement alone cannot characterize the
appointment of petitioner without a contract of
employment definitely fixing her term because of the
specific provision of Section 7.02 of the Code of By-
Laws that: “The Executive Secretary, the Auditor,
and all other officers and employees of the Society
shall hold office at the pleasure of the Board of
Directors, unless their term of employment shall
have been fixed in their contract of employment.”
Besides the word permanent” could have been used
to distinguish the appointment from acting capacity”.
The absence of a fixed term in the letter addressed
to petitioner informing her of her appointment as
Executive Secretary is very significant. This could
have no other implication than that petitioner held
an appointment at the pleasure of the appointing
power.
An appointment held at the pleasure of the
appointing power is in essence temporary in nature.
It is co-extensive with the desire of the Board of
Directors. Hence, when the Board opts to replace
the incumbent, technically there is no removal but
only an expiration of term and in an expiration of
term, there is no need of prior notice, due hearing or
sufficient grounds before the incumbent can be
separated from office. The protection afforded by
Section 7.04 of the Code of By-Laws on Removal of
Officers and Employees, therefore, cannot be
claimed by petitioner.
DE TAVERA VS. PHIL. TUBERCULOSIS SOCIETY
DE TAVERA VS. PHIL. TUBERCULOSIS
SOCIETY
GR. No. L-48928 February 25, 1982
GUERRERO, J.:
FACTS: Plaintiff is a doctor of Medicine by
profession and a recognized specialist in the
treatment of tuberculosis. She is a member of the
Board of Directors of the defendant Society, in
representation of the PCSO. She was duly
appointed as Executive Secretary of the Society. On
May 29, 1974, the past Board of Directors removed
her summarily from her position, the lawful cause of
which she was not informed, through the simple
expedient of declaring her position vacant.
Defendant Romulo was appointed to the position
and defendants Pardo, Nubla, Garcia and Adil, not
being members of defendant Society were elevated
as members of the Board of Directors. Not being
qualified, petitioner alleged said acts to be null and
void. The court a quo rendered a decision holding
that the present suit being one for quo warranto it
should be filed within one year from plaintiff's ouster
from office; that nevertheless, plaintiff was not
illegally removed from her position as Executive
Secretary in The Society since plaintiff was holding
an appointment at the pleasure of the appointing
power and hence temporary.
MITA PARDO DE TAVERA, Plaintiff-Appellant, v.
PHILIPPINE TUBERCULOSIS SOCIETY, INC.,
FRANCISCO ORTIGAS, JR., MIGUEL
CAÑIZARES, BERNARDO P. PARDO, RALPH
NUBLA, MIDPANTAO ADIL, ENRIQUE GARCIA,
ALBERTO G. ROMULO, and THE PRESENT
BOARD OF DIRECTORS, PHILIPPINE
TUBERCULOSIS SOCIETY, INC., Defendants-
Appellees.
Juan T. David, for Plaintiff-Appellant.
Mauricio Nubla for defendant-appellee Ralph
Nubla.
Ramon Gonzales for defendant-appellee Adil.
Delfino Salazar for defendant-appellee E. Garcia.
Camilo D. Quiason for the other defendants-
appellees.
SYNOPSIS
Appellant was Executive Secretary of the Philippine
Tuberculosis Society (Society for short) until the
past Board of Directors declared her position vacant
on May 29, 1974, and seven of the directors
appointed Alberto Romulo to the position. More than
one year after her removal, appellant filed a
complaint with the trial court against the said
appointing directors, the Society, the new Board of
Directors, and Alberto Romulo, questioning the
legality of her summary cutter from her office and
seeking reinstatement thereto; contending That the
action of the past Board was a nullity since four of
the directors were not qualified to be elevated to the
position because they were not members of the
Society; and claiming that the removal was in
violation of her rights under the By-Laws of the
Society, the New Civil Code, and the New
Constitution, which thereby rendered the individuals
responsible therefor, countable for damages. The
trial court rendered a decision holding that the suit
was one for quo warranto and has thus prescribed;
that, nevertheless, appellant had not been illegally
removed because she was holding an appointment
at the pleasure of the Board, temporary in nature,
and terminable at any time; and, that the
qualifications of the members of the Board could not
be attacked collaterally. Appellant appealed to the
Court of Appeals, but the same was certified to the
Supreme Court as only questions of law were
involved.
The Supreme Court held, that even if the complaint
questions appellant’s removal from her position and
seeks her reinstatement thereto, the suit is not
necessarily one of quo warranto since the
allegations in the complaint constituting her cause
of action show that the case is for damages and the
defendants-appellees, except one, are not actually
holding the office in question; that appellant is not
entitled to damages because she has not been
illegally ousted since pursuant to the Society’s Code
of By-Laws, the Executive Secretary holds office at
the pleasure of the Board of Directors unless the
term of employment has been fixed in the contract
of employment, which in the case of appellant has
not been so fixed; and that appellant’s right to her
office, being specifically limited by the Society’s By-
Laws, she may not invoke in relation thereto the
general provisions of the New Civil Code on Human
Relations and the fundamental principles of the New
Constitution on preservation of human dignity which
are merely guides for human conduct in the
absence of specific legal provisions and definite
contractual stipulations.
Appealed decision affirmed.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE;
COMPLAINT; NATURE AND PURPOSE OF
ACTION DETERMINED BY ALLEGATIONS
THEREIN. — The nature of an action filed in court
is determined by the facts alleged in the complaint
as constituting the cause of action, and not those
averred as a defense in the defendants’ answer.
The theory adopted by the plaintiff in his complaint
is one thing; that by the defendant in his answer
another. The purpose of an action or suit and the
law to govern it, including the period of prescription,
is to be determined not by the claim of the party
filing the action, made in his argument or brief, but
rather by the complaint itself, its allegations and
prayer for relief (Rone, Et. Al. vs.Claro, Et Al., L-
4472, May 8, 1952, 91 Phil. 250).
2. ID.; ID.; ID.; ID.; COMPLAINT IN CASE AT BAR
NOT QUO WARRANTO ALTHOUGH IT
QUESTIONS REMOVAL OF PETITIONER FROM
POSITION. — While it is true that the complaint
questions petitioner’s removal from the position of
Executive Secretary and seeks her reinstatement
thereto, the nature of the suit is one involving a
violation of the rights of the plaintiff under the By-
Laws of the Society, the Civil Code and the
Constitution, which allegedly renders the individuals
responsible therefor, accountable for damages as
maybe gleaned from the allegations in the complaint
as constituting the plaintiff’s cause of action.
Further, the action is not only against Alberto
Romulo, the person appointed in her stead, but
primarily against the Society and the past members
of the Board who are responsible for her removal.
3. ID.; ID.; PRESCRIPTION OF ACTIONS; FOR
QUO WARRANTO AND INJURY TO RIGHTS OF
PLAINTIFF. — Since the suit could not be one for
quo warranto the one-year period fixed in Section
16, Rule 66 of the Revised Rules of Court within
which a petition for quo warranto should be filed,
counted from date of ouster, does not apply to the
case at bar. The action must be brought within four
(4) years, in accordance with Valencia v. Cebu
Portland Cement Co., Et Al., L-13715, December
23, 1959, 106 Phil. 732, a case involving a plaintiff
separated from his employment for alleged
unjustifiable causes, where this Court held that the
action is one for "injury to the rights of the plaintiff,
and must be brought within 4 years under Article
1146 of the New Civil Code.’’
4. LABOR LAWS: NATURE OF APPOINTMENT;
CHARACTERIZED BY CODE OF BY-LAWS OF
SOCIETY IN CASE AT BAR. — The statement in
the minutes of the organizational meeting showing
that the Chairman mentioned the need of appointing
a "permanent" Executive Secretary cannot
characterize the appointment of petitioner without a
contract of employment definitely fixing her term
because of the specific provision of Section 7.02 of
the Code of By-Laws that; "The Executive
Secretary, the Auditor, and all other officers and
employees of the Society shall hold office at the
pleasure of the Board of Directors, unless their term
of employment shall have been fixed in their
contract of employment ." Besides, the word
"permanent" could have been used to distinguish
the appointment from "acting capacity." The
absence of a fixed term in the letter addressed to
petitioner informing her of her appointment as
Executive Secretary could have no other implication
than that petitioner held an appointment at the
pleasure of the appointing power.
5. ID.; ID.; TEMPORARY APPOINTMENT;
APPOINTMENT HELD AT PLEASURE OF
APPOINTING POWER TERMINABLE AT ANY
TIME AND WITHOUT CAUSE. — An appointment
held at the pleasure of the appointing power is in
essence temporary. It is co-extensive with the
desire of the Board of Directors. Hence, when the
Board opts to replace the incumbent, technically
there is no removal but only an expiration of term
and in an expiration of term, there is no need of
prior notice, due hearing or sufficient grounds
before the incumbent can be separated from office.
6. ID.; ID.; ID.; SPECIFIC PROVISION IN
EMPLOYER’S BY-LAWS REGARDING TERM OF
OFFICE PREVAILS OVER GENERAL
PROVISIONS OF NEW CIVIL CODE AND
FUNDAMENTAL PRINCIPLES OF NEW
CONSTITUTION; CASE AT BAR. — Petitioner
cannot seek relief from the general provisions of the
New Civil Code on Human Relations nor from the
fundamental principles of the New Constitution on
preservation of human dignity. While these
provisions present some basic principles that are to
be observed for the rightful relationship between
human beings and the stability of social order, these
are merely guides for human conduct in the
absence of specific legal provisions and definite
contractual stipulations In the case at bar, the Code
of By-Laws of the Society contains a specific
provision governing the term of office of petitioner
The same necessarily limits her rights under the
New Civil Code and the New Constitution upon
acceptance of the appointment.
DECISION
GUERRERO, J.:
On March 23, 1976, plaintiff-appellant Mita Pardo
de Tavera filed with the Court of First Instance of
Rizal a complaint against the Philippine
Tuberculosis Society, Inc. (hereinafter referred to as
the Society), Miguel Cañizares, Ralph Nubla,
Bernardo Pardo, Enrique Garcia, Midpantao Adil,
Alberto Romulo, and the present Board of Directors
of the Philippine Tuberculosis Society, Inc.
On April 12, 1976, plaintiff-appellant filed an
amended complaint impleading Francisco Ortigas,
Jr. as party defendant.
In substance, the complaint alleged that plaintiff is a
doctor of Medicine by profession and a recognized
specialist in the treatment of tuberculosis, having
been in the continuous practice of her profession
since 1945; that she is a member of the Board of
Directors of the defendant Society, in representation
of the Philippine Charity Sweeptakes Office; that
she was duly appointed on April 27, 1973 as
Executive Secretary of the Society; that on May 29,
1974, the past Board of Directors removed her
summarily from her position, the lawful cause of
which she was not informed, through the simple
expedient of declaring her position vacant; that
immediately thereafter, defendant Alberto Romulo
was appointed to the position by an affirmative vote
of seven directors, with two abstentions and one
objection; and that defendants Pardo, Nubla, Garcia
and Adil, not being members of defendant Society
when they were elevated to the position of members
of the Board of Directors, are not qualified to be
elected as such and hence, all their acts in said
meeting of May 29, 1974 are null and void.
The defendants filed their answer on May 12, 1976,
specifically denying that plaintiff was illegally
removed from her position as Executive Secretary
and averring that under the Code of By-Laws of the
Society, said position is held at the pleasure of the
Board of Directors and when the pleasure is
exercised, it only means that the incumbent has to
vacate the same because her term has expired; that
defendants Pardo, Nubla, Adil and Garcia were, at
the time of their election, members of the defendant
Society and qualified to be elected as members of
the Board; that assuming that said defendants were
not members of defendant Society at the time of
their election, the question of qualification of the
members of the Board of Directors should have
been raised at the time of their election; that
assuming that the qualification of members of the
Board of Directors can be questioned after their
assumption of their offices as directors, such
contest cannot be done in a collateral action; that an
action to question the qualifications of the Directors
must be brought within one year from their election;
and that a Director elected without necessary
qualification becomes at least a de facto director,
whose acts are as valid and binding as a de jure
director. Further, defendants disputed the timeliness
of the filing of the action stating that an action to
question one’s ouster from a corporate office must
be filed within one year from said ouster.
On the same date, defendant Adil filed a Motion to
Dismiss on the ground that the complaint states no
cause of action, or if it does, the same has
prescribed. Inasmuch as plaintiff seeks
reinstatement, he argued that the complaint is an
action for quo warranto and hence, the same should
be commenced within one year from May 29, 1974
when the plaintiff was ousted from her position.
Plaintiff filed an Opposition to Motion to Dismiss on
May 28, 1976, stating that the complaint is a suit for
damages filed under the authority of Section 6,
Article Il of the present Constitution in relation to
Articles 21 and 32(6) of the New Civil Code, and her
constitutional right to equal protection of the law, as
guaranteed by Section 1, Article IV of the present
Constitution.
On June 2, 1976, defendant Adil filed a Reply to
Plaintiff’s Opposition to Motion to Dismiss arguing
that since there is an averment of plaintiff’s right to
office, and that defendant Romulo is unlawfully in
possession thereof, then, it is indeed, a case for quo
warranto; and that assuming that it is merely a suit
for damages, then, the same is premature, pursuant
to Section 16, Rule 66 of the Rules of Court.
On September 3, 1976, the court a quo rendered a
decision holding that the present suit being one for
quo warranto, it should be filed within one year from
plaintiff’s ouster from office; that nevertheless,
plaintiff was not illegally removed or ousted from her
position as Executive Secretary in the Society since
plaintiff was holding an appointment at the pleasure
of the appointing power and hence her appointment
in essence was temporary in nature, terminable at a
moment’s notice without need to show that the
termination was for cause; and that plaintiff’s ouster
from office may not be challenged on the ground
that the acts of defendants Pardo, Adil, Nubla and
Garcia are null and void, they being not qualified to
be elected members of the Board of Directors which
removed plaintiff from office may not be the subject
of a collateral attack in the present suit for quo
warranto affecting title to the office of Executive
Secretary.
On October 13, 1976, plaintiff filed a Motion for
Reconsideration to which defendants filed an
Opposition. On November 25, 1976, the court a quo
denied the Motion for Reconsideration.
Dissatisfied with the decision and the order denying
the motion for reconsideration, plaintiff filed a Notice
of Appeal and an Urgent Motion for Extension of
Time to File Record on Appeal, which was granted
in an order dated December 15, 1976. However, on
December 20, 1976, the court a quo issued an
amended order where it qualified the action as
principally one for quo warranto and hence,
dispensed with the filing of a record on appeal as
the original records of the case are required to be
elevated to the Court of Appeals.
On August 8, 1978, the Court of Appeals issued a
resolution certifying this case to this Court
considering that the appeal raises no factual issues
and involves only issues of law, as may be gleaned
from the following assignments of errors:.
I. The lower court erred in holding that the present
case isone for quo warranto and not an action for
damages.
II. In deciding the case, the lower court erred in not
upholding the Society’s By-Laws, the applicable
laws, and the pertinent provisions of the
Constitution.
III. The lower court erred in holding that the plaintiff-
appellant is not in the civil service, and therefore,
not entitled to the guaranty against removal from
office except for cause and after due process of law.
The naure of an action filed in court is determined
by the facts alleged in the complaint as constituting
the cause of action, and not those averred as a
defense in the defendant’s answer. The theory
adopted by the plaintiff in his complaint is one thing,
that by the defendant in his answer another. The
purpose of an action or suit and the law to govern it,
including the period of prescription, is to be
determined not by the claim of the party filing the
action, made in his argument or brief, but rather by
the complaint itself, its allegations and prayer for
relief. (Rone, Et. Al. v. Claro, Et Al., L-4472, May 8,
1952, 91 Phil. 250) In Baguioro v. Barrios, Et Al., 77
Phil. 120, the Supreme Court held that if the relief
demanded is not the proper one which may be
granted under the law, it does not characterize or
determine the nature of plaintiff’s action, and the
relief to which plaintiff is entitled based on the facts
alleged by him in his complaint, although it is not the
relief demanded, is what determines the nature of
the action.
While it is true that the complaint questions
petitioner’s removal from the position of Executive
Secretary and seeks her reinstatement thereto, the
nature of the suit is not necessarily one of quo
warranto. The nature of the instant suit is one
involving a violation of the rights of the plaintiff
under the By-Laws of the Society, the Civil Code
and the Constitution, which allegedly renders the
individuals responsible therefore, accountable for
damages, as may be gleaned from the following
allegations in the complaint as constituting the
plaintiff’s causes of action, to
wit:jgc:chanrobles.com.ph
"20. That, as a consequence of the unfair and
malicious removal of plaintiff from her office, which
the plaintiff maintains to be contrary to morals, good
customs, public policy, the pertinent provisions of
said By-Laws of the Society, the laws, and the
guaranties of the Constitution, by defendants
Cañizares, Ortigas Jr., Pardo, Adil, Nubla and
Garcia, the plaintiff suffered not only material
damages, but serious damage to her priceless
properties, consisting of her honor and reputation,
which were maliciously and unlawfully besmirched,
thereby entitling her to compensation for material
and moral damages, from said defendants, jointly
and severally, under Article 21, in relation to Article
32(6) of the New Civil Code;
x x x against Alberto Romulo, the person appointed in her
"24. That as a consequence of the inordinate use
and abuse of power by defendants, Cañizares,
Ortigas Jr., Pardo, Adil, Nubla and Garcia, in
arbitrarily, illegally, and unjustly removing the
plaintiff from office, without due process of law and
in denying to her the enjoyment of the guaranty of
the Constitution to equal protection of the law, the
plaintiff suffered material and moral damages as a
result of the debasement of her dignity, both as an
individual and as a professional (physician) of good
standing, therefore, defendant Cañizares, Ortigas
Jr., Pardo, Adil, Nubla and Garcia should be
ordered to pay her moral damages, jointly and
severally;
x x x holding the office in question, the suit could not be
"26. That the acts of the defendants Cañizares,
Ortigas Jr., Pardo, Adil, Nubla and Garcia, in
illegally removing the plaintiff from her position as
Executive Secretary of defendant Society, which
plaintiff was then holding under a valid appointment
and thereafter, immediately appointing defendant
Alberto Romulo to the position, is most unfair, unjust
and malicious, because it is contrary to good
morals, good customs, public policy, the pertinent
provisions of the Code of By-Laws of the defendant
Society, the laws and the aforementioned
guaranties of the Constitution; that the plaintiff
maintains that the said defendants are legally
obligated to compensate her, in concept of
exemplary damages, in order to restrain persons in
authority from committing similar illegal and
unconstitutional acts which debase human dignity
and inflict injuries to their fellowmen;
x x x Laws of the Society, the New Civil Code and the
"31. That, as a consequence of the said unjustified
refusal of the defendant, present Board of Directors
of the defendant Society, to resolve the complaint of
the plaintiff and extend to her the reliefs to which
she is entitled under the law and the Constitution, it
is respectfully submitted that said defendant Board
is under legal obligation to correct the illegal and
unconstitutional act of defendants Cañizares,
Ortigas Jr., Pardo, Nubla, Adil and Garcia, by
restoring the plaintiff to her position as Executive
Secretary of the defendant Society, payment of
salaries and other benefits, corresponding to the
period of her illegal and unconstitutional removal
from office."cralaw virtua1aw library
Further, it must be noted that the action is not only
stead, but also against the Society and the past and
present members of the Board. In fact, Romulo is
sued as present occupant of the office and not to
hold him accountable for damages because he did
not participate in the alleged illegal and
unconstitutional removal of plaintiff-appellant. The
action is primarily against the Society and the past
members of the Board who are responsible for her
removal. The present Board of Directors has been
impleaded as party defendant for the purpose
merely of enabling it to act, "to reinstate the plaintiff
to her position as Executive Secretary of the
defendant Society" being one of the reliefs prayed
for in the prayer of the complaint.
Hence, We hold that where the respondents, except
for one, namely, Alberto Romulo, are not actually
one for quo warranto.
Corollarily, the one-year period fixed in Section 16,
Rule 66 of the Revised Rules of Court within which
a petition for quo warranto should be filed, counted
from the date of ouster, does not apply to the case
at bar. The action must be brought within four (4)
years, in accordance with Valencia v. Cebu Portland
Cement Co., Et Al., L-13715, December 23, 1959,
106 Phil. 732, a case involving a plaintiff separated
from his employment for alleged unjustifiable
causes, where this Court held that the action is one
for "injury to the rights of the plaintiff, and must be
brought within 4 years under Article 1146 of the
New Civil Code."cralaw virtua1aw library
Nonetheless, although the action is not barred by
the statute of limitations, We rule that it will not
prosper. Contrary to her claim, petitioner was not
illegally removed or ousted from her position as
Executive Secretary in violation of the Code of By-
pertinent provisions of the Constitution.
Petitioner claims and the respondents do not
dispute that the Executive Secretary is an officer of
the Society pursuant to this provision in the Code of
By-Laws:chanroblesvirtualawlibrary
"Section 7.01. — Officers of the Society — The
executive officers of the Society shall be the
President, a Vice-President, a Treasurer, who shall
be elected by the Board of Directors, an Executive
Secretary, and an Auditor, who shall be appointed
by the Board of Directors, all of whom shall exercise
the functions, powers and prerogatives generally
vested upon such officers, the functions hereinafter
set out for their respective offices and such other
duties as from time to time may be prescribed by
the Board of Directors. One person may hold more
than one office except when the functions thereof
are incompatible with each other."cralaw virtua1aw
library
It is petitioner’s contention that she is subject to
removal pursuant to Section 7.04 of the Code of By-
Laws which respondents correctly dispute citing
Section 7.02 of the same Code. The
aforementioned provisions state as
follows:jgc:chanrobles.com.ph
"Section 7.02. — Tenure of Office — All executive
officers of the Society except the Executive
Secretary and the Auditor, shall be elected by the
Board of Directors, for a term of one year, and shall
hold office until their successors are elected and
have qualified. The Executive Secretary, the Auditor
and all other officers and employees of the Society
shall hold office at the pleasure of the Board of
Directors, unless their term of employment shall
have been fixed in their contract of employment.
x x x
"Section 7.04. — Removal of Officers and
Employees. — All officers and employees shall be
subject to suspension or removal for a sufficient
cause at any time by affirmative vote of a majority of
all the members of the Board of Directors, except
that employees appointed by the President alone or
by the other officers alone at the pleasure of the
officer appointing him."cralaw virtua1aw library
It appears from the records, specifically the minutes
of the special meeting of the Society on August 3,
1972, that petitioner was designated as Acting
Executive Secretary with an honorarium of P200.00
monthly in view of the application of Dr. Jose Y.
Buktaw for leave effective September 1, 1972 for
300 working days. This designation was formalized
in Special Order No. 110, s. 1972 wherein it was
indicated that: "This designation shall take effect on
September 1, 1972 and shall remain until further
advice."cralaw virtua1aw library
In the organizational meeting of the Society on April
25, 1973, the minutes of the meeting reveal that the
Chairman mentioned the need of appointing a
permanent Executive Secretary and stated that the
former Executive Secretary, Dr. Jose Y. Buktaw,
tendered his application for optional retirement, and
while on terminal leave, Dr. Mita Pardo de Tavera
was appointed Acting Executive Secretary. In view
thereof, Don Francisco Ortigas, Jr. moved, duly
seconded, that Dr. Mita Pardo de Tavera be
appointed Executive Secretary of the Philippine
Tuberculosis Society, Inc. The motion was
unanimously approved.
On April 27, 1973, petitioner was informed in writing
of the said appointment, to
wit:jgc:chanrobles.com.ph
"Dr. Mita Pardo de Tavera
Philippine Tuberculosis Society, Inc.
Manila
Madam:chanrob1es virtual 1aw library
I am pleased to inform you that at the meeting of the
Board of Directors held on April 25, 1973, you were
appointed Executive Secretary, Philippine
Tuberculosis Society, Inc. with such compensation
and allowances as are provided for in the Budget of
the Society, effective immediately, vice Dr. Jose Y.
Buktaw, retired.
Congratulations.
Very truly yours,
For the Board of Directors:chanrob1es virtual 1aw
library
(Sgd) Miguel Cañizares, M.D.
MIGUEL CANIZARES, M.D.
President"
Although the minutes of the organizational meeting
show that the Chairman mentioned the need of
appointing a "permanent" Executive Secretary, such
statement alone cannot characterize the
appointment of petitioner without a contract of
employment definitely fixing her term because of the
specific provision of Section 7.02 of the Code of By-
Laws that: "The Executive Secretary, the Auditor,
and all other officers and employees of the Society
shall hold office at the pleasure of the Board of
Directors, unless their term of employment shall
have been fixed in their contract of employment."
Besides the word "permanent" could have been
used to distinguish the appointment from "acting
capacity."cralaw virtua1aw library
The absence of a fixed term in the letter addressed
to petitioner informing her of her appointment as
Executive Secretary is very significant. This could
have no other implication than that petitioner held
an appointment at the pleasure of the appointing
power.
An appointment held at the pleasure of the
appointing power is in essence temporary in nature.
It is co-extensive with the desire of the Board of
Directors. Hence, when the Board opts to replace
the incumbent, technically there is no removal but
only an expiration of term and in an expiration of
term, there is no need of prior notice, due hearing or
sufficient grounds before the incumbent can be
separated from office. The protection afforded by
Section 7.04 of the Code of By-Laws on Removal of
Officers and Employees, therefore, cannot be
claimed by petitioner.chanrobles virtual lawlibrary
Thus, in the case of Mojilla v. Mariño, 13 SCRA
293, where the appointment contains the following
proviso: that it may be terminated at anytime without
any proceedings, at the pleasure of the President of
the Philippines, this Court held: "It may, therefore,
be said that, though not technically a temporary
appointment, as this term is used in Section 24(b) of
the Civil Service Act of 1959, petitioner’s
appointment in essence is temporary because of its
character that it is terminable at the pleasure of the
appointing power. Being temporary in nature, the
appointment can be terminated at a moment’s
notice without need to show cause as required in
appointments that belong to the classified
service."cralaw virtua1aw library
In Paragas v. Bernal, 17 SCRA 150, this Court
distinguished between removal and expiration of
term:jgc:chanrobles.com.ph
"In the case at bar there has been, however, no
removal from office, Pursuant to the charter of
Dagupan City, the Chief of Police thereof holds
office at the pleasure of the President.
Consequently, the term of office of the Chief of
Police expires at any time that the President may so
declare. This is not removal, inasmuch as the latter
entails the ouster of an incumbent before the
expiration of his term. In the present case,
petitioner’s term merely expired upon receipt by him
of the communication of respondent Assistant
Executive Secretary of the President, dated
September 14, 1962."cralaw virtua1aw library
Petitioner cannot likewise seek relief from the
general provisions of the New Civil Code on Human
Relations nor from the fundamental principles of the
New Constitution on preservation of human dignity.
While these provisions present some basic
principles that are to be observed for the rightful
relationship between human beings and the stability
of social order, these are merely guides for human
conduct in the absence of specific legal provisions
and definite contractual stipulations. In the case at
bar, the Code of By-Laws of the Society contains a
specific provision governing the term of office of
petitioner. The same necessarily limits her rights
under the New Civil Code and the New Constitution
upon acceptance of the appointment.
Moreover, the act of the Board in declaring her
position as vacant is not only in accordance with the
Code of By-Laws of the Society but also meets the
exacting standards of honesty and good faith. The
meeting of May 29, 1974, at which petitioner’s
position was declared vacant, was called
specifically to take up the unfinished business of the
Reorganizational Meeting of the Board of April 30,
1974. Hence, said act cannot be said to impart a
dishonest purpose or some moral-obliquity and
conscious doing to wrong but rather emanates from
the desire of the Board to reorganize itself.
Finally, We find it unnecessary to resolve the third
assignment of error. The proscription against
removal without just cause and due process of law
under the Civil Service Law does not have a bearing
on the case at bar for the reason, as We have
explained, that there was no removal, in her case
but merely an expiration of term pursuant to Section
7.02 of the Code of By-Laws. Hence, whether or not
the petitioner falls within the protective mantle of the
Civil Service Law is immaterial and definitely
unnecessary to resolve this
case.chanroblesvirtualawlibrary
WHEREFORE, premises considered, the decision
of the lower court holding that petitioner was not
illegally removed or ousted from her position as
Executive Secretary of the Philippine Tuberculosis
Society, Inc., is hereby AFFIRMED.
SO ORDERED.
PSBA
vs.
LEANO
GR L- 58468 February 24, 1984

FACTS:
Tan is one of the stockholders of PSBA. He
was a director and Executive Vice- President
enjoying salaries and allowances. During a regular
meeting, the Board of Directors declared all
corporate positions vacant except those of the
president and chairman and at the same time
elected new set of officers. Tan was not re elected
for which he filed for illegal dismissal before the
NLRC. He also instituted a one million peso
damage suit before the Court of First Instance for
the illegal and oppressive removal. He lodged
another complaint with the SEC questioning the
validity of the elections and his ouster. The SEC
issued a subpoena duces tecum commanding the
production of all corporate documents, records,
books. The Labor Arbiter also issued a subpoena
duces tecum for the production of the same records
and documents. Petitioners moved for the dismissal
of the complaint before the NLRC invoking the
principle against split jurisdiction.
ISSUE:
Whether or not the NLRC has jurisdiction
over the case.
RULING:
NO.
PSBA is a domestic corporation duly
organized and existing under our laws. General
management is vested in a Board of seven elected
annually by stockholders entitled to vote, who serve
until the election and qualification of their
successors. Any vacancy in the board of directors is
filled up by a majority vote of the subscribed capital
stock entitled to vote at a meeting generally called
for the purpose, and the directors so chosen shall
hold office for the unexpired term. Corporate officers
are provided for, among them, the Executive Vice-
President, who is elected by the board from their
own number. The officers receive such salaries as
the board may fix. The by-laws likewise provide that
should the office be rendered vacant by reason of
death, resignation, disqualification or otherwise, the
board, by a majority vote may choose a successor
who shall hold office for the unexpired term of the
predecessor.
The controversy is intra-corporate in nature.
It revolves around the election of directors, officers
and managers of PSBA, the relation between and
among its stockholders, and between them and the
corporation. PD 902-A vests in the SEC the original
and exclusive jurisdiction to hear and decide cases
involving controversies arising out of intra-corporate
relations between and among stockholders, and
between the stockholders and the corporation. It
also has exclusive jurisdiction over controversies
involving the election and appointment of officers,
directors, trustees or managers of such corporation.
The case is not a case of dismissal. The
case is that of a corporate office having been
declared vacant and of Tan’s not having been re-
elected thereafter. The matter of whom to elect is a
prerogative that belongs to the Board and involves
the exercise of deliberate choice and the faculty of
discriminative selection. Generally speaking, the
relationship of a person to the corporation, whether
as an officer or as agent or employee, is not
determined by the services performed but by the
incidents of the relationship as they actually exist.
G.R. No. L-68544 October 27, 1986
LORENZO C. DY, ZOSIMO DY, SR., WILLIAM
IBERO, RICARDO GARCIA AND RURAL BANK
OF AYUNGON, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION
AND EXECUTIVE LABOR ARBITER ALBERTO L.
DALMACION, AND CARLITO H.
VAILOCES, respondents.
Facts:
Private respondent, Carlito H. Vailoces, was the
manager of the Rural Bank of Ayungon (Negros
Oriental), a banking institution duly organized under
Philippine laws. He was also a director and
stockholder of the bank.
A special stockholders' meeting was called for the
purpose of electing the members of the bank's
Board of Directors. Immediately after the election
the new Board proceeded to elect the bank's
executive officers.
Petitioners Lorenzo Dy, William Ibero and Ricardo
Garcia were elected president, vice-president and
corporate secretary, respectively. Vailoces was not
re-elected as bank manager, 3 Because of this
development, the Board passed Resolution No. 5,
series of 1983, relieving him as bank manager.
Vailoces filed a complaint for illegal dismissal and
damages with the Ministry of Labor and
Employment against Lorenzo Dy and Zosimo Dy,
Sr. The complaint was amended to include
additional respondents-William Ibero, Ricardo
Garcia and the Rural Bank of Ayungon, and
additional causes of action for underpayment of In this Court, petitioners assail said ruling as an
salary and non-payment of living allowance. arbitrary deprivation of their right to appeal through
unreasonable adherence to procedural technicality.
Vailoces asserted that Lorenzo Dy, after obtaining
control of the majority stock of the bank by buying Issue:
the shares of Marcelino Maximo, called an illegal
stockholders' meeting and elected a Board of W/N the election of directors and the election of
Directors controlled by him; that after its illegal officers which resulted in Vailoces failure to be re-
constitution, said Board convened and passed a elected, were validly held.
resolution dismissing him as manager, without
giving him the opportunity to be heard first; that his Ruling: Yes.
dismissal was motivated by Lorenzo Dy's desire to
take over the management and control of the bank,
not to mention the fact that he (Dy) harbored ill This is not a case of dismissal. The situation is that
feelings against Vailoces. of a corporate office having been declared vacant,
and of Vailoces not having been elected thereafter.
The matter of whom to elect is a prerogative that
Lorenzo Dy, et al. denied the charge of illegal
belongs to the Board, and involves the exercise of
dismissal. They pointed out that Vailoces' position
deliberate choice and the faculty of discriminative
was an elective one, and he was not re-elected as
selection. Generally speaking, the relationship of a
bank manager because of the Board's loss of
person to corporation, whether as officer or as
confidence in him brought about by his absenteeism agent or employee, is not determined by the nature
and negligence in the performance of his duties; of the services performed, but by the incidents of
and that the Board's action was taken to protect the
the relationship as they actually exist.
interest of the bank and was "designed as an
internal control measure to secure the check and
balance of authority within the organization." 5 The questioned decision of the Labor Arbiter and
the Resolution of the NLRC dismissing petitioners'
appeal from said decision are hereby set aside
The Executive Labor Arbiter found that Vailoces
because rendered without jurisdiction.
was Illegally dismissed because of the resentment
of petitioners against Vailoces which arose from the
latter's filing of the cases for recognition as natural
child against Zosimo Dy, Sr. and for violation of the
corporation code against Lorenzo Dy; Dy vs. National Labor Relations Commission

No. L-68544. October 27, 1986

and second, because he was not afforded the due
process of law when he was dismissed during the
Narvasa, J.
Board meeting the validity of which is seriously
doubted;

Lorenzo Dy, et al. appealed to the NLRC, assigning Doctrine: It is the Securities and Exchange
error to the decision of the Labor Arbiter on the
Commission (SEC) and not the National Labor
ground that Vailoces was not entitled to notice of
the Board meeting which decreed his relief because Relations Commission (NLRC) that has jurisdiction
he was no longer a member of the Board on said over a dispute involving the termination of a bank
date; that he nonetheless had the opportunity to manager as a result of his non-reelection, thereto,
refute the charges against him and seek a formal as prescribed in the Bank’s by-laws.
investigation because he received a copy of the
minutes of said meeting while he was still the bank
manager, instead of which he simply abandoned the
work he was supposed to perform up to the It is no hindrance to SEC jurisdiction that a
effective date of his relief; and that the matter of his person raises in his complaint the issues that he
relief was within the adjudicatory powers of the was illegally dismissed and asks for remuneration
Securities and Exchange Commission. 7
where complainant is not a mere employee but a
stockholder and officer of the corporation.
The NLRC, however bypassed the issues raised
and simply dismissed the appeal for having been
filed late.
FACTS: Petitioners Lorenzo C. Dy, Zosimo Dy, Sr., the issues and dismissed the appeal for having
William Ibero, Ricardo Garcia and Rural Bank of been filed late. Hence, this petition.
Ayungon, Inc. assail in this Court the resolution of
public respondent NLRC dismissing their appeal
from the decision of the Executive Labor Arbiter in
ISSUE: Whether or not the SEC, and not
Cebu City which found private respondent Carlito H.
respondent NLRC, has jurisdiction over the dispute.
Vailoces to have been illegally dismissed by them.

Private respondent Vailoces was the

manager of the Rural Bank of Ayungon (Negros RULING: YES. While the comment of Vailoces
Oriental), a banking institution duly organized under traverses the averments of the petition that of the
Philippine laws. He was also a director and Solicitor General on behalf of public respondents
stockholder of the bank. perceives the matter as an intra-corporate
controversy of the class described in Section 5, par.
On June 4, 1983, a special stockholders’
(c) of Presidential Decree No. 902-A, namely:
meeting was called for the purpose of electing the
members of the bank’s Board of Directors.
Immediately after the election, the new Board
proceeded to elect the bank’s executive officers.

Pursuant to Article 4 of the bank’s by-laws,

providing for the election by the entire membership
of the Board of the executive officers of the bank, ‘Original and exclusive
i.e., the president, vice president, secretary, cashier jurisdiction to hear and decide
and bank manager, in that board meeting of June 4, cases involving:
1983, petitioners Lorenzo Dy, William Ibero and
Xxxx
Ricardo Garcia were elected president, vice
president, and corporate secretary, respectively. Xxxx
Private respondent Vailoces was not re-elected as
bank manager. Because of this, the Board passed a
Resolution relieving him as bank manager.
“(c) Controversies in the
Subsequently, Vailoces filed a complaint for election or appointments of
illegal dismissal and damages with the Ministry of directors, trustees, officers or
Labor and Employment against herein petitioners, managers of such corporations,
asserting that an illegal stockholders’ meeting was partnerships or associations.”’
held. In their answer, petitioners denied the charge
of illegal dismissal. The Executive Labor Arbiter
found that Vailoces was illegally dismissed due to
explicitly declared to be within the original
the resentment of petitioners against Vailoces and
jurisdiction of the SEC, and recommends that the
consequently ordered the individual petitioners
questioned resolution of the NLRC as well as the
Lorenzo Dy and Zosimo Dy, Sr. to pay Vailoces
decision of the Labor Arbiter be set aside as null
jointly and severally the sum of P111,480.60 and
and void.
reinstate the latter to his position as bank manager,
with additional backwages. The judgment of the Labor Arbiter and the
resolution of the NLRC are void for lack of
Petitioner Lorenzo Dy appealed to the
jurisdiction. It is of no moment that Vailoces, in his
NLRC, assigning error to the decision of the Labor
amended complaint, seeks other relief which would
Arbiter, one being that the matter of Vailoces’ relief
seemingly fall under the jurisdiction of the Labor
was within the adjudicatory powers of the Securities
Arbiter, because underpayment of salary and non-
and Exchange Commission. The NLRC bypassed
payment of living allowance show that they are
actually part of the perquisites of his elective
position, hence, intimately linked with his relations
with the corporation. The question of remuneration
involving a person who is not a mere employee but
a stockholder and officer of a corporation is not a
simple labor problem but a matter that comes within
the area of corporate affairs and management, and
is in fact a corporate controversy in contemplation of
the Corporate Code.
Wherefore, the questioned decision of the
Labor Arbiter and the Resolution of the NLRC
dismissing petitioners’ appeal are hereby set aside
for being rendered without jurisdiction.
LUZVIMINDA VISAYAN, BENJAMIN BORJA,
PABLO AJERO, LORETO DEDOYCO, NESTOR
GORGOLLO, DOMINGO METRAN, LITO
MONTERON, ROMEO OMAGBON, BOMBOM
PAUSAMOS, CIRILO RAMOS, MARCOS SISON,
ERIC BONDOLO, REY ZAMORA, TERESA
ANAVISO, EVELYN BACULINAO, MARIBEL
BASAG, VIOLETA DAGUISA, ADELAIDA
CANALDA, LAILA DIMLA, MACHAELA LUCERO,
DIVINA MARIANO, EPIFANIA OBLIGADO,
RAQUEL PONCIANO, ELLEN SACRAMENTO,
GRACE SULLETA FELY TAPAY, SUSAN
VILLAMOR, ANAINO AMPLAYO, MARIO
CHIONG NESTOR ESTARES, ALELI ALEJO,
ELVIE BAUTISTA, JANINA ESTARES NORMA
MENDOZA, LIGAYA SYDUA and JANETTE
VILLAREAL, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION
(THIRD DIVISION) and FUJIYAMA RESTAURANT
AND HOTEL, INC. and its
MANAGER/OPERATOR, respondents.
Danilo S. Lorredo for petitioners.
 King, Capuchino,
Banico & Associates for private respondent.
PARAS, J.:
Assailed in the instant petition is the Resolution of
public respondent National Labor Relations
Commission (NLRC, for brevity) promulgated
January 15, 1985 for being contrary to law and
jurisprudence and arrived at in grave abuse of
discretion amounting to lack or in excess of
jurisdiction.
The facts are briefly stated as follows:
Private respondent Fujiyama Hotel & Restaurant,
Inc. was formally organized in April, 1978 with
Aquilino Rivera holding a majority interest in the
corporation. The rest of the four (4) incorporators
composed the minority stockholders of respondent
corporation.
Upon organization in 1978, respondent corporation
immediately opened a Japanese establishment,
known as Fujiyama Hotel & Restaurant, located at
1413 M. Adriatico St., Ermita, Manila. In order to
fully offer an authentic Japanese cuisine and
traditional Japanese style of service, private
respondent hired the services of Isamu Akasako as
its chef and restaurant supervisor. (Private
respondent's memorandum, p. 4).
In June, 1980, Lourdes Jureidini and Milagros
Tsuchiya, allegedly pretending to be stockholders of
the corporation, filed a case with the then Court of
First Instance of Manila, Branch XXXVI against
Rivera and Akasako to wrest control over the
establishment. In June, 1981, the said court issued
a writ of preliminary mandatory injunction
transferring possession of all the assets of the
company and the management thereof to Jureidini
and Tsuchiya. The stockholders and directors of the
corporation were thereby excluded from the
management and operation of the restaurant.
Upon assuming management, Jureidini and
Tsuchiya replaced almost all of the existing
employees with new ones, majority of whom are the
present petitioners in the instant case. Apparently,
the new employees were extended probationary
appointments for six (6) months from December 15,
1981 to June 1 5, 1982.
In the meantime, Rivera and the rest of the
stockholders elevated the civil case to the Supreme
Court through a petition for certiorari assailing the
ground for the issuance of the writ of preliminary
mandatory injunction by the said Court of First
Instance, which case was entitled Aquilino Rivera,
et al. vs. Hon. Alfredo C. Florendo, et al., docketed
as G.R. No. 57586. On motion of Rivera, et al. in
the said case, this Court on August 21, 1981 issued
a writ of preliminary injunction to enjoin enforcement
of the June 23, 1981 writ of preliminary mandatory
injunction issued by the said Court of First Instance.
Since Jureidini and Tsuchiya disregarded the writ
We had previously issued, We issued another
resolution on May 26, 1982 directing both Jureidini
and Tsuchiya to strictly and immediately comply
with the Court's injunction. Thus, this Court ordered
Jureidini and Tsuchiya, "their agents,
representatives, and/or any person or persons
acting upon their orders or in their place or stead to
refrain from further managing and/or interfering with
the management of the business and assets of
petitioner corporation and . . . . to turn over all
assets and the management of petitioner
corporation, Fujiyama Hotel & Restaurant, Inc., to
Aquilino Rivera and Isamu Akasako." (NLRC,
Resolution, p. 4; Rollo, p. 116).
Pursuant to the above-quoted resolution, Rivera
and Akasako regained control and management of
Fujiyama Hotel & Restaurant, Inc. Immediately upon
assumption of the management of the corporation,
Rivera et al., refused to recognize as employees of
the corporation all persons that were hired by
Jureidini and Tsuchiya during the one-year period
that the latter had operated the company and
reinstated the employees previously hired by them.
This gave rise to the filing of the present case by the
dismissed employees hired by Jureidini and
Tsuchiya (some of whom had allegedly been hired
by Rivera and Akasako even before Jureidini and
Tsuchiya assumed management of the corporation)
against Fujiyama Hotel & Restaurant, Inc. for illegal
dismissal, which case was docketed as NLRC-NCR
Case No. 6-4110-82. On motion of private
respondent corporation, the Labor Arbiter included
Jureidini and Tsuchiya as third-party respondents
therein. Thereafter, the parties, except Jureidini and
Tsuchiya, submitted their respective position papers
and affidavits in support of their contentions. On the
basis of said position papers and affidavits, the
Labor Arbiter rendered a decision on September 21,
1982 ordering respondent company and/or
Akasako, Jureidini and Tsuchiya to reinstate all the
complainants to their former positions plus
backwages and to pay jointly and severally the
complainants their unpaid wages plus their share in
the service charges. (NLRC Decision, pp. 4-5;
Rollo, pp. 25-26).
On October 12, 1982, the aforesaid decision of the
Labor Arbiter was received by private respondent's
counsel. Ten (10) days thereafter, or on October 22,
1982, said counsel filed a notice of appeal with an
accompanying supersedeas bond in the sum of
P80,000.00 as fixed by the Labor Arbiter. Notably,
the memorandum of appeal was not filed until
November 24, 1982 when the attention of private
respondent's counsel was called by the filing on
November 19, 1982 of a motion for execution of the
September 21, 1982 decision by the complainants.
Thus, upon motion of private respondent, the NLRC
temporarily stayed execution and directed the Labor
Arbiter to transmit the entire record of the case to
the NLRC for appropriate action.
On December 28, 1983, the NLRC resolved to deny
the appeal of private respondent for having been
filed out of time.1âwphi1 Subsequently, a motion for
reconsideration was seasonably filed by private
respondent which became the basis of another
resolution dated January 15, 1985 issued by the
NLRC setting aside its previous resolution of
December 28, 1983 as well as the Labor Arbiter's
decision dated September 21, 1982. The decretal
portion of the January 15, 1982 NLRC Resolution is
quoted, thus:
WHEREFORE, the Resolution sought to be
reconsidered and the Decision appealed from are
hereby SET ASIDE and a new Decision is entered,
declaring respondents Lourdes Jureidini and Mila
Tsuchiya as the previous employer of the
complainants hired by them while operating the
Fujiyama Restaurant & Hotel, Inc. Consequently,
the establishment and its present operator, Isamu
Akasako, is absolved of any liability to them but the
entire record is remanded for further appropriate
proceedings to determine who are the complainants
hired by said Jureidini and Tsuchiya.
SO ORDERED.
(NLRC Resolution, pp. 19-20; Rollo, p. 7-8)
The legal issues in the instant case are: (1) whether
or not there is privity of contract between petitioners
and private respondent as to establish an employer-
employee relationship between the parties, and (2)
whether or not the respondent NLRC erred in giving
due course to private respondent's appeal and in
reversing the September 21, 1982 decision of the
Labor Arbiter.
Section 23 of B.P. 68, otherwise known as the
"Corporation Code of the Philippines," expressly
provides as follows:
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. . . .
It is clear from the above-quoted provision that a
corporation can act only through its board of
directors. "The law is settled that contracts between
a corporation and third persons must be made by or
under the authority of its board of directors and not
by its stockholders. Hence, the action of the
stockholders in such matters is only advisory and
not in any wise binding on the corporation." (De
Leon, The Corporation Code of the Philippines,
1989 edition, p. 168, citing the case of Barreto vs.
La Previsora Filipina, 57 Phil. 649).
A corporation, like a natural person who may
authorize another to do certain acts for and in his
behalf, through its board of directors, may legally
delegate some of its functions and powers to its
officers, committees or agents appointed by it.
(Campos & Campos, The Corporation Code-
Comments, Notes, and Selected cases, 1981 ed., p.
253). In the absence of an authority from the board
of directors, no person, not even the officers of the
corporation, can validly bind the corporation. Thus,
the Supreme Court, has made the following
pronouncement in the case of Vicente vs. Geraldez,
L-32473, 53 SCRA 210:
. . . Whatever authority the officers or agents of a
corporation may have is derived from the board of
directors or other governing body, unless conferred
by the charter of the corporation. A corporate
officer's power as an agent of the corporation must
therefore be sought from the statute, the charter,
the by-laws, or in a delegation of authority to such
officer, from the acts of the board of directors,
formally expressed or implied from a habit or
custom of doing business. In the case at bar no
provision of the charter and by-laws of the
corporation or any resolution or any other act of the
board of directors has been cited from which we
could reasonably infer that the administration trative
manager had been granted expressly or impliedly
the power to bind the corporation or the authority to
compromise the case. The signature of Atty.
Cardenas on the Agreement would therefore be
legally ineffectual". (Vicente vs. Geraldez, L-32473,
52 SCRA 210, p. 227). (Respondent's
Memorandum, p. 11)
Applying the aforesaid doctrines in the case at bar,
We hold that all acts done solely by Jureidini and
Tsuchiya allegedly, for and in behalf of private
respondent during the period from June, 1981 up to
May 31, 1982 were not binding upon respondent
corporation.
It is not denied by both parties that the operation
and management of the Fujiyama Hotel &
Restaurant Corporation, including the control and
possession of all its assets, were forcibly taken by
Jureidini and Tsuchiya from the owners thereof by
virtue of a writ of preliminary mandatory injunction
issued by then Court of First Instance of Manila,
Branch XXXVI These owners, the Rivera-Akasako
group, composed the board of directors of
respondent corporation during the one (1) year
period that Jureidini and Tsuchiya controlled the
respondent corporation, the former managed and
operated the latter apparently without any authority
from the latter's board of directors. As alleged by
Rivera, et al., Jureidini and Tsuchiya were not even
officers of respondent corporation as to be
considered its agents, which act prompted this
tribunal to order said persons, under pain of
contempt, to turn over the management and assets
of respondent corporation to Rivera et al., as shown
by this Court's resolution of May 26, 1982. Thus, all
acts done by Jureidini and Tsuchiya for and in
behalf of respondent corporation, having been
made without the requisite authority from the board
of directors, were not binding upon the said
corporation. One of these unauthorized acts was
the unwarranted termination of the original
employees of respondent corporation who were
validly hired by its board of directors, vis-a-vis, the
hiring of new employees, the petitioners in the case
at bar, to replace the said original employees. Since
said acts were not binding upon the corporation, no
employer-employee existed between the Fujiyama
Hotel & Restaurant, Inc. and the herein petitioners.
We agree with private respondent that the act of the
Rivera-Akasako group in admitting the original
employees of respondent corporation after
regaining control and management of the latter on
May 31, 1982, having been made by the
corporation's board of directors, was valid. Even if
Jureidini and Tsuchiya took over the management
and control of respondent corporation, the
employer-employee relationship between the
corporation and its original employees has not been
severed for lack of authority on the part of Jureidini
and Tsuchiya to dismiss said employees.
Consequently, petitioners' claim of illegal dismissal
is entirely mistaken as they were not hired by
respondent corporation or its duly authorized
officers or agents, hence, no employer-employee
relationship ever existed between them. Jureidini
and Tsuchiya, the persons who hired petitioners'
services, are to be considered their employer, and
not the private respondents.
Neither may petitioners claim good faith or
ignorance of the lack of authority on the part of
Jureidini and Tsuchiya to legally hire them and bind
the corporation because they were all informed by
Isamu Tatewaki respondent corporation's Assistant
Manager, of such fact at the time they were hired.
(Reply Brief of Isamu Tatewaki Annex "10").
Besides, it was clearly shown that the appointments
of the petitioners were on a probationary basis.
Further, it will be recalled that on August 21, 1981,
this Court issued a writ of preliminary injunction in
the case of Rivera, et al. vs. Judge Alfredo C.
Florendo, et al., G.R. No. 57586, promulgated
October 8, 1986, enjoining the enforcement of the
writ of preliminary mandatory injunction issued by
respondent judge therein. Despite the issuance of
said writ, Jureidini and Tsuchiya refused to return
the management of the corporation but continued
managing and operating respondent corporation
and in fact terminated the original employees of
respondent corporation and hired new ones in place
of those dismissed. The appointment papers of
these new employees would show that they were
hired only in one day, i.e., December 15, 1981, and
that they were hired on a probationary basis. It
follows that only Jureidini and Tsuchiya, being the
ones who hired the petitioners, should be the ones
responsible for the petitioners' claims.
Since it would be most unfair and unjust to hold the
respondent corporation liable for the claims of
petitioners, even if respondent corporation's
memorandum was filed beyond the 10 day
reglementary period (note that the notice of appeal
had been filed on time), We rule that the NLRC did
not commit grave abuse of discretion in giving due
course to respondent corporation's appeal and in
reversing the Labor Arbiter's decision dated
September 21, 1982.
The NLRC is vested with broad powers by the
Labor Code, particularly Art. 218 thereof, to correct,
amend or waive any error, injustice, defect or
irregularity whether in substance or in form; and in
adjudicating all cases brought before it, the NLRC is
likewise empowered to use every and all
reasonable means to ascertain the facts in each
case expeditiously and objectively without regard to
procedural technicalities. Thus, Art. 221 of the
Labor Code provides as follows:
In any proceeding before the Commission or any of
the Labor Arbiters, the rules of evidence prevailing
in Courts of Law or equity shall not be controlling
and it is the spirit and intention of this Code that the
Commission and its members and the Labor
Arbiters shall use every and all reasonable means
to ascertain the facts in each case speedily and
objectively and without regard to technicalities of
law or procedure, all in the interest of due process.
In any proceeding before the Commission or any
Labor Arbiter to exercise complete control of the
proceedings at all stages.
The factual circumstances and substantial merits of
the instant case justify the NLRC's exercise of its
reserve powers granted by the aforequoted
provision. Private respondent's appeal should be
granted and entertained in order to prevent a
manifest injustice upon said respondent.
While it is true that an appeal within the meaning of
the Labor Code must include the assignments of
error, memorandum of arguments in support thereof
and the reliefs prayed for such that a mere notice of
appeal will not toll the running of the period for
perfecting an appeal, and the general rule is that
after a judgment has become final the appellate
court loses jurisdiction to entertain the appeal, the
aforementioned rules admit of exceptions too,
because it is also well-settled that such rules of
procedure are used only to help secure and not
override substantial justice.
Litigations should, as much as possible, be decided
on their merits and not on technicality, and under
the circumstances obtaining in this case, We are
reminded of what We said in the case of Gregorio
vs. CA, 72 SCRA 120, –– "Dismissal of appeals
purely on technical grounds is frowned upon where
the policy of the courts is to encourage hearings of
appeals on their merits and the rules of procedure
ought not to be applied in a very rigid, technical
sense; rules of procedure are used only to help
secure, not override substantial justice. If a
technical and rigid enforcement of the rules is
made, their aim would be defeated. (American
Home Insurance Co. vs. Court of Appeals, 109
SCRA 180)
In the case at bar, the finding of the Labor Arbiter
that there is an employer-employee relationship
existing between petitioners and private respondent
counter-acts the provisions of the Corporation Code
such that to strictly apply the procedural rules on
appeal under the Labor Code would obviously result
in patent and gross injustice upon private
respondent's substantive rights. In relation to the
peculiar factual background of the instant case,
private respondent's defense of lack of privity of
contract with petitioners merits greater
consideration in the interest of substantial justice.
It will be recalled that the Labor Arbiter's finding of
illegal dismissal and order of reinstatement were
anchored on an erroneous premise that Jureidini
and Tsuchiya were duly authorized and legitimate
officers of the corporation. The enforcement of said
erroneous ruling will cause serious injustice, not
only upon respondent corporation but also upon the
corporation's original employees who were taken
back by the Aquilino Rivera group when they
regained possession and management of the
corporation. If petitioners are reinstated, that would
result in an absurd situation wherein the corporation
will have employees very much more in excess of
what the business would require.
Besides, it is quite evident that private respondent
seriously intended to appeal the Labor Arbiter's
decision and We hereby quote a portion of the
herein assailed NLRC Resolution:
. . . In fact, it even filed an urgent petition for
reduction of supersedeas bond, praying that it be
allowed to file a P50,000.00 bond but it was fixed at
P80,000.00 by the Labor Arbiter which it filed with
its notice of appeal. In the conference on 15
October 1982 called by the Labor Arbiter issuing his
decision for the purpose of settling the case
amicably, the respondent again manifested after no
settlement was arrived at that it will file its appeal.
With these in mind, We are convinced that
respondent's failure to file its memorandum on
appeal with its notice of appeal was through
excusable mistake only on the part of the
messenger-clerk. Otherwise, it would not have gone
through the burden of going through the rigors of
having the supersedeas bond reduced and abiding
with the amount fixed which entailed expenses.
Consequently, in the interest of substantial justice
and in line with the repeated rulings of the Supreme
Court lately which abhors dismissal of cases based
solely on technicalities, We set aside the Resolution
sought to be reconsidered and give due course to
the appeal. (pp. 15-16, Rollo)
Finally' it is clear that petitioners were not
abandoned by the NLRC as the latter ordered that
the case be remanded to the Arbitration Branch for
further proceedings to determine who among the
petitioners were really hired by respondent
corporation or by Jureidini, et al., in order to
ultimately determine who is responsible for the
settlement of petitioners' claims. Thus, petitioners
are not without recourse relative to their claims.
ACCORDINGLY, the instant petition is hereby
DISMISSED for lack of merit and the assailed
decision of the National Labor Relations
Commission dated January 15, 1985 is AFFIRMED
in toto.
SO ORDERED.
G.R. No. 108710 September 14, 1999
ARMANDO T. DE ROSSI, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION
(First Division), MATLING INDUSTRIAL AND
COMMERCIAL CORPORATION AND RICHARD
K. SPENCER, respondents.
FACTS:
An Italian citizen, petitioner was the Executive Vice-
President and General Manager of private
respondent, Matling Industrial and Commercial
Corporation (MICC). He started work on July 1,
1985. On August 10, 1988, MICC terminated his
employment.
Aggrieved, petitioner filed with the NLRC, National
Capital Region on September 21, 1989, a complaint
for illegal dismissal with corresponding damages.
MICC based petitioner's dismissal on the ground
that the petitioner failed to secure his employment
permit, grossly mismanaged the business affairs of
the company, and misused corporate funds.
However, petitioner argued that it was the duty of
the company to secure his work permit during the
term of his office, and that his termination was
illegal for lack of just cause.
Labor Arbiter Asuncion rendered a decision in favor
of petitioner.
Private respondents contended that the position of
executive vice-president is an elective post,
specifically provided by the corporate's by-laws.
Thus, the dismissal of the petitioner was an intra-
corporate matter within the jurisdiction of the
Securities and Exchange Commission (SEC) and
neither with the Labor Arbiter nor the NLRC. They
argued that the SEC and not the NLRC has original
and exclusive jurisdiction over the subject matter
which involves the removal of a corporate officer.
NLRC rendered its decision recognizing the SEC's
jurisdiction over the case.
ISSUE:
WHETHER OR NOT THE NATIONAL LABOR
RELATIONS COMMISSION COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK
OF JURISDICTION OR ACTED IN EXCESS OF
ITS JURISDICTION IN HOLDING THAT THE
SECURITIES AND EXCHANGE COMMISSION
HAS JURISDICTION OVER THE COMPLAINT
FOR ILLEGAL DISMISSAL FILED BY
PETITIONER.
RULING:
In a string of cases this Court has consistently held
that the SEC, and not the NLRC, has original and
exclusive jurisdiction over cases involving the
removal of corporate officers. Section 5, paragraph
(c) of P.D. 902-A unequivocally provides that SEC
has jurisdiction over intra-corporate affairs regarding
the election or appointment of officers of a
corporation.
We have earlier pronounced that an "office" is
created by the charter of the corporation under
which a corporation is organized, and the officer is
elected by the directors or stockholders. In the
present case, private respondents aver that the
officers and their terms of office are prescribed by
the corporation's by-laws, which provide as follows:
BY-LAW NO. III Directors and Officers
xxx xxx xxx
The officers of the corporation shall be the
President, Executive Vice President,
Secretary and Treasurer, each of whom may
hold his office until his successor is elected
and qualified, unless sooner removed by the
Board of Directors; Provided, That for the
convenience of the corporation the office of
the Secretary and Treasurer may be held by
one and the same person. Officers shall be
designated by the stockholders' meeting at
the time they elect the members of the Board
of Directors. Any vacancy occurring among
the officers of the Corporation on account of
removal or resignation shall be filled by a
stockholder's meeting. Stockholders holding
one half, or more of the subscribed capital
stock of the corporation may demand and
compel the resignation of any officer at any
time. 10
The by-laws being in force, clearly petitioner is
considered an officer of MICC, elected and/or
designated by its board of directors. Following
Section 5(c) of P.D. No. 902-A, the SEC exercises
exclusive jurisdiction over controversies regarding
the election and/or designation of directors,
trustees, officers or managers of a corporation,
partnership or association. This provision is
indubitably applicable to the petitioner's case.
Jurisdiction here is not with the Labor Arbiter nor the
NLRC, but with the SEC.
Note that a corporate officer's removal from his
office is a corporate act. If such removal occasions
an intra-corporate controversy, its nature is not
altered by the reason or wisdom, or lack thereof,
with which the Board of Directors might have in
taking such action. When petitioner, as Executive
Vice-President allegedly diverted company funds for
his personal use resulting in heavy financial losses
to the company, this matter would amount to fraud.
Such fraud would be detrimental to the interest not
only of the corporation but also of its members. This
type of fraud encompasses controversies in a
relationship within the corporation covered by SEC
jurisdiction. Perforce, the matter would come within
the area of corporate affairs and management, and
such a corporate controversy would call for the
adjudicative expertise of the SEC, not the Labor
Arbiter or the NLRC.
BIENVENIDO ONGKINGCO, as President and
GALERIA DE MAGALLANES CONDOMINIUM
ASSOCIATION, INC.
vs.
NATIONAL LABOR RELATIONS COMMISSION
and FEDERICO B. GUILAS
G.R. No. 119877, March 31, 1997
FACTS:
Petitioner Galeria de Magallanes
Condominium Association, Inc. is a non-stock, non-
profit corporation with a primary purpose of holding
title to the common areas of the Galeria de
Magallanes Condominium Project and to manage
and administer the same for the use and
convenience of the residents and/or owners.
Petitioner Bienvenido Ongkingco was the president
of Galeria at the time private respondent filed his
complaint. Subsequently, Galeria's Board of
Directors appointed private respondent Federico B.
Guilas as Administrator/Superintendent.
Respondent, however, was no longer re-appointed
as Administrator; hence he filed a case for illegal
dismissal. Petitioners filed a motion to dismiss
alleging that it is the SEC, and not the labor arbiter,
which has jurisdiction over the subject matter of the
complaint. The LA granted the motion to dismiss,
which decision was reversed by the NLRC.
ISSUE:
Whether or not respondent was a corporate
officer.
RULING:
YES.
Private respondent is an officer of Petitioner
Corporation and not its mere employee. The by-
laws of the Galeria de Magallanes Condominium
Association specifically include the
Superintendent/Administrator in its roster of
corporate officers. He was appointed directly by the
Board of Directors not by any managing officer of
the corporation and his salary was, likewise, set by
the same Board. Having thus determined, his
dismissal or non-appointment is clearly an intra-
corporate matter and jurisdiction, therefore, properly
belongs to the SEC and not the NLRC. Despite not
being elected, P.D. 902-A Sec. 5(c) expressly
covers both election and appointment of corporate
directors, trustees, officers and managers.
PURIFICACION G. TABANG
vs.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 121143 January 21, 1997
FACTS:
Purificacion Tabang was a founding
member, a member of the Board of Trustees, and
the corporate secretary of private respondent
Pamana Golden Care Medical Center Foundation,
Inc., a non-stock corporation engaged in extending
medical and surgical services. Medical Director and
Hospital Administrator of private respondent's
Pamana Golden Care Medical Center in Calamba,
Laguna. Although the memorandum was silent as to
the amount of remuneration for the position,
petitioner claims that she received a monthly
retainer fee of five thousand pesos (P5,000.00) from
private respondent, but the payment thereof was
allegedly stopped in November, 1991.
As medical director and hospital
administrator, petitioner was tasked to run the
affairs of the aforesaid medical center and perform
all acts of administration relative to its daily
operations.Petitioner was allegedly informed
personally by Dr. Ernesto Naval that in a special
meeting held on April 30, 1993, the Board of
Trustees passed a resolution relieving her of her
position as Medical Director and Hospital
Administrator, and appointing the latter and Dr.
Benjamin Donasco as acting Medical Director and
acting Hospital Administrator, respectively.
Petitioner averred that she thereafter received a
copy of said board resolution. Petitioner then filed a
complaint for illegal dismissal and non-payment of
wages, allowances and 13th month pay before the
labor arbiter but the complaint was dismissed for
lack of jurisdiction.
ISSUE:
Whether or not the NLRC has jurisdiction
over the case.
RULING:
NO.
It is the SEC which has jurisdiction over the
case. The charges against private respondent
partake of the nature of an intra-corporate
controversy. Similarly, the determination of the
rights of petitioner and the concomitant liability of
private respondent arising from her ouster as a
medical director and/or hospital administrator, which
are corporate offices, is an intra-corporate
controversy subject to the jurisdiction of the SEC.
Contrary to the contention of petitioner, a medical
director and a hospital administrator are considered
as corporate officers under the by-laws of
respondent corporation.
The president, vice-president, secretary and
treasurer are commonly regarded as the principal or
executive officers of a corporation and modern
corporation statutes usually designate them as the
officers of the corporation. However, other offices
are sometimes created by the charter or by-laws of
a corporation or the board of directors may be
empowered under the by-laws of a corporation to
create additional offices as may be necessary.
In the case at bar, considering that herein
petitioner, unlike an ordinary employee, was
appointed by Respondent Corporation’s Board of
Trustees in its memorandum, she is deemed an
officer of the corporation. Section 5(c) of
Presidential Decree No. 902-A, provides that the
SEC exercises exclusive jurisdiction over
controversies in the election appointment of
directors, trustees, officers or managers of
corporations, partnerships or associations, applies
in the present dispute. Accordingly, jurisdiction over
the same is vested in the SEC, and not in the Labor
Arbiter or the NLRC.
A corporate officer's dismissal is always a
corporate act, or an intra-corporate controversy, and
the nature is not altered by the reason or wisdom
with which the Board of Directors may have in
taking such action.
DILY DANY NACPIL
vs.
INTERNATIONAL BROADCASTING
CORPORATION
G.R. No. 144767. March 21, 2002
FACTS:
Petitioner was Assistant General Manager
for Finance/Administration and Comptroller of
private respondent Intercontinental Broadcasting
Corporation (IBC) from 1996 until April 1997.
According to petitioner, when Emiliano Templo was
appointed to replace IBC President Tomas Gomez
III sometime in March 1997, the former told the
Board of Directors that as soon as he assumes the
IBC presidency, he would terminate the services of
petitioner. Apparently, Templo blamed petitioner,
along with a certain Mr. Basilio and Mr. Gomez, for
the prior mismanagement of IBC. Upon his
assumption of the IBC presidency, Templo allegedly
harassed, insulted, humiliated and pressured
petitioner into resigning until the latter was forced to
retire. However, Templo refused to pay him his
retirement benefits, allegedly because he had not
yet secured the clearances from the Presidential
Commission on Good Government and the
Commission on Audit.
IBC filed a motion to dismiss contending
that petitioner was a corporate officer who was duly
elected by the Board of Directors of IBC; hence, the
case qualifies as an intra-corporate dispute falling
within the jurisdiction of the SEC.
On the other hand, petitioner argues that he
is not a corporate officer of IBC but an employee
thereof since he had not been elected nor appointed
as Comptroller and Assistant Manager by the IBC's
Board of Directors but by an IBC General Manager.
This is also because the IBC's By-Laws do not even
include the position of comptroller in its roster of
corporate officers.He therefore contends that his
dismissal is a controversy falling within the
jurisdiction of the labor courts.
ISSUE:
Whether or not petitioner is a corporate
officer although the position of comptroller is not
expressly mentioned in the by-laws.
RULING:
NO.
The fact that the position of Comptroller is
not expressly mentioned among the officers of the
IBC in the By-Laws is of no moment, because the
IBC's Board of Directors is empowered under
Section 25 of the Corporation Code and under the
corporation's By-Laws to appoint such other officers
as it may deem necessary.
The by-laws may and usually do provide for
such other officers," and that where a corporate
office is not specifically indicated in the roster of
corporate offices in the by-laws of a corporation, the
board of directors may also be empowered under
the by-lawsto create additional officers as may be
necessary. Furthermore, as petitioner's appointment
as comptroller required the approval and formal
action of the IBC's Board of Directors to become
valid, it is clear therefore holds that petitioner is a
corporate officer whose dismissal may be the
subject of a controversy cognizable by the SEC
under Section 5(c) of P.D. 902-A which includes
controversies involving both election and
appointmentof corporate directors, trustees, officers,
and managers. Had petitioner been an ordinary
employee, such board action would not have been
required.
VICENTE VS GERALDEZ
Facts:
In 1967, HI Cement Corporation was
granted authority to operate mining facilities in
Bulacan. However, the areas allowed for it to
explore cover areas which were also being explored
by Ignacio Vicente, Juan Bernabe, and Moises
Angeles. And so a dispute arose between the three
and HI Cement as neither side wanted to give up
their mining claims over the disputed areas.
Eventually, HI Cement filed a civil case against the
three. During pre-trial, the possibility of an amicable
settlement was explored where HI Cement offered
to purchase the areas of claims of Vicente et al at
the rate of P0.90 per square meter. Vicente et al
however wanted P10.00 per square meter.
In 1969, the lawyers of HI Cement agreed
to enter into a compromise agreement with the
three whereby commissioners shall be assigned by
the court for the purpose of assessing the value of
the disputed areas of claim. An assessment was
subsequently made pursuant to the compromise
agreement and the commissioners recommended a
price rate of P15.00 per square meter.
One of the lawyers of HI Cement, Atty.
Francisco Ventura, then notified the Board of
Directors of HI Cement for the approval of the
compromise agreement. But the Board disapproved
the compromise agreement hence Atty. Ventura
filed a motion with the court to disregard the
compromise agreement. Vicente et al naturally
assailed the motion. Vicente et al insisted that the
compromise agreement is binding because prior to
entering into the compromise agreement, the three
lawyers of HI Cement declared in open court that
they are authorized to enter into a compromise
agreement for HI Cement; that one of the lawyers of
HI Cement, Atty. Florentino Cardenas, is an
executive official of HI Cement; that Cardenas even
nominated one of the commissioners; that such act
ratified the compromise agreement even if it was
not approved by the Board. HI Cement, in its
defense, averred that the lawyers were not
authorized and that in fact there was no special
power of attorney executed in their favor for the
purpose of entering into a compromise agreement.
Judge Ambrosio Geraldez ruled in favor of HI
Cement.
ISSUE: Whether or not a compromise agreement
entered into by a lawyer purportedly in behalf of the
corporation is valid without a written authority.
HELD: No. Corporations may compromise only in
the form and with the requisites which may be
necessary to alienate their property. Under the
corporation law the power to compromise or settle
claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of
Directors but such power may be delegated. The
delegation must be clearly shown for as a general
rule an officer or agent of the corporation has no
power to compromise or settle a claim by or against
the corporation, except to the extent that such
power is given to him either expressly or by
reasonable implication from the circumstances. In
the case at bar, there was no special power of
attorney authorizing the three lawyers to enter into a
compromise agreement. This is even if the lawyers
declared in open court that they are authorized to
do so by the corporation (in this case, the transcript
of stenographic notes does not show that the
lawyers indeed declare such in open court).
The fact that Cardenas, an officer of HI Cement,
acted in effecting the compromise agreement, i.e.
nominating a commissioner, does not ratify the
compromise agreement. There is no showing that
Cardenas’ act binds HI Cement; no proof that he is
authorized by the Board; no proof that there is a
provision in the articles of incorporation of HI
Cement that he can bind the corporation.
REBECCA BOYER-ROXAS and GUILLERMO
ROXAS, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF
EUGENIA V. ROXAS, INC., respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision and
resolution of the Court of Appeals in CA-G.R. No.
14530 affirming the earlier decision of the Regional
Trial Court of Laguna, Branch 37, at Calamba, in
the consolidated RTC Civil Case Nos. 802-84-C and
803-84-C entitled "Heirs of Eugenia V. Roxas, Inc.
v. Rebecca Boyer-Roxas" and Heirs of Eugenia V.
Roxas, Inc. v. Guillermo Roxas," the dispositive
portion of which reads:
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of the plaintiff and against
the defendants, by ordering as it is hereby ordered
that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-
Roxas and all persons claiming under her to:
a) Immediately vacate the residential house near
the Balugbugan pool located inside the premises of
the Hidden Valley Springs Resort at Limao,
Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per
month from September 10, 1983, for her occupancy
of the residential house until the same is vacated;
c) Remove the unfinished building erected on the
land of the plaintiff within ninety (90) days from
receipt of this decision;
d) Pay the plaintiff the amount of P100.00 per
month from September 10, 1983, until the said
unfinished building is removed from the land of the
plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo
Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near
the tennis court located within the premises of the
Hidden Valley Springs Resort at Limao, Calauan,
Laguna;
b) Pay the plaintiff the amount of P300.00 per
month from September 10, 1983, for his occupancy
of the said residential house until the same is
vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of
possession filed with the Regional Trial Court of
Laguna against petitioners Rebecca Boyer-Roxas
and Guillermo Roxas respectively, respondent
corporation, Heirs of Eugenia V. Roxas, Inc., prayed
for the ejectment of the petitioners from buildings
inside the Hidden Valley Springs Resort located at
Limao, Calauan, Laguna allegedly owned by the
respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas
(Civil Case No-802-84-C), the respondent
corporation alleged that Rebecca is in possession of
two (2) houses, one of which is still under
construction, built at the expense of the respondent
corporation; and that her occupancy on the two (2)
houses was only upon the tolerance of the
respondent corporation.
In the case of petitioner Guillermo Roxas (Civil
Case No. 803-84-C), the respondent corporation
alleged that Guillermo occupies a house which was
built at the expense of the former during the time
when Guillermo's father, Eriberto Roxas, was still
living and was the general manager of the
respondent corporation; that the house was
originally intended as a recreation hall but was
converted for the residential use of Guillermo; and
that Guillermo's possession over the house and lot
was only upon the tolerance of the respondent
corporation.
In both cases, the respondent corporation alleged
that the petitioners never paid rentals for the use of
the buildings and the lots and that they ignored the
demand letters for them to vacate the buildings.
In their separate answers, the petitioners traversed
the allegations in the complaint by stating that they
are heirs of Eugenia V. Roxas and therefore, co-
owners of the Hidden Valley Springs Resort; and as
co-owners of the property, they have the right to
stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as
follows:
1) whether plaintiff is entitled to recover the
questioned premises;
2) whether plaintiff is entitled to reasonable rental
for occupancy of the premises in question;
3) whether the defendant is legally authorized to
pierce the veil of corporate fiction and interpose the
same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good
faith, entitled to occupy the questioned premises;
5) whether plaintiff is entitled to damages and
reasonable compensation for the use of the
questioned premises;
6) whether the defendants are entitled to their
counterclaim to recover moral and exemplary
damages as well as attorney's fees in the two
cases;
7) whether the presence and occupancy by the
defendants on the premises in questioned (sic)
hampers, deters or impairs plaintiff's operation of
Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden
withdrawal of plaintiffs tolerance allowing
defendants' occupancy of the premises in
questioned (sic) is unjust enrichment. (Original
Records, 486)
Upon motion of the plaintiff respondent corporation,
Presiding Judge Francisco Ma. Guerrero of Branch
34 issued an Order dated April 25, 1986 inhibiting
himself from further trying the case. The cases were
re-raffled to Branch 37 presided by Judge Odilon
Bautista. Judge Bautista continued the hearing of
the cases.
For failure of the petitioners (defendants below) and
their counsel to attend the October 22, 1986 hearing
despite notice, and upon motion of the respondent
corporation, the court issued on the same day,
October 22, 1986, an Order considering the cases
submitted for decision. At this stage of the
proceedings, the petitioners had not yet presented
their evidence while the respondent corporation had
completed the presentation of its evidence.
The evidence of the respondent corporation upon
which the lower court based its decision is as
follows:
To support the complaints, the plaintiff offered the
testimonies of Maria Milagros Roxas and that of
Victoria Roxas Villarta as well as Exhibits "A" to "M-
3".
The evidence of the plaintiff established the
following: that the plaintiff, Heirs of Eugenia V
Roxas, Incorporated, was incorporated on
December 4, 1962 (Exh. "C") with the primary
purpose of engaging in agriculture to develop the
properties inherited from Eugenia V. Roxas and that
of y Eufrocino Roxas; that the Articles of
Incorporation of the plaintiff, in 1971, was amended
to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of
the board of directors of the plaintiff were all
members of the same family, with Eufrocino Roxas
having the biggest share; that accordingly, the
plaintiff put up a resort known as Hidden Valley
Springs Resort on a portion of its land located at Bo.
Limao, Calauan, Laguna, and covered by TCT No.
32639 (Exhs. "A" and "A-l"); that improvements
were introduced in the resort by the plaintiff and
among them were cottages, houses or buildings,
swimming pools, tennis court, restaurant and open
pavilions; that the house near the Balugbugan Pool
(Exh. "B-l") being occupied by Rebecca B. Roxas
was originally intended as staff house but later used
as the residence of Eriberto Roxas, deceased
husband of the defendant Rebecca Boyer-Roxas
and father of Guillermo Roxas; that this house
presently being occupied by Rebecca B. Roxas was
built from corporate funds; that the construction of
the unfinished house (Exh. "B-2") was started by the
defendant Rebecca Boyer-Roxas and her husband
Eriberto Roxas; that the third building (Exh. "B-3")
presently being occupied by Guillermo Roxas was
originally intended as a recreation hall but later
converted as a residential house; that this house
was built also from corporate funds; that the said
house occupied by Guillermo Roxas when it was
being built had nipa roofing but was later changed
to galvanized iron sheets; that at the beginning, it
had no partition downstairs and the second floor
was an open space; that the conversion from a
recreation hall to a residential house was with the
knowledge of Eufrocino Roxas and was not
objected to by any of the Board of Directors of the
plaintiff; that most of the materials used in
converting the building into a residential house
came from the materials left by Coppola, a film
producer, who filmed the movie "Apocalypse Now";
that Coppola left the materials as part of his
payment for rents of the rooms that he occupied in
the resort; that after the said recreation hall was
converted into a residential house, defendant
Guillermo Roxas moved in and occupied the same
together with his family sometime in 1977 or 1978;
that during the time Eufrocino Roxas was still alive,
Eriberto Roxas was the general manager of the
corporation and there was seldom any board
meeting; that Eufrocino Roxas together with
Eriberto Roxas were (sic) the ones who were
running the corporation; that during this time,
Eriberto Roxas was the restaurant and wine
concessionaire of the resort; that after the death of
Eufrocino Roxas, Eriberto Roxas continued as the
general manager until his death in 1980; that after
the death of Eriberto Roxas in 1980, the defendants
Rebecca B. Roxas and Guillermo Roxas, committed
acts that impeded the plaintiff's expansion and
normal operation of the resort; that the plaintiff could
not even use its own pavilions, kitchen and other
facilities because of the acts of the defendants
which led to the filing of criminal cases in court; that
cases were even filed before the Ministry of
Tourism, Bureau of Domestic Trade and the Office
of the President by the parties herein; that the
defendants violated the resolution and orders of the
Ministry of Tourism dated July 28, 1983, August 3,
1983 and November 26, 1984 (Exhs. "G", "H" and
"H-l") which ordered them or the corporation they
represent to desist from and to turn over
immediately to the plaintiff the management and
operation of the restaurant and wine outlets of the
said resort (Exh. "G-l"); that the defendants also
violated the decision of the Bureau of Domestic
Trade dated October 23, 1983 (Exh. "C"); that on
August 27, 1983, because of the acts of the
defendants, the Board of Directors of the plaintiff
adopted Resolution No. 83-12 series of 1983 (Exh.
"F") authorizing the ejectment of the defendants
from the premises occupied by them; that on
September 1, 1983, demand letters were sent to
Rebecca Boyer-Roxas and Guillermo Roxas (Exhs.
"D" and "D-1") demanding that they vacate the
respective premises they occupy; and that the
dispute between the plaintiff and the defendants
was brought before the barangay level and the
same was not settled (Exhs. "E" and "E-l"). (Original
Records, pp. 454-456)
The petitioners appealed the decision to the Court
of Appeals. However, as stated earlier, the
appellate court affirmed the lower court's decision.
The Petitioners' motion for reconsideration was
likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave
due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce
the veil of corporate fiction over private respondent
and maintain the petitioners in their possession
and/or occupancy of the subject premises
considering that petitioners are owners of aliquot
part of the properties of private respondent.
Besides, private respondent itself discarded the
mantle of corporate fiction by acts and/or omissions
of its board of directors and/or stockholders.
II The respondent Court erred in not holding that
petitioners were in fact denied due process or their
day in court brought about by the gross negligence
of their former counsel.
III The respondent Court misapplied the law when it
ordered petitioner Rebecca Boyer-Roxas to remove
the unfinished building in RTC Case No. 802-84-C,
when the trial court opined that she spent her own
funds for the construction thereof. (CA Rollo, pp. 17-
18)
Were the petitioners denied due process of law in
the lower court?
After the cases were re-raffled to the sala of
Presiding Judge Odilon Bautista of Branch 37 the
following events transpired:
On July 3, 1986, the lower court issued an Order
setting the hearing of the cases on July 21, 1986.
Petitioner Rebecca V. Roxas received a copy of the
Order on July 15, 1986, while petitioner Guillermo
Roxas received his copy on July 18, 1986. Atty.
Conrado Manicad, the petitioners' counsel received
another copy of the Order on July 11, 1986.
(Original Records, p. 260)
On motion of the respondent corporation's counsel,
the lower court issued an Order dated July 15, 1986
cancelling the July 21, 1986 hearing and resetting
the hearing to August 11, 1986. (Original records,
262-263) Three separate copies of the order were
sent and received by the petitioners and their
counsel. (Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11,
1986 hearing filed by the respondent corporation's
counsel was denied in an Order dated August 8,
1986. Again separate copies of the Order were sent
and received by the petitioners and their counsel.
(Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty.
Benito P. Fabie, counsel for the respondent
corporation appeared. Neither the petitioners nor
their counsel appeared despite notice of hearing.
The lower court then issued an Order on the same
date, to wit:
ORDER
When these cases were called for continuation of
trial, Atty. Benito P. Fabie appeared before this
Court, however, the defendants and their lawyer
despite receipt of the Order setting the case for
hearing today failed to appear. On Motion of Atty.
Fabie, further cross examination of witness Victoria
Vallarta is hereby considered as having been
waived.
The plaintiff is hereby given twenty (20) days from
today within which to submit formal offer of
evidence and defendants are also given ten (10)
days from receipt of such formal offer of evidence to
file their objection thereto.
In the meantime, hearing in these cases is set to
September 29, 1986 at 10:00 o'clock in the
morning. (Original Records, p. 286)
Copies of the Order were sent and received by the
petitioners and their counsel on the following dates
— Rebecca Boyer-Roxas on August 20, 1986,
Guillermo Roxas on August 26, 1986, and Atty.
Conrado Manicad on September 19, 1986. (Original
Records, pp. 288-290)
On September 1, 1986, the respondent corporation
filed its "Formal Offer of Evidence." In an Order
dated September 29, 1986, the lower court issued
an Order admitting exhibits "A" to "M-3" submitted
by the respondent corporation in its "Formal Offer of
Evidence . . . there being no objection . . ." (Original
Records, p. 418) Copies of this Order were sent and
received by the petitioners and their counsel on the
following dates: Rebecca Boyer-Roxas on October
9, 1986; Guillermo Roxas on October 9, 1986 and
Atty. Conrado Manicad on October 4, 1986 (Original
Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did
not push through as the petitioners and their
counsel were not present prompting Atty. Benito
Fabie, the respondent corporation's counsel to
move that the cases be submitted for decision. The
lower court denied the motion and set the cases for
hearing on October 22, 1986. However, in its Order
dated September 29, 1986, the court warned that in
the event the petitioners and their counsel failed to
appear on the next scheduled hearing, the court
shall consider the cases submitted for decision
based on the evidence on record. (Original
Records, p. 429, 430 and 431)
Separate copies of this Order were sent and
received by the petitioners and their counsel on the
following dates: Rebecca Boyer-Roxas on October
9, 1986, Guillermo Roxas on October 9, 1986; and
Atty. Conrado Manicad on October 1, 1986.
(Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel
again failed to attend the scheduled October 22,
1986 hearing. Atty. Fabie representing the
respondent corporation was present. Hence, in its
Order dated October 22, 1986, on motion of Atty.
Fabie and pursuant to the order dated September
29, 1986, the Court considered the cases submitted
for decision. (Original Records, p. 436)
On November 14, 1986, the respondent
corporation, filed a "Manifestation", stating that ". . .
it is submitting without further argument its
"Opposition to the Motion for Reconsideration" for
the consideration of the Honorable Court in
resolving subject incident." (Original Records, p.
442)
On December 16, 1986, the lower court issued an
Order, to wit:
ORDER
Considering that the Court up to this date has not
received any Motion for Reconsideration filed by the
defendants in the above-entitled cases, the Court
cannot act on the Opposition to Motion for
Reconsideration filed by the plaintiff and received by
the Court on November 14, 1986. (Original
Records, p. 446)
On January 15, 1987, the lower court rendered the
questioned decision in the two (2) cases. (Original
Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the
petitioners' counsel filed an Ex-Parte Manifestation
and attached thereto, a motion for reconsideration
of the October 22, 1986 Order submitting the cases
for decision. He prayed that the Order be set aside
and the cases be re-opened for reception of
evidence for the petitioners. He averred that: 1)
within the reglementary period he prepared the
motion for reconsideration and among other
documents, the draft was sent to his law office thru
his messenger; after signing the final copies, he
caused the service of a copy to the respondent
corporation's counsel with the instruction that the
copy of the Court be filed; however, there was a
miscommunication between his secretary and
messenger in that the secretary mailed the copy for
the respondent corporation's counsel and placed
the rest in an envelope for the messenger to file the
same in court but the messenger thought that it was
the secretary who would file it; it was only later on
when it was discovered that the copy for the Court
has not yet been filed and that such failure to file the
motion for reconsideration was due to excusable
neglect and/or accident. The motion for
reconsideration contained the following allegations:
that on the date set for hearing (October 22, 1986),
he was on his way to Calamba to attend the hearing
but his car suffered transmission breakdown; and
that despite efforts to repair said transmission, the
car remained inoperative resulting in his absence at
the said hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion
for reconsideration of the January 15, 1987
decision. He explained that he had to file the motion
because the receiving clerk refused to admit the
motion for reconsideration attached to the ex-parte
manifestation because there was no proof of service
to the other party. Included in the motion for
reconsideration was a notice of hearing of the
motion on February 3, 1987. (Original Records, p.
476-A)
On February 4, 1987, the respondent corporation
through its counsel filed a Manifestation and Motion
manifesting that they received the copy of the
motion for reconsideration only today (February 4,
1987), hence they prayed for the postponement of
the hearing. (Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court
issued an Order setting the hearing on February 13,
1987 on the ground that it received the motion for
reconsideration late. Copies of this Order were sent
separately to the petitioners and their counsel. The
records show that Atty. Manicad received his copy
on February 11, 1987. As regards the petitioners,
the records reveal that Rebecca Boyer-Roxas did
not receive her copy while as regards Guillermo
Roxas, somebody signed for him but did not
indicate when the copy was received. (Original
Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the
counsels for the parties were present. However, the
hearing was reset for March 6, 1987 in order to
allow the respondent corporation to file its
opposition to the motion for reconsideration. (Order
dated February 13, 1987, Original Records, p. 486)
Copies of the Order were sent and received by the
petitioners and their counsel on the following dates:
Rebecca Boyer-Roxas on February 23, 1987;
Guillermo Roxas on February 23, 1987 and Atty.
Manicad on February 19, 1987. (Original Records,
pp. 487, 489-490)
The records are not clear as to whether or not the
scheduled hearing on March 6, 1987 was held.
Nevertheless, the records reveal that on March 13,
1987, the lower court issued an Order denying the
motion for reconsideration.
The well-settled doctrine is that the client is bound
by the mistakes of his lawyer. (Aguila v. Court of
First Instance of Batangas, Branch I, 160 SCRA 352
[1988]; See also Vivero v. Santos, et al., 98 Phil.
500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951];
Montes v. Court of First Instance of Tayabas, 48
Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167
[1922]; United States v. Dungca, 27 Phil. 274
[1914]; and United States v. Umali, 15 Phil. 33
[1910]) This rule, however, has its exceptions. Thus,
in several cases, we ruled that the party is not
bound by the actions of his counsel in case the
gross negligence of the counsel resulted in the
client's deprivation of his property without due
process of law. In the case of Legarda v. Court of
Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco
and Escasa (12 SCRA 471 [1964]), this Court ruled
as follows:
Procedural technicality should not be made a bar to
the vindication of a legitimate grievance. When such
technicality deserts from being an aid to Justice, the
courts are justified in excepting from its operation a
particular case. Where there was something fishy
and suspicious about the actuations of the former
counsel of petitioners in the case at bar, in that he
did not give any significance at all to the processes
of the court, which has proven prejudicial to the
rights of said clients, under a lame and flimsy
explanation that the court's processes just escaped
his attention, it is held that said lawyer deprived his
clients of their day in court, thus entitling said clients
to petition for relief from judgment despite the lapse
of the reglementary period for filing said period for
filing said petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]),
this Court, in holding that the counsel's blunder in
procedure is an exception to the rule that the client
is bound by the mistakes of counsel, made the
following disquisition:
Petitioners contend, through their new counsel, that
the judgment rendered against them by the
respondent court was null and void, because they
were therein deprived of their day in court and
divested of their property without due process of
law, through the gross ignorance, mistake and
negligence of their previous counsel. They
acknowledge that, while as a rule, clients are bound
by the mistake of their counsel, the rule should not
be applied automatically to their case, as their trial
counsel's blunder in procedure and gross ignorance
of existing jurisprudence changed their cause of
action and violated their substantial rights.
We are impressed with petitioner's contentions.
xxx xxx xxx
While this Court is cognizant of the rule that,
generally, a client will suffer consequences of the
negligence, mistake or lack of competence of his
counsel, in the interest of Justice and equity,
exceptions may be made to such rule, in
accordance with the facts and circumstances of
each case. Adherence to the general rule would, in
the instant case, result in the outright deprivation of
their property through a technicality.
In its questioned decision dated November 19, 1989
the Court of Appeals found, in no uncertain terms,
the negligence of the then counsel for petitioners
when he failed to file the proper motion to dismiss or
to draw a compromise agreement if it was true that
they agreed on a settlement of the case; or in
simply filing an answer; and that after having been
furnished a copy of the decision by the court he
failed to appeal therefrom or to file a petition for
relief from the order declaring petitioners in default.
In all these instances the appellate court found said
counsel negligent but his acts were held to bind his
client, petitioners herein, nevertheless.
The Court disagrees and finds that the negligence
of counsel in this case appears to be so gross and
inexcusable. This was compounded by the fact, that
after petitioner gave said counsel another chance to
make up for his omissions by asking him to file a
petition for annulment of the judgment in the
appellate court, again counsel abandoned the case
of petitioner in that after he received a copy of the
adverse judgment of the appellate court, he did not
do anything to save the situation or inform his client
of the judgment. He allowed the judgment to lapse
and become final. Such reckless and gross
negligence should not be allowed to bind the
petitioner. Petitioner was thereby effectively
deprived of her day in court. (at pp. 426-427)
The herein petitioners, however, are not similarly
situated as the parties mentioned in the abovecited
cases. We cannot rule that they, too, were victims of
the gross negligence of their counsel.
The petitioners are to be blamed for the October 22,
1986 order issued by the lower court submitting the
cases for decision. They received notices of the
scheduled hearings and yet they did not do
anything. More specifically, the parties received
notice of the Order dated September 29, 1986 with
the warning that if they fail to attend the October 22,
1986 hearing, the cases would be submitted for
decision based on the evidence on record. Earlier,
at the scheduled hearing on September 29, 1986,
the counsel for the respondent corporation moved
that the cases be submitted for decision for failure
of the petitioners and their counsel to attend despite
notice. The lower court denied the motion and gave
the petitioners and their counsel another chance by
rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their
counsel was not attending the scheduled hearings.
They did not take steps to change their counsel or
make him attend to their cases until it was too late.
On the contrary, they continued to retain the
services of Atty. Manicad knowing fully well his
lapses vis-a-vis their cases. They, therefore, cannot
raise the alleged gross negligence of their counsel
resulting in their denial of due process to warrant
the reversal of the lower court's decision. In a
similar case, Aguila v. Court of First Instance of
Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have
noticed the succession of errors committed by his
counsel and taken appropriate steps for his
replacement before it was altogether too late. He
did not. On the contrary, he continued to retain his
counsel through the series of proceedings that all
resulted in the rejection of his cause, obviously
through such counsel's "ineptitude" and, let it be
added, the clients' forbearance. The petitioner's
reverses should have cautioned him that his lawyer
was mishandling his case and moved him to seek
the help of other counsel, which he did in the end
but rather tardily.
Now petitioner wants us to nullify all of the
antecedent proceedings and recognize his earlier
claims to the disputed property on the justification
that his counsel was grossly inept. Such a reason is
hardly plausible as the petitioner's new counsel
should know. Otherwise, all a defeated party would
have to do to salvage his case is claim neglect or
mistake on the part of his counsel as a ground for
reversing the adverse judgment. There would be no
end to litigation if these were allowed as every
shortcoming of counsel could be the subject of
challenge by his client through another counsel
who, if he is also found wanting, would likewise be
disowned by the same client through another
counsel, and so on ad infinitum. This would render
court proceedings indefinite, tentative and subject to
reopening at any time by the mere subterfuge of
replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners
maintain that their possession of the questioned
properties must be respected in view of their
ownership of an aliquot portion of all the properties
of the respondent corporation being stockholders
thereof. They propose that the veil of corporate
fiction be pierced, considering the circumstances
under which the respondent corporation was
formed.
Originally, the questioned properties belonged to
Eugenia V. Roxas. After her death, the heirs of
Eugenia V. Roxas, among them the petitioners
herein, decided to form a corporation — Heirs of
Eugenia V. Roxas, Incorporated (private respondent
herein) with the inherited properties as capital of the
corporation. The corporation was incorporated on
December 4, 1962 with the primary purpose of
engaging in agriculture to develop the inherited
properties. The Articles of Incorporation of the
respondent corporation were amended in 1971 to
allow it to engage in the resort business.
Accordingly, the corporation put up a resort known
as Hidden Valley Springs Resort where the
questioned properties are located.
These facts, however, do not justify the position
taken by the petitioners.
The respondent is a bona fide corporation. As such,
it has a juridical personality of its own separate from
the members composing it. (Western Agro Industrial
Corporation v. Court of Appeals, 188 SCRA 709
[1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163
SCRA 205 [1988]; Yutivo Sons Hardware Company
v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio
Cano Enterprises, Inc. v. Court of Industrial
Relations, 13 SCRA 290 [1965]) There is no dispute
that title over the questioned land where the Hidden
Valley Springs Resort is located is registered in the
name of the corporation. The records also show that
the staff house being occupied by petitioner
Rebecca Boyer-Roxas and the recreation hall which
was later on converted into a residential house
occupied by petitioner Guillermo Roxas are owned
by the respondent corporation. Regarding
properties owned by a corporation, we stated in the
case of Stockholders of F. Guanzon and Sons, Inc.
v. Register of Deeds of Manila, (6 SCRA 373
[1962]):
xxx xxx xxx
. . . Properties registered in the name of the
corporation are owned by it as an entity separate
and distinct from its members. While shares of stock
constitute personal property, they do not represent
property of the corporation. The corporation has
property of its own which consists chiefly of real
estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A
share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its
proceeds to that extent when distributed according
to law and equity (Hall & Faley v. Alabama
Terminal, 173 Ala., 398, 56 So. 235), but its holder
is not the owner of any part of the capital of the
corporation (Bradley v. Bauder, 36 Ohio St., 28).
Nor is he entitled to the possession of any definite
portion of its property or assets (Gottfried V. Miller,
104 U.S., 521; Jones v. Davis, 35 Ohio St., 474).
The stockholder is not a co-owner or tenant in
common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-
376)
The petitioners point out that their occupancy of the
staff house which was later used as the residence
of Eriberto Roxas, husband of petitioner Rebecca
Boyer-Roxas and the recreation hall which was
converted into a residential house were with the
blessings of Eufrocino Roxas, the deceased
husband of Eugenia V. Roxas, who was the majority
and controlling stockholder of the corporation. In his
lifetime, Eufrocino Roxas together with Eriberto
Roxas, the husband of petitioner Rebecca Boyer-
Roxas, and the father of petitioner Guillermo Roxas
managed the corporation. The Board of Directors
did not object to such an arrangement. The
petitioners argue that . . . the authority thus given by
Eufrocino Roxas for the conversion of the recreation
hall into a residential house can no longer be
questioned by the stockholders of the private
respondent and/or its board of directors for they
impliedly but no leas explicitly delegated such
authority to said Eufrocino Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent
corporation has a distinct personality separate from
its members. The corporation transacts its business
only through its officers or agents. (Western Agro
Industrial Corporation v. Court of Appeals, supra).
Whatever authority these officers or agents may
have is derived from the board of directors or other
governing body unless conferred by the charter of
the corporation. An officer's power as an agent of
the corporation must be sought from the statute,
charter, the by-laws or in a delegation of authority to
such officer, from the acts of the board of directors,
formally expressed or implied from a habit or
custom of doing business. (Vicente v. Geraldez, 52
SCRA 210 [1973])
In the present case, the record shows that Eufrocino
V. Roxas who then controlled the management of
the corporation, being the majority stockholder,
consented to the petitioners' stay within the
questioned properties. Specifically, Eufrocino Roxas
gave his consent to the conversion of the recreation
hall to a residential house, now occupied by
petitioner Guillermo Roxas. The Board of Directors
did not object to the actions of Eufrocino Roxas.
The petitioners were allowed to stay within the
questioned properties until August 27, 1983, when
the Board of Directors approved a Resolution
ejecting the petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo
Roxas, and all persons claiming under them, be
ejected from their occupancy of the Hidden Valley
Springs compound on which their houses have
been constructed and/or are being constructed only
on tolerance of the Corporation and without any
contract therefor, in order to give way to the
Corporation's expansion and improvement program
and obviate prejudice to the operation of the Hidden
Valley Springs Resort by their continued
interference.
RESOLVED, Further that the services of Atty.
Benito P. Fabie be engaged and that he be
authorized as he is hereby authorized to effect the
ejectment, including the filing of the corresponding
suits, if necessary to do so. (Original Records, p.
327)
We find nothing irregular in the adoption of the
Resolution by the Board of Directors. The
petitioners' stay within the questioned properties
was merely by tolerance of the respondent
corporation in deference to the wishes of Eufrocino
Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions
could not have bound the corporation forever. The
petitioners have not cited any provision of the
corporation by-laws or any resolution or act of the
Board of Directors which authorized Eufrocino
Roxas to allow them to stay within the company
premises forever. We rule that in the absence of
any existing contract between the petitioners and
the respondent corporation, the corporation may
elect to eject the petitioners at any time it wishes for
the benefit and interest of the respondent
corporation.
The petitioners' suggestion that the veil of the
corporate fiction should be pierced is untenable.
The separate personality of the corporation may be
disregarded only when the corporation is used "as a
cloak or cover for fraud or illegality, or to work
injustice, or where necessary to achieve equity or
when necessary for the protection of the creditors."
(Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347
[1976] cited in Tan Boon Bee & Co., Inc., v.
Jarencio, supra and Western Agro Industrial
Corporation v. Court of Appeals, supra) The
circumstances in the present cases do not fall under
any of the enumerated categories.
In the third assignment of error, the petitioners insist
that as regards the unfinished building, Rebecca
Boyer-Roxas is a builder in good faith.
The construction of the unfinished building started
when Eriberto Roxas, husband of Rebecca Boyer-
Roxas, was still alive and was the general manager
of the respondent corporation. The couple used
their own funds to finance the construction of the
building. The Board of Directors of the corporation,
however, did not object to the construction. They
allowed the construction to continue despite the fact
that it was within the property of the corporation.
Under these circumstances, we agree with the
petitioners that the provision of Article 453 of the
Civil Code should have been applied by the lower
courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of the
person who built, planted or sown on the land of
another but also on the part of the owner of such
land, the rights of one and the other shall be the
same as though both had acted in good faith.
In such a case, the provisions of Article 448 of the
Civil Code govern the relationship between
petitioner Rebecca-Boyer-Roxas and the
respondent corporation, to wit:
Art. 448 — The owner of the land on which anything
has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works,
sowing or planting after payment of the indemnity
provided for in articles 546 and 548, or to oblige the
one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the
building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not
choose to appropriate the buildings or trees after
proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the
court shall fix the terms thereof.
WHEREFORE, the present petition is partly
GRANTED. The questioned decision of the Court of
Appeals affirming the decision of the Regional Trial
Court of Laguna, Branch 37, in RTC Civil Case No.
802-84-C is MODIFIED in that subparagraphs (c)
and (d) of Paragraph 1 of the dispositive portion of
the decision are deleted. In their stead, the
petitioner Rebecca Boyer-Roxas and the
respondent corporation are ordered to follow the
provisions of Article 448 of the Civil Code as
regards the questioned unfinished building in RTC
Civil Case No. 802-84-C. The questioned decision
is affirmed in all other respects.
SO ORDERED.
People's Aircargo and Warehousing Co. Inc. vs.
Court of Appeals
[GR 117847, 7 October 1998]
First Division, Panganiban (J): 4 concur
Facts: People's Aircargo and Warehousing Co. Inc.
(PAWCI) is a domestic corporation, which was
organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila
International Airport in Pasay City. To obtain a
license for the corporation from the Bureau of
Customs, Antonio Punsalan Jr., the corporation
president, solicited a proposal from Stefani Saño for
the preparation of a feasibility study. Saño
submitted a letter-proposal dated 17 October 1986
("First Contract") to Punsalan, for the project
feasibility study (market, technical, and financial
feasibility) and preparation of pertinent
documentation requirements for the application,
worth P350,000. Initially, Cheng Yong, the majority
stockholder of PAWCI, objected to Saño's offer, as
another company priced a similar proposal at only
P15,000. However, Punsalan preferred Saño's
services because of the latter's membership in the
task force, which was supervising the transition of
the Bureau of Customs from the Marcos
government to the Aquino Administration. On 17
October 1986, PAWCI, through Punsalan, sent
Saño a letter confirming their agreement.
Accordingly, Saño prepared a feasibility study for
PAWCI which eventually paid him the balance of
the contract price, although not according to the
schedule agreed upon. On 4 December 1986, upon
Punsalan's request, Saño sent PAWCI another
letter-proposal ("Second Contract") formalizing its
proposal for consultancy services in the amount of
P400,000. On 10 January 1987, Andy Villaceren,
vice president of PAWCI, received the operations
manual prepared by Saño. PAWCI submitted said
operations manual to the Bureau of Customs in
connection with the former's application to operate a
bonded warehouse; thereafter, in May 1987, the
Bureau issued to it a license to operate, enabling it
to become one of the three public customs bonded
warehouses at the international airport. Saño also
conducted, in the third week of January 1987 in the
warehouse of PAWCI, a three-day training seminar
for the latter's employees. On 25 March 1987, Saño
joined the Bureau of Customs as special assistant
to then Commissioner Alex Padilla, a position he
held until he became technical assistant to then
Commissioner Miriam Defensor-Santiago on 7
March 1988. Meanwhile, Punsalan sold his shares
in PAWCI and resigned as its president in 1987. On
9 February 1988, Saño filed a collection suit against
PAWCI. He alleged that he had prepared an
operations manual for PAWCI, conducted a
seminar-workshop for its employees and delivered
to it a computer program; but that, despite demand,
PAWCI refused to pay him for his services. PAWCI,
in its answer, denied that Saño had prepared an
operations manual and a computer program or
conducted a seminar-workshop for its employees. It
further alleged that the letter-agreement was signed
by Punsalan without authority, in collusion with
Saño in order to unlawfully get some money from
PAWCI, and despite his knowledge that a group of
employees of the company had been commissioned
by the board of directors to prepare an operations
manual. The Regional Trial Court (RTC) of Pasay
City, Branch 110, rendered a Decision dated 26
October 1990 declared the Second Contract
unenforceable or simulated. However, since Saño
had actually prepared the operations manual and
conducted a training seminar for PAWCI and its
employees, the trial court awarded P60,000 to the
former, on the ground that no one should be
unjustly enriched at the expense of another (Article
2142, Civil Code). The trial Court determined the
amount "in light of the evidence presented by
defendant on the usual charges made by a leading
consultancy firm on similar services." Upon appeal,
and on 28 February 1994, the appellate court
modified the decision of the trial court, and declared
the Second Contract valid and binding on PAWCI,
which was held liable to Saño in the full amount of
P400,000, representing payment of Saño services
in preparing the manual of operations and in the
conduct of a seminar for PAWCI. As no new ground
was raised by PAWCI, reconsideration of the
decision was denied in the Resolution promulgated
on 28 October 1994. PAWCI filed the Petition for
Review.
Issue: Whether a single instance where the
corporation had previously allowed its president to
enter into a contract with another without a board
resolution expressly authorizing him, has clothed its
president with apparent authority to execute the
subject contract.
Held: Apparent authority is derived not merely from
practice. Its existence may be ascertained through
(1) the general manner in which the corporation
holds out an officer or agent as having the power to
act or, in other words, the apparent authority to act
in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers. It
requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a
corporate officer with the power to bind the
corporation. Herein, PAWCI, through its president
Antonio Punsalan Jr., entered into the First Contract
without first securing board approval. Despite such
lack of board approval, PAWCI did not object to or
repudiate said contract, thus "clothing" its president
with the power to bind the corporation. The grant of
apparent authority to Punsalan is evident in the
testimony of Yong — senior vice president,
treasurer and major stockholder of PAWCI. The
First Contract was consummated, implemented and
paid without a hitch. Hence, Sano should not be
faulted for believing that Punsalan's conformity to
the contract in dispute was also binding on
petitioner. It is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent
authority, it holds him out to the public as
possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agent's authority.
Furthermore, Saño prepared an operations manual
and conducted a seminar for the employees of
PAWCI in accordance with their contract. PAWCI
accepted the operations manual, submitted it to the
Bureau of Customs and allowed the seminar for its
employees. As a result of its aforementioned
actions, PAWCI was given by the Bureau of
Customs a license to operate a bonded warehouse.
Granting arguendo then that the Second Contract
was outside the usual powers of the president,
PAWCI's ratification of said contract and
acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under
Article 1403(2) is ratified "by the acceptance of
benefits under them" under Article 1405.
G.R. No. L-20451 December 28, 1964
R. F. SUGAY and CO., INC., petitioner,
vs.
PABLO C. REYES, CESAR CURATA, PACIFIC
PRODUCTS, INC., and WORKMEN'S
COMPENSATION COMMISSION, respondents.
Facts:
Respondents Pablo Reyes and Cesar Curata
suffered burns of various degrees, while painting
the building of the Pacific Products, Inc., caused by
a fire of accidental origin, resulting in their
temporary disability from work.
For said injuries they filed claims for disability and
medical expenses against the R. F. Sugay & Co.,
Inc., Romulo F. Sugay and the Pacific Products, Inc.
The R. F. Sugay & Co., Inc., answered the claim,
alleging that the corporation was not the employer
of the claimants but it was the Pacific Products, Inc.,
which had an administration and supervision job
contract with Romulo F. Sugay, who, aside from
being the President of the corporation, bearing his
name, had also a business of his own, distinct and
separate from said corporation; and that the
Regional Office of the Department of Labor had no
jurisdiction over the subject matter.
Romulo F. Sugay did not file an Answer, but
voluntarily appeared during the hearing and
disclaimed liability.
The Answer of Pacific Products, Inc., contained the
customary admissions and denials, and averred that
its business was mainly in the manufacture and sale
of lacquer and other painting materials. As
defenses, it stated that the claimants were the
employees of respondents R. F. Sugay
Construction Co., Inc., and/or Romulo F. Sugay that
as a result of the, fire, it incurred a loss of
P2,000,000.00, occasioned by the employment of
incompetent men in the painting of its factory by the
Sugays.
The Hearing Officer dismissed the case with
respect, to R. F. Sugay & Co., Inc., and Romulo F.
Sugay "for want of employer-employee relationship
with the claimants, either directly or through an
independent contractor and adjudged Pacific
Products, Inc., is to pay claimant for the benefits.
Pacific Products, Inc., appealed the above decision
to the Commission. Commissioner Jose Sanchez
rendered judgment affirming the compensability of
the injuries and the amounts due them, but modified
the decision of the Hearing Officer, by finding that
R. F. Sugay & Co., Inc., was the statutory employer
of the claimants and should be liable to them.
Pacific Products, Inc., was absolved from all
responsibility.
The Commission en banc denied the motion for
reconsideration stating that there was "nothing to
warrant a modification much less a reversal, of the
decision sought to be reviewed."
In the appeal of R. F. Sugay & Co., to this Court, it
is insisted that Pacific Products, Inc. was the
employer of the claimants.
Issue:
W/N Pacific Products is the employer of the
claimants.
Ruling: No.
R. F. Sugay & Co., is the statutory employer of the
claimants. The decisive elements showing that it is
the employer, are present, such as selection and
engagement; payment of wages; power of
dismissal, and control. These powers were lodged
in R. F. Sugay & Co. On this very score alone, the
petition for review should be dismissed.
There was a faint attempt by the petitioning
corporation, to evade liability, by advancing the
theory that Romulo P. Sugay, its President, was the
one who entered into a contract of administration
and supervision for the painting of the factory of the
Pacific Products, Inc., and making it appear that
said Romulo F. Sugay acted as an agent of the
Pacific Products, Inc., and as such, the latter should
be made answerable to the compensation due to
the claimants.
We, however, agree with the Commission that "the
dual roles of Romulo F. Sugay should not be
allowed to confuse the facts relating to employer-
employee relationship." It is a legal truism that when
the veil of corporate fiction is made as a shield to
perpetrate a fraud and/or confuse legitimate issues
(here, the relation of employer-employee), the same
should be pierced. Verily the R. F. Sugay & Co., Inc.
is a business conduit of R. F. Sugay.
MANUEL A. TORRES, JR., (Deceased),
GRACIANO J. TOBIAS, RODOLFO L. JOCSON,
JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS
CESAR AZURA and EDGARDO D. PABALAN
vs.
COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION, TORMIL REALTY &
DEVELOPMENT CORPORATION, ANTONIO P.
TORRES, JR., MA. CRISTINA T. CARLOS, MA.
LUISA T. MORALES and DANTE D. MORALES.
G.R. No. 120138 September 5,
1997
FACTS:
The late Manuel A. Torres, Jr. was the
major stockholder of Tormil Realty & Development
Corporation while private respondents who are the
children of Judge Torres' deceased brother Antonio
A. Torres, constituted the minority stockholders. In
particular, their respective shareholdings and
positions in the corporation.
In 1984, Judge Torres, in order to make
substantial savings in taxes, adopted an "estate
planning" scheme under which he assigned to
Tormil Realty & Development Corporation (Tormil
for brevity) various real properties he owned and his
shares of stock in other corporations in exchange
for 225,972 Tormil Realty shares. Hence, on various
dates in July and August of 1984, ten (10) deeds of
assignment were executed by the late Judge
Torres.Consequently, the aforelisted properties
were duly recorded in the inventory of assets of
Tormil Realty and the revenues generated by the
said properties were correspondingly entered in the
corporation's books of account and financial
records.
Due to the insufficient number of shares of
stock issued to Judge Torres and the alleged
refusal of private respondents to approve the
needed increase in the corporation's authorized
capital stock (to cover the shortage of 972 shares
due to Judge Torres under the "estate planning"
scheme), on 11 September 1986, Judge Torres
revoked the two (2) deeds of assignment covering
the properties in Makati and Pasay City.
ISSUE:
Whether or not the deed of assignment
executed can be revoked.
RULING:
NO.
 The shortage of 972 shares would not be
valid ground for respondent Torres to unilaterally
revoke the deeds of assignment he had executed
on July 13, 1984 and July 24, 1984 wherein he
voluntarily assigned to TORMIL real properties
covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively. A
comparison of the number of shares that
respondent Torres received from TORMIL by virtue
of the "deeds of assignment" and the stock
certificates issued by the latter to the former readily
shows that TORMIL had substantially performed
what was expected of it. In fact, the first two
issuances were in satisfaction to the properties
being revoked by respondent Torres. Hence, the
shortage of 972 shares would never be a valid
ground for the revocation of the deeds covering
Pasay and Quezon City properties.
Moreover, we agree with the contention of
the Solicitor General that the shortage of shares
should not have affected the assignment of the
Makati and Pasay City properties which were
executed in 13 and 24 July 1984 and the
consideration for which have been duly paid or
fulfilled but should have been applied logically to the
last assignment of property — Judge Torres' Ayala
Fund shares — which was executed on 29 August
1984.
JULIETA V. ESGUERRA
vs.
COURT OF APPEALS and SURESTE
PROPERTIES, INC.
G.R. No. 119310. February 3, 1997
FACTS:
Julieta Esguerra filed a complaint for
administration of conjugal partnership or separation
of property against her husband Vicente Esguerra,
Jr. and V. Esguerra Construction Co., Inc. (VECCI)
and other family corporations as defendants before
the trial court.
The parties entered into a compromise
agreement. By virtue of said agreement, Esguerra
Bldg. I was sold and the net proceeds distributed
according to the agreement. The controversy arose
with respect to Esguerra Building II. Herein
petitioner started claiming one-half of the rentals of
the said building which VECCI refused. Thus,
petitioner filed a motion with respondent court
praying that VECCI be ordered to remit one-half of
the rentals to her. The trial court ruled in favor of
petitioner.
Meanwhile, Esguerra Bldg. II was sold to
private respondent Sureste Properties. Inc. for
P150,000,000.00 prompting Julieta V. Esguerra to
file a motion seeking the nullification of the sale on
the ground that VECCI is not the lawful and
absolute owner thereof and that she has not been
notified nor consulted as to the terms and conditions
of the sale. The trial court ruled that the sale to
Sureste was valid.
ISSUES:
Whether or not the sale of Esguerra
Building II is a valid exercise of corporate power.
RULING:
YES.
VECCI's sale of all the properties
mentioned in the judicially-approved compromise
agreement was done on the basis of its Corporate
Secretary's Certification of these two resolutions.
The partial decision did not require any further
board or stockholder resolutions to make VECCI's
sale of these properties valid. Being regular on its
face, the Secretary's Certification was sufficient for
private respondent Sureste Properties, Inc. to rely
on. It did not have to investigate the truth of the
facts contained in such certification. Otherwise,
business transactions of corporations would
become tortuously slow and unnecessarily
hampered. Ineluctably, VECCI's sale of Esguerra
Building II to private respondent was not ultra vires
but a valid execution of the trial court's partial
decision.
Based on the foregoing, the sale is also
deemed to have satisfied the requirements of
Section 40 of the Corporation Code.
JULIETA V. ESGUERRA, petitioner,
vs.
COURT OF APPEALS and SURESTE
PROPERTIES, INC., respondents
Julieta Esguerra filed a complaint for administration
of conjugal partnership or separation of property
against her husband Vicente Esguerra, Jr. The said
complaint was later amended on 31 October 1985
impleading V. Esguerra Construction Co., Inc.
(VECCI for brevity) and other family corporations as
defendants.
The parties entered into a compromise agreement
which was submitted to the court.
On the basis of the said agreement, the court
rendered two partial judgments: one between
Vicente and Julieta and the other as between the
latter and VECCI. The compromise agreement
between Julieta and VECCI provides that VECCI
shall sell/alienate/transfer or dispose of some of its
properties under the terms and conditions recited in
the enabling resolutions of its Board of Directors.
By virtue of said agreement, Esguerra Bldg. I was
sold and the net proceeds distributed according to
the agreement.
The controversy arose with respect to Esguerra
Building II. Julieta started claiming one-half of the
rentals of the said building which VECCI refused.
Thus, Julieta filed a motion with respondent court
praying that VECCI be ordered to remit one-half of
the rentals to until the same be sold. VECCI
opposed said motion.
Trial court ruled in favor of herein petitioner
Meanwhile, Esguerra Bldg. II was sold to herein
private respondent Sureste Properties. Inc. for
P150,000,000.00. Julieta filed a motion seeking the
nullification of the sale on the ground that VECCI is
not the lawful and absolute owner thereof and that
she has not been notified nor consulted as to the
terms and conditions of the sale.
Sureste filed a Manifestation pointing out that in the
compromise agreement, Julieta gave her express
consent to the sale of the said building.
RTC rendered its order ruling that the sale of
Esguerra Bldg. II to Sureste Properties, Inc. is
declared valid with respect to one-half of the value
thereof but ineffectual and unenforceable with
respect to the other half as the acknowledged
owner of said portion was not consulted as to the
terms and conditions of the sale.
Petitioner filed this petition alleging that the trial
court acted without jurisdiction and/or abused its
discretion when it held that the questioned sale of
the property ineffectual and unenforceable as to
herein petitioner's one-half (1/2) ownership/interest
in the property since the sale was made without her
knowledge and consent. BECAUSE No proper
corporate action of VECCI was made to effect such
sale as required under the compromise agreement;
ISSUE:
Is the corporate secretary's certification of the
shareholders' and directors resolution
authorizing such sale sufficient, or does the
buyer need to go behind such certification and
investigate further the truth and veracity
thereof?
RULING:
The Civil Code provides that a contract is
unenforceable when it is ". . . entered into in the
name of another person by one who has been given
no authority or legal representation, or who has
acted beyond his powers." And that "(a) contract
entered into in the name of another by one who has
no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, . .
." After a thorough review of the case at bench, the
Court finds the sale of Esguerra Building II by
VECCI to private respondent Sureste Properties,
Inc. valid. The sale was expressly and clearly
authorized under the judicially-approved
compromise agreement freely consented to and
voluntarily signed by petitioner Julieta Esguerra.
Thus, petitioner's contention that the sale is
unenforceable as to her share for being
unauthorized is plainly incongruous with the express
authority granted by the compromise agreement to
VECCI, which specified no condition that the latter
shall first consult with the former prior to selling any
of the properties listed there. As astutely and
correctly found by the appellate Court:
The compromise agreement entered between
private respondent (Julieta Esguerra) and
VECCI, which was approved by the court,
expressly provides, among others, that the latter
shall sell or otherwise dispose of certain
properties, among them, Esguerra Bldgs. I and
II, and fifty (50%) percent of the net proceeds
thereof to be given to the former. Pursuant to
said agreement, VECCI sold the buildings. . . .
. . . The compromise agreement expressly
authorizes VECCI to sell the subject properties,
with the only condition that the sale be in a lawful
and convenient manner and under the terms and
conditions recited in the enabling resolutions of
its Board of Directors and stockholders. There is
nothing in the said agreement requiring VECCI
to consult the private respondent (Julieta
Esguerra) before any sale (can be concluded).
Thus, when VECCI sold the property to (Sureste
Properties, Inc.) as agreed upon, it need not
consult the private respondent
VECCI'S Sale of Esguerra
Building II A Valid Exercise of Corporate
Power
Petitioner contends that VECCI violated the
condition in the compromise agreement requiring
that the sale be made "under the terms and
conditions recited in the enabling resolutions of its
Board of Directors and stockholders. She rues that
no shareholders' or directors' meeting, wherein
these resolutions were passed, was actually held.
She thus bewails this sale as improper for not
having complied with the requirements mandated by
Section 40 of the Corporation Code.
Petitioner's contention is plainly unmeritorious. The
trial court's partial decision dated January 11, 1990
approving the compromise agreement clearly
showed that the "enabling resolutions of its
(VECCI's) board of directors and stockholders"
referred to were those then already existing; to wit:
(1) "the resolution of the stockholders of VECCI
dated November 9, 1989, (where) the stockholders
authorized VECCI to sell and/or disposed all or
substantially all its property and assets upon such
terms and conditions and for such consideration as
the board of directors may deem expedient." 24 (2)
the "resolution dated 9 November 1989, (where) the
board of directors of VECCI authorized VECCI to
sell and/or dispose all or substantially all the
property and assets of the corporation, at the
highest available price/s they could be sold or
disposed of in cash, and in such manner as may be
held convenient under the circumstances, and
authorized the President Vicente B. Esguerra. Jr. to
negotiate. contract, execute and sign such sale for
and in behalf of the corporation."
VECCI's sale of all the properties mentioned in
the judicially-approved compromise agreement
was done on the basis of its Corporate
Secretary's Certification of these two
resolutions. The partial decision did not require
any further board or stockholder resolutions to
make VECCI's sale of these properties valid.
Being regular on its face, the Secretary's
Certification was sufficient for private
respondent Sureste Properties, Inc. to rely on. It
did not have to investigate the truth of the facts
contained in such certification. Otherwise,
business transactions of corporations would
become tortuously slow and unnecessarily
hampered.
Ineluctably, VECCI's sale of Esguerra Building II to
private respondent was not ultra vires but a valid
execution of the trial court's partial decision. Based
on the foregoing, the sale is also deemed to have
satisfied the requirements of Section 40 of the
Corporation Code.
Furthermore, petitioner Julieta Esguerra is estopped
from contesting the validity of VECCI's corporate
action in selling Esguerra Building II on the basis of
said resolutions and certification because she never
raised this issue in VECCI's prior sales of the other
properties sold including the Esguerra Building I.
The same identical resolutions and certification
were used in such prior sales.
SALOME PABON and VICENTE CAMONAYAN
vs.
NATIONAL LABOR RELATIONS COMMISSION
and SENIOR MARKETING CORPORATION
G.R. No. 120457 September 24, 1998
FACTS:
On May 24, 1994 and June 22, 1994,
complaints for illegal dismissal and non-payment of
benefits were filed by petitioners Salome Pabon and
Vicente Camonayan against private respondent
Senior Marketing Corporation (SMC) and its Field
Manager, R-Jay Roxas Summons and notices of
hearings were sent to Roxas at private respondent's
provincial office in 13 Valley Homes, Patul Road,
Santiago, Isabela which were received by its
bookkeeper, Mina Villanueva.
On September 15, 1994, the Labor Arbiter
rendered a judgment by default after finding that
private respondent tried to evade all the summons
and orders of hearing by refusing to claim all the
registered mail addressed to it.
ISSUE:
Whether or not Petitioners herein are
authorized to receive summons in behalf of the
corporation.
RULING:
YES.
Bookkeeper can be considered as an agent
of private respondent corporation within the purview
of Section 13, Rule 14 of the old Rules of Court.
The rationale of all rules with respect to service of
process on a corporation is that such service must
be made to an agent or a representative so
integrated with the corporation sued as to make it a
priori supposable that he will realize his
responsibilities and know what he should do with
any legal papers served on him. The bookkeeper's
task is one under consideration. The job of a
bookkeeper is so integrated with the corporation
that his regular recording of the corporation's
"business accounts" and "essential facts about the
transactions of a business or enterprise" safeguards
the corporation from possible fraud being committed
adverse to its own corporate interest.
Although it may be true that the service of
summons was made on a person not authorized to
receive the same in behalf of the petitioner,
nevertheless since it appears that the summons and
complaint were in fact received by the corporation
through its said clerk, the Court finds that there was
substantial compliance with the rule on service of
summons. Indeed the purpose of said rule as above
stated to assure service of summons on the
corporation had thereby been attained. The need for
speedy justice must prevail over technicality.
Villa Rey Transit vs. Ferrer
[GR L-23893, 29 October 1968]
En Banc, Angeles (J): 6 concur, 2 took no part, 1 on
leave
Facts: [preceding case] Prior to 1959, Jose M.
Villarama was an operator of a bus transportation,
under the business name of Villa Rey Transit,
pursuant to certificates of public convenience
granted him by the Public Service Commission
(PSC) in Cases 44213 and 104651, which
authorized him to operate a total of 32 units on
various routes or lines from Pangasinan to Manila,
and vice-versa. On 8 January 1959, he sold the two
certificates of public convenience to the Pangasinan
Transportation Company, Inc. (Pantranco), for
P350,000.00 with the condition, among others, that
the seller (Villarama) "shall not for a period of 10
years from the date of this sale, apply for any TPU
service identical or competing with the buyer."
Barely 3 months thereafter, or on 6 March 1959: a
corporation called Villa Rey Transit, Inc. (the
Corporation) was organized with a capital stock of
P500,000.00 divided into 5,000 shares of the par
value of P100.00 each; P200,000.00 was the
subscribed stock; Natividad R. Villarama (wife of
Jose M. Villarama) was one of the incorporators,
and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed
capital stock, P105,000.00 was paid to the treasurer
of the corporation, who was Natividad R. Villarama.
In less than a month after its registration with the
Securities and Exchange Commission (10 March
1959), the Corporation, on 7 April 1959, bought 5
certificates of public convenience, 49 buses, tools
and equipment from one Valentin Fernando, for the
sum of P249,000.00, of which P100,000.00 was
paid upon the signing of the contract; P50,000.00
was payable upon the final approval of the sale by
the PSC; P49,500.00 one year after the final
approval of the sale; and the balance of P50,000.00
"shall be paid by the BUYER to the different
suppliers of the SELLER." The very same day that
the contract of sale was executed, the parties
thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a
provisional authority in favor of the vendee
Corporation to operate the service therein involved.
On 19 May 1959, the PSC granted the provisional
permit prayed for, upon the condition that "it may be
modified or revoked by the Commission at any time,
shall be subject to whatever action that may be
taken on the basic application and shall be valid
only during the pendency of said application."
Before the PSC could take final action on said
application for approval of sale, however, the Sheriff
of Manila, on 7 July 1959, levied on 2 of the five
certificates of public convenience involved therein,
namely, those issued under PSC cases 59494 and
63780, pursuant to a writ of execution issued by the
Court of First Instance of Pangasinan in Civil Case
13798, in favor of Eusebio E. Ferrer against
Valentin Fernando. The Sheriff made and entered
the levy in the records of the PSC. On 16 July 1959,
a public sale was conducted by the Sheriff of the
said two certificates of public convenience. Ferrer
was the highest bidder, and a certificate of sale was
issued in his name. Thereafter, Ferrer sold the two
certificates of public convenience to Pantranco, and
jointly submitted for approval their corresponding
contract of sale to the PSC. Pantranco therein
prayed that it be authorized provisionally to operate
the service involved in the said two certificates. The
applications for approval of sale, filed before the
PSC, by Fernando and the Corporation, Case
124057, and that of Ferrer and Pantranco, Case
126278, were scheduled for a joint hearing. In the
meantime, to wit, on 22 July 1959, the PSC issued
an order disposing that during the pendency of the
cases and before a final resolution on the aforesaid
applications, the Pantranco shall be the one to
operate provisionally the service under the two
certificates embraced in the contract between Ferrer
and Pantranco. The Corporation took issue with this
particular ruling of the PSC and elevated the matter
to the Supreme Court, which decreed, after
deliberation, that until the issue on the ownership of
the disputed certificates shall have been finally
settled by the proper court, the Corporation should
be the one to operate the lines provisionally.
[present case] On 4 November 1959, the
Corporation filed in the Court of First Instance of
Manila, a complaint for the annulment of the
sheriff's sale of the aforesaid two certificates of
public convenience (PSC Cases 59494 and 63780)
in favor of Ferrer, and the subsequent sale thereof
by the latter to Pantranco, against Ferrer, Pantranco
and the PSC. The Corporation prayed therein that
all the orders of the PSC relative to the parties'
dispute over the said certificates be annulled. The
CFI of Manila declared the sheriff's sale of two
certificates of public convenience in favor of Ferrer
and the subsequent sale thereof by the latter to
Pantranco null and void; declared the Corporation to
be the lawful owner of the said certificates of public
convenience; and ordered Ferrer and Pantranco,
jointly and severally, to pay the Corporation, the
sum of P5,000.00 as and for attorney's fees. The
case against the PSC was dismissed. All parties
appealed.
Issue: Whether the stipulation, "SHALL NOT FOR
A PERIOD OF 10 YEARS FROM THE DATE OF
THIS SALE, APPLY FOR ANY TPU SERVICE
IDENTICAL OR COMPETING WITH THE BUYER"
in the contract between Villarama and Pantranco,
binds the Corporation (the Villa Rey Transit, Inc.).
Held: Villarama supplied the organization expenses
and the assets of the Corporation, such as trucks
and equipment; there was no actual payment by the
original subscribers of the amounts of P95,000.00
and P100,000.00 as appearing in the books;
Villarama made use of the money of the
Corporation and deposited them to his private
accounts; and the Corporation paid his personal
accounts. Villarama himself admitted that he
mingled the corporate funds with his own money.
These circumstances are strong persuasive
evidence showing that Villarama has been too much
involved in the affairs of the Corporation to
altogether negative the claim that he was only a
part-time general manager. They show beyond
doubt that the Corporation is his alter ego. The
interference of Villarama in the complex affairs of
the corporation, and particularly its finances, are
much too inconsistent with the ends and purposes
of the Corporation law, which, precisely, seeks to
separate personal responsibilities from corporate
undertakings. It is the very essence of incorporation
that the acts and conduct of the corporation be
carried out in its own corporate name because it
has its own personality. The doctrine that a
corporation is a legal entity distinct and separate
from the members and stockholders who compose
it is recognized and respected in all cases which are
within reason and the law. When the fiction is urged
as a means of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the
veil with which the law covers and isolates the
corporation from the members or stockholders who
compose it will be lifted to allow for its consideration
merely as an aggregation of individuals. Hence, the
Villa Rey Transit, Inc. is an alter ego of Jose M.
Villarama, and that the restrictive clause in the
contract entered into by the latter and Pantranco is
also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor
may not make use of a corporate entity as a means
of evading the obligation of his covenant. Where the
Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be
enjoined from competing with the covenantee.
Delta Motor Sales vs. Mangosing
Facts:
Delta Motors is sued by their customer Pamintuan
because of the defective car sold by delta. Summon
was serve not to the proper person who is
authorized to receive summon. And because of that
delta motors was in default because of failure to
answer the complaint. They filed a motion but the
same failed.
Issue:
Whether or not summon is properly served.
Ruling:
Rule 14 of the Revised Rules of Court provides:
SEC. 13. Service upoin private
domestic corporation or
partnership. — If defendant is a
corporation organized under the
laws of the Philippines or a
partnership duly registered, service
may be made on the president,
manager, secretary, cashier, agent,
or any of its directors.
For the purpose of receiving service of summons
and being bound by it, a corporation is Identified
with it agent or officer who under the rule is
designated to accept service of process. "The
corporate power to receive and act on such service,
so far as to make it known to the corporation, is thus
vested in such officer or agent.
A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a
corporation. The officer upon whon service is made
be one who is named in the statute; otherwise the
service is insufficient. So, where the statute required
that in the case of a domestic corporation summons
should be served on "the president or head of the
corporation secretary treasurer, cashier or
managing agent thereof", service of summons on
the secretary's wife did not confer jurisdiction over
the corporation in the foreclosure proceeding
against it. Hence, the the decree of forclosure and
the deficiency judgment were void and should be
vacated.
The purpose is to render it reasonably certain that
the corporation will receive prompt and proper
notice in an action against it or to insure that the
summons be served on a representative so
integrated with the corporation that such person will
know what to do with the legal papers served on
him. In other words, "to bring home to the
corporation notice of the filing of the action.
In the instant case the Manila court did not acquire
jurisdiction over Delta Motor because it was not
properly served with summons. The service of
summons on Dionisia G. Miranda, who is not
among the persons mentioned in section 13 of Rule
14, was insufficient. It did not bind the Delta Motor.
R. TRANSPORT CORPORATION
vs.
HON. COURT OF APPEALS, Former 15th
Division, Manila, HON. SALVADOR S. ABAD
SANTOS, as Presiding Judge, Regional Trial
Court of, Metro Manila, Branch 65 and
FLOSERIDA L. CASTAÑEDA
G.R. No. 111187. February 1, 1995
FACTS:
On November 22, 1991, private respondent
filed a complaint for damages arising from breach of
contract of carriage against petitioner. In an Order
dated January 28, 1991, the trial court upon ex
parte motion of private respondent, declared
petitioner in default and appointed a commissioner
to receive evidence ex parte. Petitioner filed a
Motion to Dismiss and to Stop Ex Parte Reception
of Evidence. It asserted that it was not properly
served with summons and consequently, the trial
court did not acquire jurisdiction over its person. It
argued that none of the officers enumerated in
Section 13, Rule 14 of the Revised Rules of Court
(namely, the corporation's president, manager,
secretary, cashier, agent or any of its directors)
received any summons. The trial court denied
petitioner's motion and allowed private respondent
to adduce its evidence ex parte.
The Court of Appeals dismissed the
petitioner’s petition for certiorari ruling that the trial
court did not commit any grave abuse of discretion
in declaring the petitioner in default and in denying
petitioner's motion for reconsideration.
ISSUE:
Whether or not there was valid service of
summons.
RULING:
YES.
As a general rule, service of summons must
be made on the persons named in Section 13, Rule
14 of the Revised Rules of Court which provides: If
the defendant is a corporation organized under the
laws of the Philippines or a partnership duly
registered, service may be made on the president,
manager, secretary, cashier, agent or any of its
directors.
Thus service on persons other than those
mentioned in said Rule has been held as improper.
Through the years, the rule on service of summons
has been liberalized. Such liberalization is to give
life to the rationale behind Section 13 of Rule 14.
Service of summons on persons other than those
enumerated in Section 13 of Rule 14 have been
held proper on the theory that those persons served
were holding positions of responsibility and could
appreciate the importance of the papers handed
them, and could be expected to deliver the papers
to the proper officer. These individuals were
considered "agents" within the contemplation of
Section 13 of Rule 14. Thus, the Court holds that
service of summons on petitioner's Operations
Manager was valid. He is an officer who may be
relied upon to appreciate the importance of the
papers served on him.
The fact that service was made at
petitioner's bus terminal at the address stated in the
summons and not at its office in Makati does not
render the service of summons invalid. Petitioner is
engaged in the transportation business, operating
over 100 buses. Its central bus terminal is located at
Sucat, Parañaque, from where it conducts the bulk
of its business. It was at that terminal where
petitioner's Operations Manager was found and
upon whom service was made.
E.B. Villarosa & Partners Co., Ltd. i. Benito, 312
SCRA 65 ,1999|
FACTS:
E.B. Villarosa & Partners is a limited
partnership with principal office address at 102 Juan
Luna St., Davao City and with branch offices at
Parañaque and Cagayan de Oro City (CDO).
Villarosa and Imperial Development (ID) executed
an Agreement wherein Villarosa agreed to develop
certain parcels of land in CDO belonging to ID into a
housing subdivision. ID, filed a Complaint for
Breach of Contract and Damages against Villarosa
before the RTC allegedly for failure of the latter to
comply with its contractual obligation.
Summons, together with the complaint, were served
upon Villarosa, through its Branch Manager Wendell
Sabulbero at the address at CDO but the Sheriff’s
Return of Service stated that the summons was duly
served "E.B. Villarosa & Partner thru its Branch
Manager at their new office Villa Gonzalo, CDO,
and evidenced by the signature on the face of the
original copy of the summons." Villarosa prayed for
the dismissal of the complaint on the ground of
improper service of summons and for lack of
jurisdiction over the person of the defendant.
Villarosa contends that the RTC did not acquire
jurisdiction over its person since the summons was
improperly served upon its employee in its branch
office at CDO who is not one of those persons
named in Sec. 11, Rule 14 upon whom service of
summons may be made. ID filed a Motion to
Declare Villarosa in Default alleging that Villarosa
has failed to file an Answer despite its receipt
allegedly on May 5, 1998 of the summons and the
complaint, as shown in the Sheriff's Return.
Issue: Won an agent of a corporation can receive
summons in behalf of their corporation?
HELD:
The service of summons upon the branch manager
of petitioner at its branch office at Cagayan de Oro,
instead of upon the general manager at its principal
office at Davao City is improper. Consequently, the
trial court did not acquire jurisdiction over the
person of the petitioner.
“Notably, under the new Rules, service of summons
upon an AGENT of the corporation is NO LONGER
authorized.”
“The designation of persons or officers who are
authorized to accept summons for a domestic
corporation or partnership is now limited and more
clearly specified in Section11, Rule 14. The rule
now states "general manager" instead of only
"manager";"corporate secretary" instead of
"secretary"; and "treasurer" instead of "cashier."
The phrase “agent, or any of its directors" is
conspicuously deleted in the new rule.”
“A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made
must be one who is named in the statute; otherwise
the service is insufficient. . . The liberal construction
rule cannot be invoked and utilized as a substitute
for the plain legal requirements as to the manner in
which summons should be served on a domestic
corporation. .”
The purpose is to render it reasonably certain that
the corporation will receive prompt and proper
notice in an action against it or to insure that the
summons be served on a representative so
integrated with the corporation that such person will
know what to do with the legal papers served on
him. In other words, to bring home to the
corporation notice of the filing of the action.

G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
Facts:
This action was commenced in the Court of First
Instance of Manila by Francisco de Borja against
Antonio Vazquez and Fernando Busuego to recover
from them jointly and severally the total sum of
P4,702.70 upon three alleged causes of action, to
wit:
First, that the defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000
cavans of palay at P2.10 per cavan, to be delivered
during the month of February, 1932, the said
defendants having subsequently received from the
plaintiff in virtue of said agreement the sum of
P8,400; that the defendants delivered to the plaintiff
during the months of February, March, and April,
1932, only 2,488 cavans of palay of the value of
P5,224.80 and refused to deliver the balance of
1,512 cavans of the value of P3,175.20
notwithstanding repeated demands.
Second, that because of defendants' refusal to
deliver to the plaintiff the said 1,512 cavans of palay
within the period above mentioned, the plaintiff
suffered damages in the sum of P1,000.
And, third, that on account of the agreement above
mentioned the plaintiff delivered to the defendants
4,000 empty sacks, of which they returned to the
plaintiff only 2,490 and refused to deliver to the
plaintiff the balance of 1,510 sacks or to pay their
value amounting to P377.50; and that on account of
such refusal the plaintiff suffered damages in the
sum of P150.
The defendant Antonio Vazquez denied having
entered into the contract mentioned in the first
cause of action in his own individual and personal
capacity, either solely or together with his co
defendant Fernando Busuego, and alleging that the
agreement for the purchase of 4,000 cavans of
palay and the payment of the price of P8,400 were
made by the plaintiff with and to the Natividad-
Vasquez Sabani Development Co., Inc., a
corporation organized and existing under the laws
of the Philippines, of which the defendant Antonio
Vazquez was the acting manager at the time the
transaction took place.
The trial court rendered judgment ordering the
defendant Antonio Vazquez to pay the plaintiff the
sum of P3,175.20 plus the sum of P377.50, with
legal interest on both sums, and absolving the
defendant Fernando Busuego (treasurer of the
corporation) from the complaint and the plaintiff
from the defendant Antonio Vazquez' counterclaim.
Upon appeal to the Court of Appeals, the latter
modified that judgment. But by a subsequent
resolution upon the defendant's motion for
reconsideration, the Court of Appeals set aside its
judgment and ordered that the case be remanded to
the court of origin for further proceedings.
The defendant Vazquez, not being agreeable to that
result, filed the present petition for certiorari to
review and reverse the judgment of the Court of
Appeals.
Issue:
W/N de Borja entered into the contract with the
defendant Antonio Vazquez in his personal capacity
or as manager of the Natividad-Vazquez Sabani
Development Co., Inc.
Ruling: No.
It is well known that a corporation is an artificial
being invested by law with a personality of its own,
separate and distinct from that of its stockholders
and from that of its officers who manage and run its
affairs. The mere fact that its personality is owing to
a legal fiction and that it necessarily has to act thru
its agents, does not make the latter personally liable
on a contract duly entered into, or for an act lawfully
performed, by them for an in its behalf. The legal
fiction by which the personality of a corporation is
created is a practical reality and necessity. Without
it no corporate entities may exists and no corporate
business may be transacted. Such legal fiction may
be disregarded only when an attempt is made to
use it as a cloak to hide an unlawful or fraudulent
purpose. No such thing has been alleged or proven
in this case. It has not been alleged nor even
intimated that Vazquez personally benefited by the
contract of sale in question and that he is merely
invoking the legal fiction to avoid personal liability.
Neither is it contended that he entered into said
contract for the corporation in bad faith and with
intent to defraud the plaintiff. We find no legal and
factual basis upon which to hold him liable on the
contract either principally or subsidiarily.
Palay, Inc. v. Clave [No. L – 56076. Sept. 21,
1983. 124 SCRA 638]
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Facts: That Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent,
Nazario Dumpit, a Contract to Sell a parcel of Land
payable with a downpayment and monthly
installments until fully paid. Paragraph 6 of the
contract provided for automatic extrajudicial
rescission upon default in payment of any monthly
installment after the lapse of 90 days from the
expiration of the grace period of one month, without
need of notice and with forfeiture of all installments
paid. Private respondent Dumpit paid the
downpayment and several installments. However,
Dumpit failed to continue paying the installments for
almost 6 years. Thereafter, Dumpit wrote petitioner
offering to update all his overdue accounts with
interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon.
Petitioners replied that the Contract to Sell had long
been rescinded pursuant to paragraph 6 of the
contract, and that the lot had already been resold.
Consequently, Dumpit filed a complaint questioning
the validity of the rescission with the National
Housing Authority (NHA) for reconveyance with an
alternative prayer for refund. The NHA found the
rescission void in the absence of either judicial or
notarial demand. Thus, it ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the
corporation, jointly and severally, to refund
immediately to Dumpit the amount paid with 12%
interest from the filing of the complaint. On appeal,
respondent Clave, the Presidential Executive
Assistant affirmed. Hence, this petition.
Issues:
(1) Whether or not the doctrine of piercing the veil of
corporate fiction applies.
(2) Whether or not petitioner Onstott is solidarily
liable with Palay, Inc. for the refund.
Held:
(1) No. The SC held that 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. As a general rule, a corporation may not be
made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it
may be connected and vice versa. However, the veil
of corporate fiction may be pierced when it is used
as a shield to further an end subversive of justice; or
for purposes that could not have been intended by
the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend
crime; or to perpetuate fraud or confuse legitimate
issues; or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or business
conduit for the sole benefit of the stockholders.
In this case, there was no finding of fraud on
petitioners' part. They had literally relied, although
mistakenly, on paragraph 6 of its contract with
private respondent when it rescinded the contract to
sell extrajudicially and had sold it to a third person.
(2) No. The SC held that no sufficient proof exists
on record that said petitioner used the corporation
to defraud private respondent. He cannot, therefore,
be made personally liable just because he "appears
to be the controlling stockholder". Mere ownership
by a single stockholder or by another corporation is
not of itself sufficient ground for disregarding the
separate corporate personality.
G.R. No. 89879 April 20, 1990
JAIME PABALAN AND EDUARDO LAGDAMEO,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
LABOR ARBITER AMBROSIO B. SISON,
ELIZABETH RODEROS, ET AL., and THE
SHERIFF OF THE NATIONAL LABOR
RELATIONS COMMISSION, respondents.
Facts:
84 workers of the Philippine Inter-Fashion (PIF) filed
a complaint against the latter for illegal transfer
simultaneous with illegal dismissal in violation of the
Labor Code. PIF was notified about the complaint
and summons but hearings were continually re-set
for failure of its officers (petitioners herein) to
appear. Complainant workers thus moved to
implead petitioners as officers of PIF in the
complaint for their illegal transfer to a new firm. The
Labor Arbiter ruled in favor of workers holding
petitioners-officers jointly and severally liable with
PIF to pay them their benefits. Petitioners’ appeal
was dismissed.
Issue:
Whether or not petitioners as officers may be held
jointly and severally liable with the corporation for its
liability.
Ruling: NO.
The settled rule is that the corporation is vested by
law with a personality separate and distinct from the
persons composing it, including its officers as well
as from that of any other legal entity to which it may
be related. Thus, a company manager acting in
good faith within the scope of his authority in
terminating the services of certain employees
cannot be held personally liable for damages.
However, the legal fiction that a corporation has a
personality separate and distinct from stockholders
and members may be disregarded when the notion
of legal entity is used as a means to perpetrate
fraud or an illegal act or as a vehicle for the evasion
of an existing obligation, the circumvention of
statutes, and or (to) confuse legitimate issues the
veil which protects the corporation will be lifted.
In this particular case complainants did not allege or
show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the
financial obligation of the corporation to its
employees, or used the transfer of the employees
as a means to perpetrate an illegal act or as a
vehicle for the evasion of existing obligations, the
circumvention of statutes, or to confuse the
legitimate issues.
Not one of the above circumstances has been
shown to be present. Hence petitioners cannot be
held jointly and severally liable with the PIF
corporation under the questioned decision and
resolution of the public respondent.
SULO NG BAYAN INC.
vs.
GREGORIO ARANETA, INC., PARADISE FARMS,
INC., NATIONAL WATERWORKS & SEWERAGE
AUTHORITY, HACIENDA CARETAS, INC, and
REGISTER OF DEEDS OF BULACAN
G.R. No.L-31061. August 17, 1976
FACTS:
Sulo ng Bayan, Inc. filed an accion de
revindicacion with the CFI against defendants-
appellees to recover the ownership and possession
of a large tract of land. The complaint specifically
alleged that plaintiff is a corporation organized and
existing under the laws of the Philippines, with its
principal office and place of business at San Jose
del Monte, Bulacan; that its membership is
composed of natural persons residing at San Jose
del Monte, Bulacan; that the members of the plaintiff
corporation, through themselves and their
predecessors-in-interest, had pioneered in the
clearing of the fore-mentioned tract of land,
cultivated the same since the Spanish regime and
continuously possessed the said property openly
and public under concept of ownership adverse
against the whole world.
ISSUE:
Whether or not plaintiff corporation may
institute an action in behalf of its individual members
for the recovery of certain parcels of land allegedly
owned by said members; for the nullification of the
transfer certificates of title issued in favor of
defendants appellees covering the aforesaid parcels
of land; for a declaration of "plaintiff's members as
absolute owners of the property" and the issuance
of the corresponding certificate of title; and for
damages.
RULING:
NO.
It is a doctrine well-established and obtains
both at law and in equity that a corporation is a
distinct legal entity to be considered as separate
and apart from the individual stockholders or
members who compose it, and is not affected by the
personal rights, obligations and transactions of its
stockholders or members. The property of the
corporation is its property and not that of the
stockholders, as owners, although they have
equities in it. Properties registered in the name of
the corporation are owned by it as an entity
separate and distinct from its members.
Conversely, a corporation ordinarily has no interest
in the individual property of its stockholders unless
transferred to the corporation, "even in the case of a
one-man corporation. The mere fact that one is
president of a corporation does not render the
property which he owns or possesses the property
of the corporation, since the president, as individual,
and the corporation are separate similarities.
Similarly, stockholders in a corporation engaged in
buying and dealing in real estate whose certificates
of stock entitled the holder thereof to an allotment in
the distribution of the land of the corporation upon
surrender of their stock certificates were considered
not to have such legal or equitable title or interest in
the land, as would support a suit for title, especially
against parties other than the corporation.
It must be noted, however, that the juridical
personality of the corporation, as separate and
distinct from the persons composing it, is but a legal
fiction introduced for the purpose of convenience
and to subserve the ends of justice. This separate
personality of the corporation may be disregarded,
or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for fraud or
illegality, or to work -an injustice, or where
necessary to achieve equity.
Clearly, no right of action exists in favor of
plaintiff corporation, for as shown heretofore it does
not have any interest in the subject matter of the
case which is material and, direct so as to entitle it
to file the suit as a real party in interest.
REPUBLIC PLANTERS BANK
vs.
COURT OF APPEALS and FERMIN CANLAS
G.R. No. 93073. December 21, 1992
FACTS:
On September 18, 1961, private respondent
Corporation secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of
the loan, preferred shares of stocks were issued to
private respondent Corporation, through its officers
then, private respondent Adalia F. Robes and one
Carlos F. Robes. In other words, instead of giving
the legal tender totaling to the full amount of the
loan, which is P120,000.00, petitioner lent such
amount partially in the form of money and partially
in the form of stock certificates. Said stock
certificates were in the name of private respondent
Adalia F. Robes and Carlos F. Robes, who
subsequently, however, endorsed his shares in
favor of Adalia F. Robes. Said certificates of stock
bear the following terms and conditions:
The Preferred Stock shall have the
following rights, preferences, qualifications and
limitations, to wit: Of the right to receive a quarterly
dividend of One Per Centum (1%), cumulative and
participating. That such preferred shares may be
redeemed, by the system of drawing lots, at any
time after two (2) years from the date of issue at the
option of the Corporation
On January 31, 1979, private respondents
proceeded against petitioner and filed a Complaint
anchored on private respondents' alleged rights to
collect dividends under the preferred shares in
question and to have petitioner redeem the same
under the terms and conditions of the stock
certificates.
ISSUES:
Whether or not there is a difference
between a preferred share from a redeemable
share.
Whether or not petitioner can be compelled
by defendant to redeem the preferred shares issued
to the private respondent.
RULING:
YES.
A preferred share of stock is one which
entitles the holder thereof to certain preferences
over the holders of common stock. The preferences
are designed to induce persons to subscribe for
shares of a corporation. Preferred shares take a
multiplicity of forms. The most common forms may
be classified into two: (1) preferred shares as to
assets; and (2) preferred shares as to dividends.
The former is a share which gives the holder thereof
preference in the distribution of the assets of the
corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive
dividends on said share to the extent agreed upon
before any dividends at all are paid to the holders of
common stock. There is no guaranty, however, that
the share will receive any dividends.
Under the old Corporation Law in force at
the time the contract between the petitioner and the
private respondents was entered into, it was
provided that "no corporation shall make or declare
any dividend except from the surplus profits arising
from its business, or distribute its capital stock or
property other than actual profits among its
members or stockholders until after the payment of
its debts and the termination of its existence by
limitation or lawful dissolution." Similarly, the
present Corporation Code provides that the board of
directors of a stock corporation may declare
dividends only out of unrestricted retained earnings.
The Code, in Section 43, adopting the change made
in accounting terminology, substituted the phrase
"unrestricted retained earnings," which may be a
more precise term, in place of "surplus profits
arising from its business" in the former law.
Thus, the declaration of dividends is
dependent upon the availability of surplus profit or
unrestricted retained earnings, as the case may be.
Preferences granted to preferred
stockholders, moreover, do not give them a lien
upon the property of the corporation nor make them
creditors of the corporation, the right of the former
being always subordinate to the latter. Dividends
are thus payable only when there are profits earned
by the corporation and as a general rule, even if
there are existing profits, the board of directors has
the discretion to determine whether or not dividends
are to be declared. Shareholders, both common and
preferred, are considered risk takers who invest
capital in the business and who can look only to
what is left after corporate debts and liabilities are
fully paid.
Redeemable shares, on the other hand, are
shares usually preferred, which by their terms are
redeemable at a fixed date, or at the option of either
issuing corporation, or the stockholder, or both at a
certain redemption price. Redemption by the
corporation of its stock is, in a sense, a repurchase
of it for cancellation. The present Code allows
redemption of shares even if there are no
unrestricted retained earnings on the books of the
corporation. This is a new provision which in effect
qualifies the general rule that the corporation cannot
purchase its own shares except out of current
retained earnings. However, while redeemable
shares may be redeemed regardless of the
existence of unrestricted retained earnings, this is
subject to the condition that the corporation has,
after such redemption, assets in its books to cover
debts and liabilities inclusive of capital stock.
Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to
meet its debts as they mature.
YES.
While it is true that the very wordings of the
terms and conditions in said stock certificates
clearly allows redemption, the option to do 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.
CA decision is reversed and set aside.
Judgement is hereby rendered declaring private
respondent Fermin Canlas jointly and severally
liable on all the nine promissory notes with the
following sums and at 16% interest per annum from
the dates indicated.
NAPOCOR VS CA
FACTS:
1. Since 1982 when, as admitted, [Growth
Link] was pre-qualified as NPC supplier, up
to the time in 1987 when x x x NPC refused
to do business with petitioner, the latter had
numerous sales through public biddings
with a total value of over P60 million x x x.
2. [Growth Link] was the lowest bidder and the
most advantageous bidder in several other
biddings x x x but NPC did not issue the
awards.
3. As a matter [of] procedure, NPC dealt only
with accredited suppliers and NPC
recognized [Growth Link] as duly
accredited. x x x
4. At the start in 1982 [Growth Link] complied
with the accreditation requirements of NPC
by submitting voluminous documents like
the articles of incorporation of GLI,
corporate profile, appointment of [Growth
Link] as exclusive supplier and distributor of
spare parts by foreign manufacturers x x x,
suppliers warranties x x x catalogues,
company profile and other information
about foreign suppliers x x x. And, more
importantly, it did not anymore undergo the
same process ad (sic) subsequent biddings
[that Growth Link] participated in. So that
the accreditation was a continuing one and
not on a per transaction basis.
5. On February 13, 1987 NPC announced its
decision to stop transacting business with
[Growth Link] x x x and was blacklisted due
to violation of the conditions of the contract.
xxx
6. The grounds for the cancellation of [Growth
Links] accreditation x x x are three, namely:
a. that [Growth Link] supplied second hand
 piston skirts;
b. that piston rings supplied by it did not reach
the required running hours
c. that [Growth Link] supplied exhaust valve
bodies manufactured by Fuji Diesel Ltd.
which was not licensed by SEMT.
7. [Growth Link] refuted the charges in several
letters x x x and was asking for opportunity
to be heard at a formal hearing on [the]
request for reconsideration but same was
not acted upon by NPC.
8. [Growth Link] filed [a] petition for
mandamus with preliminary injunction and
damages with the trial court on February 8,
1988 which was granted by the court and
the decision as to the award of damages
was in favor of Growth Link ordering the
NPC and its officers and members of the
Board of Directors, to jointly and severally
pay Growth Link the following amounts:
a) P230,000.00 representing the cost of the
replaced piston skirts under P.O No.
086653 plus 12% interest thereto [sic] per
annum from April 9, 1986 until fully paid;
b) P16,870.00 [which was] the amount
deducted by [NPC] from [Growth Link]s
outstanding collectibles, plus 12% interest
thereto [sic] per annum from November 18,
1985 until fully paid;
c) P144,000.00 for payment of items delivered
under P.O. No. 095435 plus 12 % interest
thereto [sic] per annum from November 13,
1986 until fully paid;
d) P27,650.00 for payment of items delivered
under P.O. No. 096345 plus 12% interest
thereto [sic] per annum from April 4, 1987
until fully paid;
e) P182,070.00 for payment of items delivered
under P.O. No. 096626 plus 12% interest
thereto [sic] per annum from April 4, 1987
until fully paid;
f) P176,356.00 representing unrealized
commission on the cancelled Indent Order
No 08114 dated May 24, 1985 plus 12%
interest thereto [sic] per annum from
November, 1985 until fully paid;
g) P1,249,745.00 representing unrealized
commission on the Foreign Inquiry Nos.
F2c84-3/5-1027 and 1028Tr for Pielstick
Engine Spares, plus 12% interest thereto
[sic] per annum from September, 1996 until
fully paid;
h) P6,216,583.00 representing unrealized
commissions on various item bidded where
[Growth Link] was the lowest bidder but
which was not awarded by NPC to it, plus
12% interest thereto [sic] per annum from
July, 1986 until fully paid;
i) P 1,419,853.00 representing unpaid
commission for the disregarded lowest bid
of [Growth Links] principal on NPC Foreign
Inquiry Nos. FPS85-11/6-005AA, plus 12 %
interest thereto [sic] per annum from
October, 1987 until fully paid;
j) P2,000,000.00 for compensatory damage[s]
suffered by petitioner due to loss of
business relationship and standing here
and abroad;
k) P1,500,00.00 for moral and exemplary
damages suffered by [Growth Link];
l) P30,000.00 plus 30% of the principal
amount recoverable, as and for attorneys
fees;
m) P40,000.00 as litigation expenses
(premiums paid on the injunction bond,
etc.); and
n) Costs of suit.
ISSUE: WON THE LOWER COURT ERRED IN
HOLDING NAPOCOR JOINTLY AND SEVERALLY
LIABLE WITH ITS OFFICERS.
HELD:The finding solidarity liability among the NPC
and its officers and Members of the Board of
Directors, is patently baseless. The decision of the
trial court contains no such allegation, finding or
conclusion regarding particular acts committed by
said officers and members of the Board of Directors
that show them to have individually guilty of
unmistakable malice, bad faith, or ill-motive in their
personal dealings with Growth Link. In fact, it was
only in the dispositive portion of the decision of the
court a quo that solidary liability as such was first
mentioned.
NPCs officers and members of the Board of
Directors were sued merely as nominal parties in
their official capacities as such. They were
impleaded by Growth Link not in their personal
capacities as individuals but in their official
capacities as officers and members of the Board of
Directors through whom the NPC conducts
business and undertakes its operations pursuant to
its avowed corporate purposes. Therefore, as a
bonafide government corporation, NPC should
alone be liable for its corporate acts as duly
authorized by its officers and directors.
This is so, because a corporation is invested by law
with a separate personality, separate and distinct
from that of the person composing it as well as from
any other legal entity to which it may be related.
(Tan Boon Be & Co. v. Jarencio, 163 SCRA 205
[1988] citing Yutivo and Sons Hardware Company
v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio
Cano Enterprises, Inc. v. Court of Industrial
Relations, 13 SCRA 290 [1965]). A corporation is an
artificial person and can transact its business only
through its officers and agents. Necessarily,
somebody has to act for it. Separate personality of
the corporation may be disregarded, or the veil of
corporate fiction pierced and the individual
stockholders may be personally liable to obligations
of the corporation only when the corporation is used
as a cloak or cover from fraud or illegality, or to
work an injustice, or where necessary to achieve
equity or when necessary for the protection of
creditors. (Sulo ng Bayan, Inc. v. Araneta, Inc., 72
SCRA 347 [1976] xxx).
We repeat, there was nothing in Growth Links
petition not in the mass of evidence proffered,
before the court a quo that established the factual or
legal basis to hold the officers and members of the
Board of Directors of the NPC jointly and severally
liable with the NPC for the damages suffered by
Growth Link because of acts of gross evident bad
faith on the part of the NPC as a corporate entity
acting through its officers and directors. The records
even bear out that every single offense taken by the
NPC against Growth Link arose from a corporate
decision and was executed as a corporate act.
Thus, the trial court gravely erred in holding said
officers and directors to be jointly and severally
liable with the NPC for the damages suffered by
Growth Link but caused by the NPC alone as a
corporate entity.
EMILIO CANO ENTERPRISES, INC., petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS, ET
AL., respondents.
Facts:
A complaint for unfair labor practice was filed
before the Court of Industrial Relations against
Emilio, Ariston and Rodolfo, all surnamed Cano, in
their capacity as president and proprietor, field
supervisor and manager, respectively, of Emilio
Cano Enterprises, Inc.
After trial, Presiding Judge Jose S. Bautista
rendered decision finding Emilio Cano and Rodolfo
Cano guilty of the unfair labor practice charge, but
absolved Ariston for insufficiency of evidence. As a
consequence, the two were ordered, jointly and
severally, to reinstate Honorata Cruz, to her former
position with payment of backwages from the time
of her dismissal up to her reinstatement, together
with all other rights and privileges thereunto
appertaining.
Emilio Cano died and the attempt to have the case
dismissed against him having failed, the case was
appealed to the court en banc, which in due course
affirmed the decision of Judge Bautista.
The order of execution have been directed against
the properties of Emilio Cano Enterprises, Inc.
instead of those of the respondents named in the
decision, said corporation filed an ex parte motion to
quash the writ on the ground that the judgment
sought to be enforced was not rendered against it
which is a juridical entity separate and distinct from
its officials. This motion was denied. Motion for
reconsideration was also denied. Hence, the
corporation interposed the present petition
for certiorari.
Issue:
Can the judgment rendered against Emilio and
Rodolfo Cano in their capacity as officials of the
corporation Emilio Cano Enterprises, Inc. be made
effective against the property of the latter which was
not a party to the case?
Ruling:
The answer must be in the affirmative. While it is an
undisputed rule that a corporation has a personality
separate and distinct from its members or
stockholders because of a fiction of the law, here
we should not lose sight of the fact that the Emilio
Cano Enterprises, Inc. is a closed family corporation
where the incorporators and directors belong to one
single family. Thus, the following are its
incorporators: Emilio Cano, his wife Juliana, his
sons Rodolfo and Carlos, and his daughter-in-law
Ana D. Cano. Here is an instance where the
corporation and its members can be considered as
one. And to hold such entity liable for the acts of its
members is not to ignore the legal fiction but merely
to give meaning to the principle that such fiction
cannot be invoked if its purpose is to use it as a
shield to further an end subversive of justice. 1 And
so it has been held that while a corporation is a
legal entity existing separate and apart from the
persons composing it, that concept cannot be
extended to a point beyond its reason and policy,
and when invoked in support of an end subversive
of this policy it should be disregarded by the courts.
A factor that should not be overlooked is that Emilio
and Rodolfo Cano are here indicted, not in their
private capacity, but as president and manager,
respectively, of Emilio Cano Enterprises, Inc.
Having been sued officially their connection with the
case must be deemed to be impressed with the
representation of the corporation. In fact, the court's
order is for them to reinstate Honorata Cruz to her
former position in the corporation and incidentally
pay her the wages she had been deprived of during
her separation. Verily, the order against them is in
effect against the corporation.
Paradise Sauna vs Ng
G.R. No. L-66394
February 5, 1990
FACTS:
On December 30, 1975, petitioners and private
respondent entered into a letter-contract (Exhibit A)
signed by petitioner Juanito Uy, President of
Paradise Sauna which provides that:
 Alejandro Ng is appointed to manage and
administer the Paradise Sauna and
Massage Corporation effective January 1,
1976, under a commission basis over and
above the amount of P8,000 which should
be remitted to the petitioner not later than
the first 5 days of each month starting
January 1, 1976;
 You are to remit the amount of P16,000
immediately after accepting the
appointment as a guarantee bond for the
faithful performance of your duties and
responsibilities;
 All government licenses, permits, utilities
and services in the premises shall be your
account;
 The sole control and management of the
premises shall belong to you and your are
not responsible to Any Board of Directors
except to me alone;
 You are empowered to make any
renovation, repairs and improvements but
expenses shall be for your account as well
as to change or add personnel therein;
 Please take all good care of all the
equipment and facilities presently existing
therein and see to it that they are always in
good working condition.
This case arose from the petitioner’s act of allegedly
terminating the respondent’s appointment as
manager-administrator as a result of his alleged
failure to comply with the terms and conditions of
his appointment. Private Respondent filed with the
CFI of Manila a case for specific performance and
damages with prayer for writ of preliminary
mandatory injunction and attorney’s fees against
petitioner. Private Respondent amended his
complaint for breach of contract with damages with
the same prayer.
After the trial, the lower court rendered a judgment
in favor of private respondent, declaring the letter-
contract as a contract of lease covering the
paradise sauna bath and massage clinic.
On appeal, the then Intermediate Appellate Court
affirmed the decision of the trial court. In its petition
for review, petitioner contends that IAC sanctioned
a legal error made by the trial court which is a
reformation of Exhibit A from a management
contract to a lease contract contrary to Art. 1367 of
the New Civil Code. In support of their contention,
they averred that when respondent filed an action
for specific performance then for breach of contract,
he should have been presumed to have admitted
the due execution and contents of the letter-contract
marked as Exhibit A whereby he was appointed as
manager-administrator of the petitioner corporation
and he should never have been allowed to deny the
contents thereof for purposes of reforming the said
instrument.
Issue:
Whether petitioner Uy can be held liable for his
actions.
Held:
Yes.
Anent the argument that the respondent Court, in
holding petitioner Uy severally liable with the
petitioner corporation, departed from the rule that a
stockholder or officer of a corporation has a
personality distinct from the corporation, we hold
that the corporate entity theory cannot apply in the
instant case where it is being invoked as a cloak or
shield for illegality. (see Tan Boon Bee & Co., Inc. v.
Judge Jarencio, 163 SCRA 205 [1988]), There is
proof obtaining in the case at bar as to the real
nature of Exhibit A. Thus, being a party to a
simulated contract of management, petitioner Uy
cannot be permitted to escape liability under the
said contract by using the corporate entity theory.
This is one instance when the veil of corporate
entity has to be pierced to avoid injustice and
inequity.
WESTERN AGRO VS CA
FACTS:
WESGRO is doing business through Antonio
Rodriguez and on different occasions in 1980, 1981
and 1982, Rodriguez, representing WESGRO
bought on credit different automotive spare parts
from the private respondent amounting to
P100,753.80; that the said amount has long
become over due and yet the petitioners refused to
pay despite repeated demands. The complaint
prayed among others that the defendants jointly and
severally pay the plaintiff.
WESGRO admitted that it bought on credit various
automotive spare parts from the respondent
corporation on different occasions in 1980, 1981
and 1982, represented by Antonio Rodriguez but
denied that its total obligation was P100,753.80.
WESGRO alleged that this amount is bloated
because it had already made various payments on
different dates.
Antonio Rodriguez filed a motion to dismiss on the
ground that the complaint states no cause of action
against him. He alleged that he is a director and
officer of WESGRO and that he entered into the
purchase contract with the respondent corporation
in his capacity as officer or agent of WESGRO and
therefore such contract was with WESGRO as a
distinct legal entity and did not confer rights much
less liabilities on him.
RTC denied the motion to dismiss filed by
Rodriguez.
The appellate courts ruled that Antonio Rodriguez is
solidarily liable with WESGRO for the latter's
P84,626.70 obligation to SIA is based principally on
the ground that Rodriguez represented WESGRO in
its dealings with SIA.
ISSUE: whether or not petitioner Antonio Rodriguez
can be made solidarily liable with the petitioner
corporation for debts incurred by the latter.
HELD:
It is significant to note that SIA never questioned the
legal personality of WESGRO. Hence, we can
assume that WESGRO is a bona fide corporation.
Therefore, as a bona fide corporation, WESGRO
should alone be liable for its corporate acts as duly
authorized by its officers and directors. (Caram Jr.
v. Court of Appeals, 151 SCRA 372 [1987]). This is
so, because a corporation "is invested by law with a
separate personality, separate and distinct from that
of the persons composing it as well as from any
other legal entity to which it may be related." (Tan
Boon Bee & Co Inc. v. Jarencio, 163 SCRA 205
[1988] citing Yutivo and Sons Hardware Company
v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio
Cano Enterprises, Inc. v. Court of Industrial
Relations, 13 SCRA 290 [1965]). A corporation is an
artificial person and can transact its business only
through its officers or agents. Necessarily,
somebody has to act for it. The separate personality
of the corporation may be disregarded, or the veil of
corporate fiction pierced and the individual
stockholders may be personally liable to obligations
of the corporation only when the corporation is used
"as a cloak or cover for fraud or illegality, or to work
an injustice, or where necessary to achieve equity
or when necessary for the protection of creditors."
(Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347
[1976] cited in Tan Boon Bee & Co., Inc. v.
Jarencio, supra).
In the case at bar, there is no showing that Antonio
Rodriguez, a director and officer of WESGRO was
not authorized by the corporation to enter into
purchase contracts with SIA. Moreover, the
respondent corporation has not shown any
circumstances which would necessitate the piercing
of the corporate veil so as to make Rodriguez
personally liable for the obligations incurred by the
petitioner. Hence, the inevitable conclusion is that
he was acting in behalf of the corporation when he
executed the purchase contracts with the
respondent corporation. In other words, Rodriguez'
acts in representing the petitioner corporation in its
dealings with the respondent corporation are
corporate acts for which only the corporation should
be made liable for any obligations arising from
them.
WHEREFORE, the instant petition is hereby
PARTLY GRANTED. The questioned decision of
the Court of Appeals is modified in that petitioner
Antonio Rodriguez is declared not liable jointly and
severally or otherwise with petitioner WESTERN
AGRO INDUSTRIAL CORPORATION for the
money awards in favor of respondent Sia's
Automotive and Diesel Parts, Inc. The decision is
affirmed in other respects.
G.R. No. 70789 October 19, 1992
RUSTAN PULP & PAPER MILLS, INC.,
BIENVENIDO R. TANTOCO, SR., and ROMEO S.
VERGARA, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and
ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO
A. LLUCH and ROBERTO G.
BORROMEO, respondents.
Facts:
Petitioner Rustan established a pulp and paper mill
in Baloi, Lano del Norte. Respondent Lluch, who is
a holder of a forest products license, transmitted a
letter to petitioner Rustan for the supply of raw
materials by the former to the latter.
Petitioner Rustan proposed “that the contract to
supply is not exclusive because Rustan shall have
the option to buy from other suppliers who are
qualified and holder of appropriate government
authority or license to sell and dispose pulp wood”.
These business proposals resulted to the execution
of a contract of sale whereby Romeo A. Lluch
agreed to sell, and Rustan Pulp and Paper Mill, Inc.
undertook to pay the price of P30.00 per cubic
meter of pulp wood raw materials to be delivered at
the buyer's plant in Baloi, Lanao del Norte.
Of pertinent significance to the issue at hand are the
following stipulations in the bilateral undertaking:
3. That BUYER shall have the option to buy from
other SELLERS who are equally qualified and
holders of appropriate government authority or
license to sell or dispose, that BUYER shall not buy
from any other seller whose pulp woods being sold
shall have been established to have emanated from
the SELLER'S lumber and/or firewood concession. .
..
And that SELLER has the priority to supply the pulp
wood materials requirement of the BUYER;
7. That the BUYER shall have the right to stop
delivery of the said raw materials by the seller
covered by this contract when supply of the same
shall become sufficient until such time when need
for said raw materials shall have become
necessarily provided, however, that the SELLER is
given sufficient notice.
During the test run of the pulp mill, the machinery
line thereat had major defects while deliveries of the
raw materials piled up, which prompted the
Japanese supplier of the machinery to recommend
the stoppage of the deliveries. Private respondent
Romeo Lluch sought to clarify the tenor of the letter
as to whether stoppage of delivery or termination of
the contract of sale was intended, but the query was
not answered by petitioners. This alleged ambiguity
notwithstanding, Lluch and the other suppliers
resumed deliveries after the series of talks between
Romeo S. Vergara and Romeo Lluch.
The complaint for contractual breach was filed
which was dismissed.
Respondent Court found it ironic that petitioners had
to exercise the prerogative regarding the stoppage
of deliveries via the letter addressed to Iligan
Diversified Project, Inc. because petitioners never
really stopped accepting deliveries from private
respondents until December 23, 1968.
Issue:
W/N Tantoco and Vergara should be liable to pay
for moral damages and atty’s fees
Ruling: No.
We have to agree with petitioners' citation of
authority to the effect that the President and
Manager of a corporation who entered into and
signed a contract in his official capacity, cannot be
made liable thereunder in his individual capacity in
the absence of stipulation to that effect due to the
personality of the corporation being separate and
distinct from the person composing it.
G.R. No. 103372 June 22, 1992
EPG CONSTRUCTION COMPANY, INC., and
EMMANUEL P. DE GUZMAN, petitioner,
vs.
HONARABLE COURT OF APPEALS (17th
Division), ( Republic of the Philippines),
UNIVERSITY OF THE PHILIPPINES, respondents.
FACTS:
EPG Construction Co, Inc. entered into a
contract with the University of the Philippines to
construct the UP Law Library Building for the
stipulated price of ₱7,545,000.00. The contract also
included an agreement which stated that upon the
guaranty of the contractor, the work was completed
in accordance with the architect's prepared plans
and specifications. And, that the contractor would
repair at his own cost and expenses for a period of
1 year from the completion date all work covered
under their contract and change any order that
would prove to be deffective except maintenance
works. The guarantee clause of the contract also
expressly provided for the contractor's liability under
Art. 1723 should the building collapse because of
any defects in construction or use of materials of
inferior quality furnished by him or due to any
violation of the terms of their contract.
EPG turned the building over to UP upon its
completion and the latter institution issued a
certification of acceptance on January 3, 1983.
Sometime in July of the same year, the private
respondent complained to company that 6 air-
conditioning units on the third floor of the building
were not cooling properly. After inspecting the
equipment, the petitioner agreed to shoulder the
expenses to get the air-conditioning units repaired,
including labor and materials amounting to ₱38,000.
However, the units were not repaired. Upon
filing another complaint with the company, the latter
sent its representatives to check the broken units.
After inspection, EPG made a written offer to repair
the cooling system for ₱194,000. When EPG
demurred to UP's insistence that it was it's
obligation to repair the defects under the guarantee
clause of their contract, the school had to contract
another company for repairs and the costs totalled
to ₱190,000.
UP demanded reimbursement from EPG
plus damages for the cost of repairs, but it was
rejected. So, the private respondent sued the
company and its president Emmanuel P. De
Guzman in the RTC. The trial court ruled in favor of
UP and ordered the company and its president to
pay the plaintiff jointly and severally for the repairs,
damages and other costs. The company elevated
the case to the CA, but the appellate court
sustained the ruling of the trial court.
ISSUE:
Whether EPG was relieved from liability
when UP issued a certificate of acceptance upon
the completion of the building.
HELD:
The final point of the petition is that
Emmanuel P. de Guzman has a separate legal
personality from EPG Construction Co., Inc. and
should not be held solidarity liable with it. He
stresses that the acts of the company are its own
responsibility and there is no reason why any
liability arising from such acts should be ascribed to
him. Thus:
It is a doctrine well-established and
obtains both at law and in equity
that a corporation is a distinct legal
entity to be considered as separate
and apart from the individual
stockholders or members who
compose it, and is not affected by
the personal rights, obligations and
transactions of its stockholders or
members.
The trial court did not explain why Emmanuel de
Guzman was held solidarity liable with EPG
Construction Co., Inc., and neither did the
respondent court when it affirmed the appealed
decision, In its Comment on the present petition, UP
also did not refute the petitioners' argument and
simply passed upon it sub silentio although the
matter was squarely raised and discussed in the
petition.
Notably, when Emmanuel de Guzman moved to
dismiss the complaint as to him, UP said in its
opposition to the motion that it was suing him "in his
official capacity and not in his personal capacity."
His inclusion as President of the company was
therefore superfluous, as De Guzman correctly
contended, because his acts as such were
corporate acts imputable to EPG itself as his
principal. It is settled that;
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 entity to which it may be
related. Mere ownership by a single
stockholder or by another
corporation of all or nearly all of the
capital stock of a corporation is not
of itself sufficient ground for
disregarding the separate corporate
personality. The general manager
of a corporation therefore should
not be made personally answerable
for the payment of the employee's
backwages unless he had acted
maliciously or in bad faith in
terminating the services of the
employee. 4
The exception noted is where the official "had acted
maliciously or in bad faith," in which event he may
be made personally liable for his own act. That
exception is not applicable in the case at bar,
because it has not been proved that De Guzman
acted maliciously or in bad faith when, as President
of EPG, he sought to protect its interests and
resisted UP's claims. Whatever damage was
caused to UP as a result of his acts is the sole
responsibility of EPG even though De Guzman was
its principal officer and controlling stockholder.
In sum, we hold that the lower court did not err in
holding EPG liable for the repair of the air-
conditioning system at its expense pursuant to the
guarantee provision in the construction contract with
UP. However, Emmanuel de Guzman is not
solidarily liable with it, having acted on its
behalf within the scope of his authority and
without any demonstrated malice or bad faith.

G.R. No. 89804 October 23, 1992
CALVIN S. ARCILLA, petitioner, vs.
THE HONORABLE COURT OF APPEALS and
EMILIO RODULFO, respondents.
Facts: Petitioner Calvin Arcilla, taking advantage of
his close relationship with respondent Emilio
Rodulfo, succeeded in securing on credit from the
latter, items, cash and checks.
RODULFO willingly extended the credit because of
the representations of ARCILLA that he was a
successful financial consultant.
The indebtedness is shown and described in 30
“vales” signed by ARCILLA.
When RODULFO demanded payment, ARCILLA,
acting in gross and evident bad faith, refused to
satisfy the claim. Hence, he filed a complaint for
RECOVERY OF SUM OF MONEY.
In his Answer, ARCILLA did not deny having had
business transactions with RODULFO. He explicitly
admits that the loan was in the name of his family
corporation, CSAR MARINE RESOURCES, INC.
After hearing, the Court rendered judgment against
ARCILLA ordering him to pay private respondent
Emilio Rodulfo in his capacity as President of CSAR
MARINE.
ARCILLA argued that he cannot be ordered to pay
in his capacity as President of CSAR MARINE since
the said corporation was not impleaded in the case.
The personality and liability of ARCILLA and CSAR
MARINE as a corporation are separate and distinct.
Issue: Whether or not the petitioner can raise the
issue of separate corporate identity in the pleadings
for the first time in a Motion for Clarificatory
Judgment?
Ruling: The records bear nothing to prop up the
instant petition. The arguments adduced by the
petitioner breathe no life to it.
On the contrary, the pleadings lead Us to the
inescapable conclusion that the petitioner, who is
himself a lawyer, is merely taking advantage of the
use of the innocuous phrase "in his capacity as
President" found in the dispositive portion of the
challenged Amended Decision — making the same
a sanctuary for a defense which he, as hereinafter
discussed, had long since abandoned or waived
either deliberately or through his obliviscence. His
sole purpose, of course, is to avoid complying with
the liability adjudged against him by the public
respondent; such avoidance is premiered on the so-
called newly discovered evidence offered after the
public respondent had bent over backwards to grant
him a new trial despite the availability of such
evidence during pendency of the proceedings
before the trial court. It is to be noted that he failed
to assign as error in his Brief the denial by the said
court of his motion for new trial on the basis thereof.
if We are to assume arguendo that the obligation
was incurred in the name of the corporation, the
petitioner would still be personally liable therefor
because for all legal intents and purposes, he and
the corporation are one and the same. Csar Marine
Resources, Inc. is nothing more than his business
conduit and alter ego. The fiction of a separate
juridical personality conferred upon such
corporation by law should be disregarded.
Significantly, petitioner does not seriously challenge
the public respondent's application of the doctrine
which permits the piercing of the corporate veil and
the disregarding of the fiction of a separate juridical
personality; this is because he knows only too well
that from the very beginning, he merely used the
corporation for his personal purposes.
Petitioner's volunteered admission that he procured
the pro-forma invoice from the private respondent in
connection with his loan from the KKK, using his
family corporation in the process, and his deliberate
waiver of the aforementioned defense provide an
insurmountable obstacle to the viability of this
petition.
TRAMAT MERCANTILE, INC. and DAVID HONG
vs.
COURT OF APPEALS, MELCHOR DE LA
CUESTA
GR 111008, 07 November 1994
FACTS:
 On 09 April 1984, Melchor de la Cuesta,
doing business under the name and style of
"Farmers Machineries," sold to Tramat Mercantile,
Inc. one unit Hinomoto Tractor Model MB 1100D
powered by a 13 H.P. diesel engine. In payment,
David Ong, Tramat's president and manager,
issued a check for P33,500.00 (apparently replacing
an earlier postdated check for P33,080.00). Tramat,
in turn, sold the tractor, together with an attached
lawn mower fabricated by it, to the Metropolitan
Waterworks and Sewerage System/NAWASA for
P67,000.00. David Ong caused a stop payment of
the check when NAWASA refused to pay the tractor
and lawn mower after discovering that, aside from
some stated defects of the attached lawn mower,
the engine (sold by de la Cuesta) was a
reconditioned unit.
On 28 May 1985, de la Cuesta filed an
action for the recovery of P33,500.00, as well as
attorney's fees of P10,000.00, and the costs of suit.
Ong, in his answer, averred, among other things,
that de la Cuesta had no cause of action; that the
questioned transaction was between plaintiff and
Tramat Mercantile, Inc., and not with Ong in his
personal capacity; and that the payment of the
check was stopped because the subject tractor had
been priced as a brand new, not as a reconditioned
unit.
ISSUE:
Whether or not Ong should be held liable
for the unpaid tractor.
RULING:
NO.
It is an error to hold David Ong jointly and
severally liable with TRAMAT to de la Cuesta under
the questioned transaction. Ong had acted, not in
his personal capacity, but as an officer of a
corporation, TRAMAT, with a distinct and separate
personality. As such, it should only be the
corporation, not the person acting for and on its
behalf, that properly could be made liable thereon.
Tramat, however, should be held liable for
the unpaid tractor because at the time of the
purchase, the appellants did not reveal to the
appellee the true purpose for which the tractor
would be used. Granting that the appellants
informed the appellee that they would be reselling
the unit to the MWSS, an entity admittedly not
engaged in farming, and that they ordered the
tractor without the power tiller, an indispensable
accessory if the tractor would be used in farming,
these in themselves would not constitute the
required implied notice to the appellee as seller.
MAM REALTY CORPORATION
vs.
NLRC, CELSO BALBASTRO
GR 114787, 02 June 1995
FACTS:
Celso B. Balbastro filed a case against
MAM Realty Development Corporation ("MAM") and
its Vice President Manuel P. Centeno, for unfair
labor practice in violation of the Labor Code.
Balbastro alleged that he was employed by MAM as
a pump operator in 1982 and had since performed
such work at its Rancho Estate, Marikina, Metro
manila.
MAM countered that Balbastro had
previously been employed by Francisco Cacho and
co., Inc., the developer of Rancho Estates.
Sometime in May 1982, his services were
contracted by MAM for the operation of the Rancho
Estates' water pump. He was engaged, however,
not as an employee, but as a service contractor, at
an agreed fee of P1,590.00 a month. Similar
arrangements were likewise entered into by MAM
with one Rodolfo Mercado and with a security guard
of Rancho Estates III Homeowners' Association.
Under the agreement, Balbastro was merely made
to open and close on a daily basis the water supply
system of the different phases of the subdivision in
accordance with its water rationing scheme. He
worked for only a maximum period of three hours a
day, and he made use of his free time by offering
plumbing services to the residents of the
subdivision. He was not at all subject to the control
or supervision of MAM for, in fact, his work could so
also be done either by Mercado or by the security
guard. On 23 May 1990, prior to the filing of the
complaint, MAM executed a Deed of Transfer, 1
effective 01 July 1990, in favor of the Rancho
Estates Phase III Homeowners Association, Inc.,
conveying to the latter all its rights and interests
over the water system in the subdivision.
NLRC found the corporation guilty as
charged, and likewise held Centeno liable together
with said corporation.
ISSUE:
Whether or not Centeno should be held
liable together with MAM Realty.
RULING:
NO.
A corporation, being a juridical entity, may
act only through its directors, officers and
employees. Obligations incurred by them, acting as
such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent. b. act in bad faith or with
True, solidarily liabilities may at times be incurred gross negligence in
but only when exceptional circumstances. In labor directing the corporate
cases, for instance, the Court has held corporate affairs;
directors and officers solidarily liable with the c. are guilty of conflict of
corporation for the termination of employment of interest to the prejudice of
employees done with malice or in bad faith. the corporation, its
In the case at bench, there is nothing stockholders or members,
substantial on record that can justify, prescinding and other persons.
from the foregoing, petitioner Centeno's solidary 2. When a director or officer has
liability with the corporation. Nothing states that he consented to the issuance of
acted in bad faith. watered stocks or who, having
Although the Court found that there is an knowledge thereof, did not forthwith
employer-employee relationship between Balbastro file with the corporate secretary his
and MAM Realty, the case was remanded to NLRC written objection thereto.
for the recomputation of Balbastro’s monetary 3. When a director, trustee or officer
awards, such as backwages and wage differentials. has contractually agreed or
stipulated to hold himself personally
and solidary liable with the
Corporation.
4. When a director, trustee or officer is
MAM Realty VS. NLRC (1995) made, by specific provision of law,
personally liable for his corporate
Facts: action.
A complaint filed with the Labor Arbiter by
private respondent Celso Balbastro against In labor cases, for instance, the Court has
petitioners, MAM Realty Development Corporation held corporate directors and officers solidary liable
and its Vice President Manuel Centeno, for wage with the corporation for the termination of
differentials, ECOLA, overtime pay, incentive leave employment of employees done with malice or in
pay, 13th month pay, holiday pay and rest day pay. bad faith.
Balbastro alleged that he was employed by MAM as
a pump operator and had since performed such In the case at Bench, there is nothing
work at its Rancho Estate, Marikina. LA dismissed substantial on record that can justify, prescinding
said complaint for lack of merit. The CA however from the foregoing, petitioner Centeno’s solidary
reversed the same and held that Centeno is jointly liability with the corporation.
and severally liable with MAM.
Issue:
W/N the CA erred in holding Centeno jointly
and severally liable with MAM.

Ruling:
Yes, the court agrees with petitioners that
the NLRC erred in holding Centeno jointly and
severally liable with MAM. A corporation, being a
juridical personality, may act only through its
directors, officers and employees. Obligations
incurred by them, acting as such corporate agents,
are not theirs but the direct accountabilities of the
corporation they represent. True, solidary liabilities
may at times be incurred but only when exceptional
circumstances warrant such as, generally, 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;
NATIONAL FOOD AUTHORITY vs. CA G.R. No. 96453,
August 4, 1999
Thursday, January 29, 2009 Posted by Coffeeholic
Writes
Labels: Case Digests, Commercial Law
Facts: National Food Authority (NFA), thru its officers,
entered into a “Letter of Agreement for Vessel/Barge
Hire with Hongfil for the shipment of 200,000 bags of
corn grains from Cagayan de Oro City to Manila.
The loading of bags of corn grains in the vessel
commenced but it took a longer period of 21 days, 15
hours, and 18 minutes to finish than as was certified by
the arrastre firm as there was a strike staged by the
arrastre workers in view of the refusal of the striking
stevedores to attend to their work. The vessel was
allowed to depart for the port of Manila and arrived there,
but unfortunately, it took a longer period of 20 days, 14
hours and 33 minutes to finish the unloading than the
discharging rate certified by the Port of Manila, due to
the unavailability of a berthing space for the vessel M/V
CHARLIE/DIANE. Only 166,798 bags were unloaded at
the Port of Manila.
After the discharging was completed, NFA paid Hongfil
the amount of P1,006,972.11 covering the shipment of
corn grains. Thereafter, Hongfil sent its billing to NFA
claiming payment for freight covering the shut-out load
or deadfreight as well as demurrage, allegedly sustained
during the loading and unloading of subject shipment of
corn grains. When NFA refused to pay the amount
reflected in the billing, Hongfil brought the present action
against NFA.
Issues:
1) Can petitioners be held liable for deadfreight?
2) Can petitioners be held liable for demurrage?
Held: 1) Yes. It bears stressing that subject Letter of
Agreement is considered a Charter Party. A charter
party is classified into (1) “bareboat” or “demise” charter
and (2) contract of affreightment. Subject contract is one
of affreightment, whereby the owner of the vessel leases
part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner
of the vessel. Under such contract, the ship retains
possession, command, and navigation of the ship, the
charterer or freighter merely having use of the space in
the vessel in return for his payment of the charter hire.
Under the law, the cargo not loaded is considered a
deadfreight. It is the amount paid by or recoverable from
a charterer of a ship for the portion of the ship’s capacity
the latter contracted for but failed to occupy. Explicit and
succinct is the law that the liability for deadfreight is on
the charterer. (Article 680 of the Code of Commerce).
2) No. Demurrage is the sum fixed in a charter party as a
remuneration to the owner of the ships for the detention
of his vessel beyond the number of days allowed by the
charter party for loading or unloading or for sailing.
Liability for demurrage, using the word in its technical
sense, exists only when expressly stipulated in the
contract.
Shipper or charterer is liable for the payment of
demurrage claims when he exceeds the period for
loading and unloading as agreed upon or the agreed
“laydays”. The period for such may or may not be
stipulated in the contract. A charter party may either
provide for a fixed laydays or contain general or
indefinite words such as “customary quick dispatch” or
“as fast as the streamer can load”. In the case at bar, the
charter party provides merely for a general or indefinite
words of “customary quick dispatch”. Such stipulation
implies that loading and unloading of the cargo should
be within a reasonable time.
The charterer NFA could not be held liable for
demurrage for it appears that cause of delay was not
imputable to either of the parties. The cause of delay
during the loading was the strike staged by the crew of
the arrastre operator, and the unavailability of a berthing
space for the vessel during the unloading. Here, the
Court holds that the delay sued upon was still within the
“reasonable time” embraced in the stipulation of
“Customary Quick Dispatch”.
Furthermore, considering the subject contract of
affreightment contains an express provision
“Demurrage/Dispatch: NONE”, the same left the parties
with no recourse but to apply the literal meaning of such
stipulation.
AC Ransom Labor Union v. NLRC
G.R. No. L-69494
Facts:
AC Ransom Labor Union is claiming unfair labor practice
against AC Ransom. The CIR and the Labor Arbiter
ruled in favor of the labor union stating that the strike
was legal and justified thereby requiring the company to
pay for backwages and to immediately reinstate the
members of the union which the NLRC reversed the
decision. Hence the special civil action of certiorari filed
by the Union moving for the Officers of AC Ransom and
ROSARIO Company to be held liable because although
RANSOM had assumed a posture of suffering from
business reverse, its officers and principal stockholders
had organized a new corporation, the Rosario Industrial
Corporation (thereinafter called ROSARIO), using the
same equipment, personnel, business stocks and the
same place of business. AC Ransom used as a defense
the clearance given by SEC to cease to operate due to
financial difficulties in order to lessen the award given by
the court. It also declared that ROSARIO is a distinct
and separate corporation, which was organized long
before these instant cases were decided adversely
against RANSOM.
Issue/s:
 Whether or not ROSARIO Company should be
held liable for the claims of AC Ransom Labor
Union?
 Whether or not the officers and directors of AC
Ransom should be held liable for backwages?
Held:
The questioned Decision of the National Labor
Relations Commission is SET ASIDE, and the Order of
Labor Arbiter Tito F. Genilo of March 11, 1980 is
reinstated with the modification that Rosario Industrial
Corporation and its officers and agents are hereby held
jointly and severally liable with the surviving private
respondents for the payment of the backwages due the
22 union members.
Rosario Industrial Corporation is hereby ordered to
reinstate the 22 union members or, if this is not possible,
to award them separation pay equivalent at least to one
(1) month pay or to one (1) month salary for every year
of service actually rendered by them with A.C. Ransom
(Phils). Corporation, whichever is higher.
Rosario Company is held liable because the
organization of a "run-away corporation," ROSARIO, in
1969 at the time the unfair labor practice case was
pending before the CIR by the same persons who were
the officers and stockholders of RANSOM, engaged in
the same line of business as RANSOM, producing the
same line of products, occupying the same compound,
using the same machineries, buildings, laboratory,
bodega and sales and accounts departments used by
RANSOM, and which is still in existence. Both
corporations were closed corporations owned and
managed by members of the same family. Its
organization proved to be a convenient instrument to
avoid payment of backwages and the reinstatement of
the 22 workers. This is another instance where the
fiction of separate and distinct corporate entities should
be disregarded.
It is very obvious that the second corporation
seeks the protective shield of a corporate fiction whose
veil in the present case could, and should, be pierced as
it was deliberately and maliciously designed to evade its
financial obligation to its employees.... When a notion of
legal entity is used to. defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard
the corporation as an association or persons, or, in the
case of two corporations, will merge them into one.
As to the officers and agents
The inclusion of the officers and agents was but proper
since a corporation, as an artificial being, can act only
through them.
VILLANUEVA VS ADRE
FACTS:
The case began from a complaint, dated January 6,
1977, for recovery of unpaid thirteenth-month pay filed
by the Sarangani Marine and General Workers Union-
ALU with the Department of Labor (Regional Office No.
XI, General Santos City) against the South Cotabato
Integrated Port Services, Inc. (SCIPSI), a Philippine
corporation. Later, thirty-seven SCIPSI employees, non-
union members apparently, filed their own complaint.
The labor arbiter consolidated the twin complaints and
after hearing, ordered a dismissal on December 29,
1977. On appeal, however, the National Labor Relations
Commission, on June 9, 1981, reversed and
accordingly, ordered the private respondents, SCIPSI
and its president and general, Lucio Velayo, to pay the
thirteenth-month pays demanded. The private
respondents' motion for reconsideration was denied, and
the decision has since attained finality.
Thereafter, the parties, on orders of the labor arbiter,
were made to appear before a corporate auditing
examiner to determine the private respondents' exact
liability. On October 24, 1986, the corporate auditing
examiner submitted an accounting and found the private
respondents liable in the total sum of Pl,134,000.00.
Thereupon, the private respondents interposed an
objection and prayed for a revision. It appears, however,
that the private respondents never pursued their
exceptions.
On January 16,1987, the union moved for execution and
pursuant thereto, the labor arbiter issued a writ of
execution. As a result, the sheriff levied on two parcels
of land, both registered in Lucio Velayo's name, with an
area of 400 and 979 square meters.
On February 16,1987, Velayo alone filed a petition with
the respondent court (Special Case No. 227) on a cause
of action based on an alleged irregular execution, on the
ground that he "was never a party to the labor case" 3
and that "a corporation (that is, SCIPSI has a separate
and distinct personality from this incorporators,
stockholders and officers."
On February 17, 1987, the respondent court issued a
temporary restraining order enjoining execution of the
judgment in the aforementioned labor cases. On March
5, 1987, the petitioner moved for dismissal for lack of
jurisdiction and litis pendentia whichwas denied by the
Court.
Meanwhile, on April 27,1988, the parties (in G.R. Nos.
7730001) submitted a Compromise Agreement whereby
the private respondents agreed to pay, in installments,
the reduced sum of P637,400.00 to the workers. On May
11, 1988, we issued a Resolution approving the
Compromise Agreement, and considering the cases
(G.R. Nos. 77300-01) closed and terminated.
ISSUE: WON the courts can enjoin execution of
judgment rendered by the National Labor Relations
Commission on the basis that Velayo is a stranger to the
proceedings?
HELD:
The respondent court must be held to be in error
assuming jurisdiction over Special Case No. 227. It is
well-established that the courts cannot enjoin execution
of judgment rendered by the National Labor Relations
Commission.
First, and as pointed out by the Solicitor General, and as
the records will amply show, he, Velayo, was a party to
the proceedings below where he took part actively in
defense of his case.
In A.C. Ransom Labor Union-CCLU v. NLRC 12 we
held that in case of corporations. It is the president
who responds personally for violation of the labor
pay laws. We quote:
Article 273 of the Code provides that:
Any person violating any of the provisions of Article
265 of this Code shall be punished by a fine of not
exceeding five hundred pesos and/or imprisonment
for not less than one (1) day nor more than six (6)
months.
(b) How can the foregoing provisions be
implemented when the employer is a corporation?
The answer is found in Article 212 (c) of the Labor
Code which provides:
(c) 'Employer' of the Labor Code which provides:
which 'Employer' includes any person acting in the
interest of an employer, directly or indirectly. The
term shall not include any labor organization or any
of its officers or agents except when acting as
employer.
The responsible officer of an employer corporation
can be held personally, not to say even criminally,
liable for non-payment of back wages. That is the
policy of the law. In the Minimum Wage Law, Section
15(b) provided:
(b) If any violation of this Act is committed by a
corporation, trust, partnership or association, the
manager or in his default, the person acting as such
when the violation took place, shall be responsible.
In the case of a government corporation, the
managing head shall be made responsible, except
when shown that the violation was due to an act or
commission of some other person, over whom he
has no control, in which case the latter shall be held
responsible.
Accordingly, Velayo cannot be excused from payment of
SCIPSI's liability by mere reason of SCIPSI's separate
corporate existence. The theory of corporate entity, in
the first place, was not meant to promote unfair
objectives or otherwise, to shield them. This Court has
not hesitated in penetrating the veil of corporate fiction
 14
when it would defeat the ends envisaged by law, not
to mention the clear decree of the Labor Code.
The instant case has been rendered moot and academic
by reason of the out-of-court settlement between the
parties
G.R. No. 113907 February 28, 2000
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA
M. GREENFIELD (MSMG-UWP
vs.
HON. CRESENCIO J. RAMOS, NATIONAL LABOR
RELATIONS COMMISSION, M. GREENFIELD (B),
INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO
C. PUANGCO, WINCEL LIGOT, MARCIANO HALOG,
GODOFREDO PACENO, SR., GERVACIO
CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO
PACENO, JR., MARGARITO CABRERA, GAUDENCIO
RACHO, SANTIAGO IBANEZ, AND RODRIGO
AGUILING, respondents.
Facts:
The petitioner, Malayang Samahan ng mga
Manggagawa sa M. Greenfield, Inc., (B) (MSMG),
hereinafter referred to as the "local union", is an affiliate
of the private respondent, United Lumber and General
Workers of the Philippines (ULGWP), referred to as the
"federation".
An agreement made and entered into by and between:
M. GREENFIELD, INC. (B) a corporation duly
organized in accordance with the laws of the
Republic of the Philippines with office address at
Km. 14, Merville Road, Parañaque, Metro
Manila, represented in this act by its General
manager, Mr. Carlos T. Javelosa, hereinafter
referred to as the Company;
-and-
MALAYANG SAMAHAN NG MGA
MANGGAGAWA SA M. GREENFIELD (B)
(MSMG)/UNITED LUMBER AND GENERAL
WORKERS OF THE PHILIPPINES (ULGWP), a
legitimate labor organization with address at
Suite 404, Trinity Building, T. M. Kalaw Street,
Manila, represented in this act by a Negotiating
Committee headed by its National President, Mr.
Godofredo Paceno, Sr., referred to in this
Agreement as the UNION.1
On September 12, 1986, a local union election was held
under the auspices of the ULGWP wherein the herein
petitioner, Beda Magdalena Villanueva, and the other
union officers were proclaimed as winners
On March 21, 1987, a Petition for Impeachment was
filed with the national federation ULGWP by the defeated
candidates in the aforementioned election.
On April 17, 1988, the local union held a general
membership meeting at the Caruncho Complex in Pasig.
Several union members failed to attend the meeting,
prompting the Executive Board to create a committee
tasked to investigate the non-attendance of several
union members in the said assembly, pursuant to
Sections 4 and 5, Article V of the Constitution and By-
Laws of the union, which read:
Seksyon 4. Ang mga kinukusang hindi pagdalo o
hindi paglahok sa lahat ng hakbangin ng unyon
ng sinumang kasapi o pinuno ay maaaring
maging sanhi ng pagtitiwalag o pagpapataw ng
multa ng hindi hihigit sa P50.00 sa bawat araw
na nagkulang.
Seksyon 5. Ang sinumang dadalo na aalis ng
hindi pa natatapos ang pulong ay ituturing na
pagliban at maparusahan itong alinsunod sa
Article V, Seksyong 4 ng Saligang Batas na ito.
Sino mang kasapi o pisyales na mahuli and
dating sa takdang oras ng di lalampas sa isang
oras ay magmumulta ng P25.00 at babawasin
sa sahod sa pamamagitan ng salary deduction
at higit sa isang oras ng pagdating ng huli ay
ituturing na pagliban.3
On June 27, 1988, the local union wrote respondent
company a letter requesting it to deduct the union fines
from the wages/salaries of those union members who
failed to attend the general membership meeting.
The Secretary General of the national federation,
Godofredo Paceño, Jr. disapproved the resolution of the
local union imposing the P50.00 fine. The union officers
protested such action by the Federation in a Reply dated
July 4, 1988.
The imposition of P50.00 fine became the subject of
bitter disagreement between the Federation and the
local union culminating in the latter's declaration of
general autonomy from the former through Resolution
No. 10 passed by the local executive board and ratified
by the general membership on July 16, 1988.
In retaliation, the national federation asked respondent
company to stop the remittance of the local union's
share in the education funds effective August 1988. This
was objected to by the local union which demanded that
the education fund be remitted to it in full.
The company was thus constrained to file a Complaint
for Interpleader with a Petition for Declaratory Relief with
the Med-Arbitration Branch of the Department of Labor
and Employment, docketed as Case No. OD-M-8-435-
88. This was resolved on October 28, 1988, by Med-
Arbiter Anastacio Bactin in an Order.
On appeal, Director Pura-Ferrer Calleja issued a
Resolution dated February 7, 1989, which modified in
part the earlier disposition.
Meanwhile, on September 2, 1988, several local unions
(Top Form, M. Greenfield, Grosby, Triumph
International, General Milling, and Vander Hons
chapters) filed a Petition for Audit and Examination of
the federation and education funds of ULGWP which
was granted by Med-Arbiter Rasidali Abdullah on
December 25, 1988 in an Order which directed the audit
and examination of the books of account of ULGWP.
On September 30, 1988, the officials of ULGWP called a
Special National Executive Board Meeting at Nasipit,
Agusan del Norte where a Resolution was passed
placing the MSMG under trusteeship and appointing
respondent Cesar Clarete as administrator.
On October 27, 1988, the said administrator wrote the
respondent company informing the latter of its
designation of a certain Alfredo Kalingking as local union
president and "disauthorizing" the incumbent union
officers from representing the employees. This action by
the national federation was protested by the petitioners
in a letter to respondent company dated November 11,
1988.
On November 13, 1988, the petitioner union officers
received identical letters from the administrator requiring
them to explain within 72 hours why they should not be
removed from their office and expelled from union
membership.
Petitioners replied:
(a) Questioning the validity of the alleged
National Executive Board Resolution placing
their union under trusteeship;
(b) Justifying the action of their union in
declaring a general autonomy from ULGWP due
to the latter's inability to give proper educational,
organizational and legal services to its affiliates
and the pendency of the audit of the federation
funds;
(c) Advising that their union did not commit any
act of disloyalty as it has remained an affiliate of
ULGWP;
(d) Giving ULGWP a period of five (5) days to
cease and desist from further committing acts of
coercion, intimidation and harassment.8
However, as early as November 21, 1988, the officers
were expelled from the ULGWP.
On the same day, the federation advised respondent
company of the expulsion of the 30 union officers and
demanded their separation from employment pursuant to
the Union Security Clause in their collective bargaining
agreement. This demand was reiterated twice, through
letters dated February 21 and March 4, 1989,
respectively, to respondent company.
Thereafter, the Federation filed a Notice of Strike with
the National Conciliation and Mediation Board to compel
the company to effect the immediate termination of the
expelled union officers.
Under the pressure of a threatened strike, respondent
company terminated the 30 union officers from
employment, serving them identical copies of the
termination letter.
On that same day, the expelled union officers assigned
in the first shift were physically or bodily brought out of
the company premises by the company's security
guards. Likewise, those assigned to the second shift
were not allowed to report for work. This provoked some
of the members of the local union to demonstrate their
protest for the dismissal of the said union officers. Some
union members left their work posts and walked out of
the company premises.
On the other hand, the Federation, having achieved its
objective, withdrew the Notice of Strike filed with the
NCMB.
The petitioners filed a Notice of Strike with the NCMB,
DOLE, Manila, docketed as Case No. NCMB-NCR-NS-
03-216-89, alleging the following grounds for the strike:
(a) Discrimination
(b) Interference in union activities
(c) Mass dismissal of union officers and shop
stewards
(d) Threats, coercion and intimidation
(e) Union busting
A strike vote referendum was conducted and out of 2,
103 union members who cast their votes, 2,086
members voted to declare a strike.
On March 10, 1989, the thirty (30) dismissed union
officers filed an urgent petition, docketed as Case No.
NCMB-NCR-NS-03-216-89, with the Office of the
Secretary of the Department of Labor and Employment
praying for the suspension of the effects of their
termination from employment. However, the petition was
dismissed by then Secretary Franklin Drilon which held
that the dispute is purely an intra-union matter.
A total of 78 union shop stewards were placed under
preventive suspension by respondent company. This
prompted the union members to again stage a walk-out
and resulted in the official declaration of strike at around
3:30 in the afternoon of March 14, 1989. The strike was
attended with violence, force and intimidation on both
sides resulting to physical injuries to several employees,
both striking and non-striking, and damage to company
properties.
The employees who participated in the strike and
allegedly figured in the violent incident were placed
under preventive suspension by respondent company.
The company also sent return-to-work notices to the
home addresses of the striking employees thrice
successively, on March 27, April 8 and April 31, 1989,
respectively. However, respondent company admitted
that only 261 employees were eventually accepted back
to work. Those who did not respond to the return-to-work
notice were sent termination letters.
The petitioners filed a verified complaint with the
Arbitration Branch, National Capital Region, DOLE,
Manila, docketed as Case No. NCR-00-09-04199-89,
charging private respondents of unfair labor practice
which consists of union busting, illegal dismissal, illegal
suspension, interference in union activities,
discrimination, threats, intimidation, coercion, violence,
and oppression.
The complaint for unfair labor practice was assigned to
Labor Arbiter Manuel Asuncion but was thereafter
reassigned to Labor Arbiter Cresencio Ramos when
respondents moved to inhibit him from acting on the
case.
On December 15, 1992, finding the termination to be
valid in compliance with the union security clause of the
collective bargaining agreement, Labor Arbiter
Cresencio Ramos dismissed the complaint.
Petitioners then appealed to the NLRC. During its
pendency, Commissioner Romeo Putong retired from
the service, leaving only two commissioners,
Commissioner Vicente Veloso III and Hon. Chairman
Bartolome Carale in the First Division. When
Commissioner Veloso inhibited himself from the case,
Commissioner Joaquin Tanodra of the Third Division
was temporarily designated to sit in the First Division for
the proper disposition of the case.
The First Division affirmed the Labor Arbiter's
disposition. With the denial of their motion for
reconsideration on January 28, 1994, petitioners
elevated the case to this Court, attributing grave abuse
of discretion to public respondent NLRC in:
Issue:
W/N respondent company was justified in dismissing
petitioner employees merely upon the labor federation's
demand for the enforcement of the union security clause
embodied in their collective bargaining agreement.
Ruling:
The Court is of the opinion, and so holds, that
respondent company officials cannot be held personally
liable for damages on account of the employees'
dismissal because the employer corporation has a
personality separate and distinct from its officers who
merely acted as its agents.
It has come to the attention of this Court that the 30-day
prior notice requirement for the dismissal of employees
has been repeatedly violated and the sanction imposed
for such violation enunciated in Wenphil Corporation
vs. NLRC32has become an ineffective deterrent. Thus,
the Court recently promulgated a decision to reinforce
and make more effective the requirement of notice and
hearing, a procedure that must be observed before
termination of employment can be legally effected.
In Ruben Serrano vs. NLRC and Isetann Department
Store (G.R. No. 117040, January 27, 2000), the Court
ruled that an employee who is dismissed, whether or not
for just or authorized cause but without prior notice of his
termination, is entitled to full backwages from the time he
was terminated until the decision in his case becomes
final, when the dismissal was for cause; and in case the
dismissal was without just or valid cause, the backwages
shall be computed from the time of his dismissal until his
actual reinstatement. In the case at bar, where the
requirement of notice and hearing was not complied
with, the aforecited doctrine laid down in the Serrano
case applies.
FRANCISCO V. DEL
ROSARIO
vs.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 85416. July 24, 1990
FACTS:
In POEA Case No. 85-06-0394, the POEA
promulgated a decision dismissing the complaint for
money claims for lack of merit. The decision was
appealed to the NLRC, which reversed the POEA
decision and ordered Philsa Construction and Trading
Co., Inc., the recruiter and Arieb Enterprises, the foreign
employer to jointly and severally pay private respondent
their salary differentials and vacation leave benefits.
A writ of execution was issued by the POEA but
it was returned unsatisfied as Philsa was no longer
operating and was financially incapable of satisfying the
judgment. Private respondent moved for the issuance of
an alias writ against the officers of Philsa. This motion
was opposed by the officers, led by petitioner, the
president and general manager of the corporation.
Petitioner appealed to the NLRC. On September
23, 1988, the NLRC dismissed the appeal on the theory
that the corporate personality of Philsa should be
disregarded. According to the NLRC, Philsa
Construction & Trading Co., Inc. and Philsa International
Placement & Services Corp are one and the same
because both corporations has the same set of directors
and officers. Petitioner's motion for reconsideration was
denied.
Thus, this petition was filed, alleging that the NLRC
gravely abused its discretion.
ISSUE:
Whether or not the NLRC acted with grave
abuse of discretion.
RULING:
YES.
Under the law a corporation is bestowed juridical
personality, separate and distinct from its stockholders.
But when the juridical personality of the corporation is
used to defeat public convenience, justify wrong, protect
fraud or defend crime, the corporation shall be
considered as a mere association of persons and its
responsible officers and/or stockholders shall be held
individually liable. For the same reasons, a corporation
shall be liable for the obligations of a stockholder, or a
corporation and its successor-in-interest shall be
considered as one and the liability of the former shall
attach to the latter.
But for the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be
clearly and convincingly established. It cannot be
presumed. Thus, at the time Philsa allowed its license to
lapse in 1985 and even at the time it was delisted in
1986, there was yet no judgment in favor of private
respondent. An intent to evade payment of his claims
cannot therefore be implied from the expiration of
Philsa's license and its delisting. Likewise, substantial
identity of the incorporators of the two corporations does
not necessarily imply fraud.
In this case, not only has there been a failure to
establish fraud, but it has also not been shown that
petitioner is the corporate officer responsible for private
respondent's predicament. It must be emphasized that
the claim for differentials and benefits was actually
directed against the foreign employer. Philsa became
liable only because of its undertaking to be jointly and
severally bound with the foreign employer, an
undertaking required by the rules of the POEA, together
with the filing of cash and surety bonds, in order to
ensure that overseas workers shall find satisfaction for
awards in their favor.
G.R. No. 79907 March 16, 1989
SAMUEL CASAS LIM, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION
and VICTORIA R. CALSADO, respondents.
FACTS:
These two cases have been consolidated because they
relate to the same factual antecedents and the same
private respondent. The issues are:
1. In G.R. No. 79975, whether or not the private
respondent was an employee of the petitioner and, if
so, had been illegally dismissed; and corollarily,
whether or not the NLRC had jurisdiction over their
dispute.
2. In G.R. No. 79907, whether or not the petitioner
could be held solidarity liable with Sweet Lines, Inc.
to the private respondent.
Private respondent Victoria Calsado was hired by Sweet
Lines, Inc. as Senior Branch Officer of its International
Accounts Department for a fixed salary and a stipulated
5 % commission on sales production.
After tendering her resignation to accept another offer of
employment, she was persuaded to remain with an offer
of her promotion to Manager of the Department with
corresponding increase in compensation, which she
accepted. She was also allowed to buy a second-hand
Colt Lancer pursuant to a liberal car plan under which
one-half of the cost was to be paid by the company and
the other half was to be deducted from her salary.
Relations began to sour later, however, when she
repeatedly asked for payment of her commissions, which
had accumulated and were long overdue. She also
complained of the inordinate demands on her time even
when she was sick and in the hospital.
She was served with a letter from Samuel Casas Lim,
the other petitioner, informing her that her "employment
with Sweet Lines" would terminate on August 5, 1985.
Efforts were also taken by Sweet Lines to forcibly take
the car from her, culminating in an action for replevin
against her in the regional trial court of Manila.
On August 14, 1985, Calsado filed a complaint against
both petitioners for illegal dismissal, illegal deduction,
and unpaid wages and commissions plus moral and
exemplary damages, among other claims.
The respondents' defenses were based mainly on the
claim that Calsado was not an employee of Sweet Lines
but an independent contractor and that therefore their
dispute with her came under the jurisdiction of the civil
courts and not of the Labor Arbiter.
ISSUE:
Whether or not Victoria Calsado is an employee of
Sweet Lines.
Whether or not Samuel Lim can be held personally
liable with Sweet Lines for signing the separation
letter.
RULING:
The employee-employer relations between Calsado and
Sweet Lines have been sufficiently established. The
petitioner cannot now argue that the grant to her of the
13th month pay and even the differential pay was a mere
accomodation like the car plan (which, for that matter, is
a benefit usually extended only to employees).
Such relationship having been established, the third
issue is automatically resolved and requires not much
elaboration. Suffice it only to stress that the damages
claimed by private respondent as a result of her
illegal dismissal and the violation of the terms and
conditions of her employment also come within the
jurisdiction of the Labor Arbiter as a contrary rule
would result in the splitting of actions and the
consequent multiplication of suits.
On the fourth issue, we agree with petitioner Lim that he
cannot be held personally liable with Sweet Lines for
merely having signed the letter informing Calsado of her
separation. There is no evidence that he acted with
malice or bad faith. The letter, in fact, informed her
not only of her separation but also of the benefits
due her as a result of the termination of her services.
It is true that Lim has raised this matter rather tardily and
also that he belongs to a closed corporation controlled
by the members of one family only. But these
circumstances should not be allowed to operate against
him if he is to be accorded substantial justice in the
resolution of the private respondent's claim. As we said
in Ortigas vs. Lufthansa German Airlines, the Court is
"clothed with ample authority to review matters, even if
they are not assigned as errors in the appeal, if it finds
that its consideration is necessary in arriving at a just
decision of the case." As for the second charge, the
mere fact that Lim is part of the family corporation
does not mean that all its acts are imputable to him
directly and personally. His acts were official acts,
done in his capacity as Vice President of Sweet
Lines and on its behalf. There is no showing that he
acted without or in excess of his authority or was
motivated by personal ill-will toward Calsado.
The case of Ransom v. NLRC is not in point because
there the debtor corporation actually ceased operations
after the decision of the Court of Industrial Relations was
promulgated against it, making it necessary to enforce it
against its former president. Sweet lines is still existing
and able to satisfy the judgment in favor of the private
respondent.
The Solicitor General, invoking equity rather than law,
observes that making Lim solidarity liable with Sweet
Lines will ensure payment of Calsado's claim. But this
precaution, even assuming it to be valid, is really
unnecessary. In fact, as a condition for the issuance of
our temporary restraining order of October 14, 1987,
Sweet Lines posted as required a bond in the amount of
P850,000.00, which should cover the amounts awarded
to the private respondent.
G.R. No. 78345 September 21, 1990
JOSE M. MAGLUTAC, petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION,
COMMART (PHIL.), INC. AND JESUS T. MAGLUTAC,
respondents.
G.R. No. 78637 September 21, 1990
COMMART (PHIL.), INC., petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION AND
JOSE M. MAGLUTAC, respondents.
Facts: Jose M. Maglutac, petitioner in G.R. No. 78345
(hereinafter referred to as complainant) was employed
by Commart (Phils.), Inc. (hereinafter referred to as
Commart) rose to become the Manager of its Energy
Equipment Sales. He received a notice of termination
signed by Joaquin S. Cenzon, Vice-President-General
Manager and Corporate Secretary of CMS International,
a corporation controlled by Commart.
Thereafter, Jose Maglutac filed a complaint for illegal
dismissal against Commart and Jesus T. Maglutac,
President and Chairman of the Board of Directors of
Commart. The complainant alleged that his dismissal
was part of a vendetta drive against his parents who
dared to expose the massive and fraudulent diversion of
company funds to the company president's private
accounts, stressing that complainant's efficiency and
effectiveness were never put to question when very
suddenly he received his notice of termination.
Commart and Jesus T. Maglutac, on the other hand,
justified the dismissal for lack of trust and confidence
brought about by complainant and his family's
establishment of a company, MM International, in direct
competition with Commart. the Labor Arbiter rendered a
decision finding that complainant was illegally dismissed.
Commart and Jesus T. Maglutac filed a motion for
reconsideration. The NLRC affirmed the finding of the
Labor Arbiter that complainant was illegally dismissed by
Commart but it deleted the award for moral and
exemplary damages in favor of complainant and
absolved Jesus T. Maglutac from any personal liability to
the complainant.
Both parties filed their respective motions for
reconsideration of the decision of the NLRC but both
were denied. Hence, the instant petitions both alleging
grave abuse of discretion on the part of respondent
NLRC.
Issue: Whether or not respondent Maglutac should be
held jointly and severally liable with Commart?
Ruling: Yes, The responsible officer of an employer
corporation can be held personally, not to say even
criminally, liable for non-payment of backwages. In the
case of Chua v. NLRC, G.R. 81450, Feb. 15, 1990,
citing the case of A.C. Ransom Labor Union-CCLU v.
NLRC, 142 SCRA 269, We affirmed the finding of the
Labor Arbiter and the NLRC that the vice-president of a
corporation who was the most ranking officer of the
corporation can be held jointly and severally liable with
the corporation for the payment of the unpaid wages of
its president. It was held:
We resolve the issue in the light of the precedent set in
the case of A.C. Ransom Labor Union-CCLU v. National
Labor Relations Commission (142 SCRA 269 [1986]). In
this case, the Court set aside the decision of the NLRC
upholding the personal non-liability of the individual
officers and agents of the corporation unless they have
acted beyond the scope of their authority. In thus
reversing the NLRC decision, the Court ruled that the
president or presidents of the corporation may be held
liable for the corporations's obligations to its workers.
Chua VS. NLRC
Facts:
City Air International Brokerage Corporation is a family
corporation with the private respondent, Jesus Chua,
serving as its president from October, 1984 up to the
time of his resignation in March, 1985 while the
petitioner, Johnson Chua is the vice-president. Private
respondent filed a complaint with the National Labor
Relations Commission (NLRC) for illegal dismissal and
recovery of unpaid wages for the period November 15,
1984 up to March 31, 1985. The Labor Arbiter ordered to
pay the complainant which affirmed by the NLRC. The
petitioner now, in this petition, argues that he cannot be
held personally liable for the unpaid wages of the private
respondent. He contends that the corporation alone,
which has a personality separate and distinct from its
members or stockholders, should be the one held liable
for corporate obligations.
Issue:
W/N the vice-president be held jointly and
severally liable with the corporation for the unpaid wages
of the company's former president?
Ruling:
Yes.
In the instant case, it was correct for the private
respondent to have impleaded the petitioner in the
complaint considering that the latter was the highest and
most ranking official of the corporation after the private
respondent had resigned. Certainly, there should be an
officer directly responsible for the failure to pay the
wages of the corporation's president. In this case, such
officer happened to be the vice-president.
We resolve the issue in the light of the precedent
set in the case of A.C. Ransom Labor Union-CCLU v.
National Labor Relations Commission (142 SCRA 269
[1986]). In this case, the Court set aside the decision of
the NLRC upholding the personal non-liability of the
individual officers and agents of the corporation unless
they have acted beyond the scope of their authority. In
thus reversing in the NLRC decision, the Court ruled that
the president or presidents of the corporation may be
held liable for the corporation's obligations to its workers.
The Court explained:
(c) Employer includes any person acting in the interest of
an employer directly or indirectly. The term shall not
include any labor organization or any of its officers or
agents except when acting as employer.
. . . Since RANSOM is an artificial person, it must have
an officer who can be presumed to be the employer,
being the 'person acting in the interest of employer.'
RANSOM. The Corporation, only in the technical sense,
is the employer.
The responsible officer of an employer corporation can
be held personally, not to say even criminally, liable for
non-payment of backwages. ... (At p. 273-274; Emphasis
supplied)
xxx xxx xxx
This Court continued:
xxx xxx xxx
(d) The record does not clearly Identify the officer or
officers of RANSOM directly responsible for failure to
pay the backwages of the 22 strikers. In the absence of
definite proof in that regard, we believe it should be
presumed that the responsible officer is the President of
the corporation who can be deemed the chief operation
officer thereof. Thus, in RA 602, criminal responsibility is
with the manager or in his default, the person acting as
such.' In RANSOM, the President appears to be the
Manager. (At p. 274)
Moreover, there are peculiar circumstances attendant to
this case which point to the petitioner as the person also
directly responsible to the private respondent for his
salaries. These lead us further to sustain the decision of
the NLRC.
It is the general rule that findings of fact of quasi-judicial
agencies which have acquired expertise because their
jurisdiction is confined to specific matters are accorded
not only respect by this Court but at times even finality if
such findings are supported by substantial evidence.
(Arica v. National Labor Relations Commission, G.R. No.
78210, February 28, 1989; Johnson and Johnson Labor
Union - FFW v. Director of Labor Relations, G.R. No.
76427, February 21, 1989; Reyes v. Ministry of Labor,
G.R. No. L-48705, February 9, 1989). The instant case
is not an exception to the rule. There is substantial
evidence to support the decision.
As found by the labor arbiter, the private respondent and
petitioner are brothers, serving as the president and
vice-president respectively of the family corporation. At
the time of the filing of the complaint for illegal dismissal
and unpaid wages or commission by the private
respondent the petitioner, as Vice-President, was the
highest and most ranking official of said corporation. He
caused the preparation and verified the position paper
dated August 6, 1985, the appeal memorandum dated
December 20, 1985, and the motion for the
reconsideration of the NLRC decision on August 10,
1987. He showed personal interest in the case of Jesus
Chua despite the fact that a new corporate president in
the person of Jose Beltran had been elected on May 20,
1985. Beltran could have handled this case in .behalf of
the corporation but he did not do so. Since the records
fail to show that the petitioner was authorized by the
corporation to pursue or defend the case filed against it
by the private respondent and yet the petitioner
personally acted in the case and showed keen interest in
its progress, he must be held responsible for its
outcome. The records show that personal animosity
existed between these two (2) brothers. With the
petitioner's manifest interest in the case and his being
the top officer after his brother was eased out, there is
enough reason to believe that the petitioner had a hand
in the dismissal of the private respondent. We, therefore
see no reversible error committed by the NLRC in
applying Article 289 of the Labor Code which provides:
Art. 289. Who are liable when committed by other than
natural person. — If the offense is committed by a
corporation, trust, firm, partnership, association or any
other entity, the penalty shall be imposed upon the guilty
officer or officers of such corporation, trust, firm,
partnership, association or entity.
AMERICAN HOSPITAL SUPPLIES/PHILIPPINES et al.
vs.
COURT OF APPEALS, ALFONSO BAYANI
GR 111807, 14 June 1996
FACTS:
American Hospital Supplies was engaged in the
sale and manufacture of medicines and pharmaceuticals
in the country and did substantial business with
government hospitals. On 1 June 1970 it hired Alfonso
Bayani as an Area Manager for Visayas and Mindanao,
and later appointed him Manager of its Cebu branch. On
30 January 1978 private respondent was dismissed from
the service. At that time he was receiving a monthly
compensation of P3,180.00.
On 5 May 1978 private respondent filed a
complaint for damages before the trial court alleging that
in the course of their business petitioners were directly
encouraging, abetting and promoting bribery in the guise
of "commissions," "entertainment expenses" and
"representation expenses" which were given to various
government hospital officials in exchange for favorable
recommendations, approvals and actual purchases of
medicines and pharmaceuticals. For his refusal to take
direct and personal hand in giving "bribe money" he was
dismissed. He then implicated AHS President Gervacio
Amistoso and Vice President Constancio Halili as
responsible for his illegal dismissal.
ISSUE:
Whether or not Amistoso and Halili be held
solidarily liable with the corporation.
RULING:
NO.
Corporate officers are not personally liable for
money claims of discharged corporate employees unless
they acted with evident malice and bad faith in
terminating their employment. In the case at bar, while
petitioners Amistoso and Halili may have had a hand in
the relief of respondent. Bayani, there are no indications
of malice and bad faith on their part. We take exception
to the conclusion of respondent Court of Appeals that
"the manner by which Halili and Amistoso acted is
characterized by bad faith and malice, thus binding them
personally liable to plaintiff-appellee,'' On the contrary it
is apparent that the relief order was a business judgment
on the part of the officers, with the best interest of the
corporation in mind, based on their opinion that
respondent Bayani had failed to perform the duties
expected of him. Hence both the trial court and
respondent Court of Appeals committed a reversible
error in holding petitioners Amistoso and Halili jointly and
solidarily liable with Petitioner Corporation.
REAHS CORP., SEVERO CASTULO, et al.
vs.
NLRC, BONIFACIO RED, et al.
GR 117473, 15 April 1997
FACTS:
 Private respondents sued Reahs Corp. for unfair
labor practice and illegal dismissal. They claim that they
were unlawfully dismissed and were not awarded nor
given any separation pay.
On the other hand, respondents allege that
sometime in 1986, a certain Ms Soledad Domingo, the
sole proprietress and operator of Rainbow Sauna
located at 316 Araneta Avenue, Quezon City, offered to
sell her business to respondent Reah's Corporation After
the sale, all the assets of Ms Domingo were turned over
to respondent Reah's, which put a sing-along coffee
shop and massage clinic; that complainant Red started
his employment on the first week of December 1988 as
a room boy at P50.00/day and was given living quarters
inside the premises as he requested; that sometime in
March 1989, complainant Red asked permission to go to
Bicol for a period of ten (10) days, which was granted,
and was given an advance money of P1,200.00 to bring
some girls from the province to work as attendants at the
respondent's massage clinic, that it was only on January
1, 1990 that complainant Red returned and was re-hired
under the same terms and conditions of his previous
employment with the understanding that he will have to
refund the P1,200.00 cash advance given to him; that
due to poor business, increase in the rental cost and the
failure of Meralco to reconnect the electrical services in
the establishment, it suffered losses leading to its
closure.
The NLRC ruled in favor of respondents.
Together with the corporation, the NLRC also held
Castulo, Romeo Pascua, and Daniel Valenzuela
solidarily liable due to their capacity as Chairman, Board
Member and Accountant, and Acting Manager,
respectively.
ISSUE:
Whether or not Pascua, Castulo, and
Valenzuela, may be held liable.
RULING:
YES.
They acted in bad faith in dismissing the
respondents. As a general rule established by legal
fiction, the corporation has a personality separate and
distinct from its officers, stockholders and members.
Hence, officers of a corporation are not personally liable
for their official acts unless it is shown that they have
exceeded their authority. This fictional veil, however, can
be pierced by the very same law which created it when
"the notion of the legal entity is used as a means to
perpetrate fraud, an illegal act, as a vehicle for the
evasion of an existing obligation, and to confuse
legitimate issues". Under the Labor Code, for instance,
when a corporation violates a provision declared to be
penal in nature, the penalty shall be imposed upon the
guilty officer or officers of the corporation.
In the case at bar, the thrust of petitioners'
arguments was aimed at confining liability solely to the
corporation, as if the entity were an automaton designed
to perform functions at the push of a button. The issue,
however, is not limited to payment of separation pay
under Article 283 but also payment of labor standard
benefits such as underpayment of wages, holiday pay
and 13th month pay to two of the private respondents.
While there is no sufficient evidence to conclude that
petitioners have indiscriminately stopped the entity's
business, at the same time, petitioners have opted to
abstain from presenting sufficient evidence to establish
the serious and adverse financial condition of the
company.
G.R. No. 121434 June 2, 1997
ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F.
BASILIO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
LUZVIMINDA SANTOS, SHIRLEY PORRAS, CARMEN
ELIZARDE, ET. AL., respondents.
Facts:
Private respondents were employed by Crispa, Inc. for
many years in the latter's garments factory located in
Pasig Boulevard, Pasig City.
Sometime in September, 1991, private respondents'
services were terminated on the ground of retrenchment
due to alleged serious business losses suffered by
Crispa, Inc. in the years immediately preceding 1990.
Thereafter, respondent employees filed before the
NLRC, National Capital Region, Manila, three (3)
separate complaints for illegal dismissal and diminution
of compensation against Crispa, Inc., Valeriano Floro,
and the petitioners.
Valeriano Floro was a major stockholder, incorporator
and Director of Crispa, Inc., while the petitioners were
high ranking officers and directors of the company. Said
complaints were consolidated in order to expedite the
proceedings. The case was assigned to Labor Arbiter
Raul Aquino.
Labor Arbiter Aquino rendered a decision dismissing the
complaints for illegal dismissal but at the same time
ordering Crispa, Inc., Floro and the petitioners to pay
respondent employees separation pay equivalent to
seventeen (17) days for every year of service.
Dissatisfied, private respondents appealed before the
public respondent NLRC. In a Resolution, the Second
Division of the NLRC found Crispa, Inc., Valeriano Floro,
together with the petitioners liable for illegal dismissal,
and modified the award of separation pay in the amount
of one (1) month for every year of service.
Petitioners filed a MR but the same was denied by the
NLRC.
Private respondents sought a clarification of public
respondent NLRC's Resolution insofar as the
computation of separation pay by the Examination and
Computation Division was concerned as well as the
failure of the Resolution to award them full backwages
despite the finding of illegal dismissal.
The NLRC, treating the Motion to Clarity Judgment as an
Appeal, granted the same.
Petitioners filed a Motion for Reconsideration of the April
21, 1995 Resolution, which was denied.
Hence, this petition.
Issue: W/N a director, trustee or officer be made
personally liable for his corporate action.
Ruling: Yes.
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. 23 In this case, it is undisputed
that petitioners have a direct hand in the illegal dismissal
of respondent employees. They were the ones, who as
high-ranking officers and directors of Crispa, Inc., signed
the Board Resolution retrenching private respondents on
the feigned ground of serious business losses that had
no basis apart from an unsigned and unaudited Profit
and Loss Statement which, to repeat, had no evidentiary
value whatsoever. This is indicative of bad faith on the
part of petitioners for which they can be held jointly and
severally liable with Crispa, Inc. for all the money claims
of the illegally terminated respondent employees in this
case.
G.R. No. 125340 September 17, 1998
EMELITA NICARIO, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
MANCAO SUPERMARKET, INC. AND/OR MANAGER,
ANTONIO MANCAO, respondents.
FACTS:
Petitioner, Emelita Nicario, was employed with
respondent company, Mancao Supermarket, on June 6,
1986 as a salesgirl and was later on promoted as sales
supervisor. However, private respondent terminated her
services on February 7, 1989.
A complaint for illegal dismissal with prayer for
backwages, wage differential, service incentive leave
pay, overtime pay, 13th month pay and unpaid wages
was filed by petitioner before the National Labor
Relations Commission,
In a decision dated May 23, 1994, Labor Arbiter
Macaraig-Guillen awarded petitioner's claims for unpaid
service incentive leave pay, 13th month pay, overtime
pay and rest day pay for the entire period of her-
employment, but dismissed her claims for holiday
premium pay and unpaid salaries from February 3 to 5,
1989.
Not satisfied with the decision, private respondent
appealed to the NLRC, and in a resolution dated August
16, 1995, the Commission affirmed in toto Labor Arbiter
Macaraig-Guillen's decision. Private respondent then
filed a motion for reconsideration. In a resolution dated
December 21, 1995, public respondent NLRC modified
its earlier resolution by deleting the award for overtime
pay and ruling that private respondent Antonio Mancao
is not jointly and severally liable with Mancao
Supermarket to pay petitioner the monetary award
adjudged.
ISSUE:
Whether or not Antonio Mancao is jointly and severally
liable with respondent supermarket as to the monetary
award.
RULING:
As to the liability of private respondent Antonio Mancao,
petitioner contends that as manager of Mancao
establishment, he should be jointly and severally liable
with respondent corporation as to the monetary award
adjudged.
The general rule is that officers of a corporation are not
personally liable for their official acts unless it is shown
that they have exceeded their authority. However, the
legal fiction that a corporation has a personality separate
and distinct from stockholders and members may be
disregarded if it is used as a means to perpetuate fraud
or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to
confuse legitimate issues.
In this case, there is no showing that Antonio Mancao,
as manager of respondent company, deliberately and
maliciously evaded the respondent's company financial
obligation to the petitioner. Hence, there appearing to be
no evidence on record that Antonio Mancao acted
maliciously or deliberately in the non-payment of benefits
to petitioner he cannot he held jointly and severally liable
with Mancao supermarket.
G.R. No. 119085 September 9, 1999
RESTAURANTE LAS CONCHAS and/or DAVID
GONZALES, petitioners, vs.
LYDIA LLEGO, SERGIO DANO, EDWARD ARDIANTE,
FEDERICO DE LA CRUZ, SHERILITA ANIEL, LORNA
AZUELA, ZENAIDA HERMOCILLA, FELICIDAD
ROLDAN, HELEN MANALAYSAY, LUZ
BALDELAMAR, FELICIDAD MENDOZA, DOLORES
BAQUIZO, RODOLFO BAS, CIRIACO BATITES, and
THE HONORABLE NATIONAL LABOR RELATIONS
COMMISSION, respondents.
Facts: Private respondents were employees of petitioner
Restaurante Las Conchas which was allegedly operated
by the Restaurant Services Corporation and by
petitioners David Gonzales and Elizabeth Anne
Gonzales who are members of the board of directors
and officers of the corporation.
The Restaurant Services Corporation got involved in a
legal battle with the Ayala Land, Inc. over the land
allegedly being occupied by petitioners for their
restaurant.
Ayala Land, Inc. obtained a favorable judgment in the
case filed against Restaurant Services Corporation for
unlawful detainer and the latter were ordered to vacate
the premises. The case was appealed to the Court of
Appeals and ultimately to this Court which affirmed the
decision of the trial court.
Petitioners attempted to look for a suitable place for their
restaurant business at the Ortigas Center but to no avail,
thus, they shut down their business. This resulted in the
termination of employment of private respondents.
Private respondents filed a complaint with the Labor
Arbiter for payment of separation pay and 13th month
pay. This was, however, dismissed by the Labor Arbiter
prompting the private respondents to appeal the case to
the respondent NLRC. The NLRC rendered a Decision
favorable to private respondents.
Issue: Whether or not petitioners are personally liable to
private respondents?
Ruling: Yes. Assuming that indeed, the Restaurant
Services Corporation was the owner of the Restaurante
Las Conchas and the employer of private respondents,
this will not absolve petitioners David Gonzales and
Elizabeth Anne Gonzales from their liability as corporate
officers. Although as a rule, the officers and members of
a corporation are not personally liable for acts done in
the performance of their duties, this rule admits of
exceptions, one of which is when the employer
corporation is no longer existing and is unable to satisfy
the judgment in favor of the employee, the officers
should be held liable for acting on behalf of the
corporation. Here, the corporation does not appear to
exist anymore.
In the present case, the employees can no longer claim
their separation benefits and 13th month pay from the
corporation because it has already ceased operation. To
require them to do so would render illusory the
separation and 13th month pay awarded to them by the
NLRC. Their only recourse is to satisfy their claim from
the officers of the corporation who were, in effect, acting
in behalf of the corporation. It would appear that,
originally, Restaurante Las Conchas was a single
proprietorship put up by the parents of Elizabeth Anne
Gonzales, who together with her husband, petitioner
David Gonzales, later took over its management. Private
respondents claim, and rightly so, that the former were
the real owners of the restaurant. The conclusion is
bolstered by the fact that petitioners never revealed who
were the other officers of the Restaurant Services
Corporation, if only to pinpoint responsibility in the
closure of the restaurant that resulted in the dismissal of
the private respondents from employment. Petitioners
David Gonzales and Elizabeth Anne Gonzales are,
therefore, personally liable for the payment of the
separation and 13th month pay due to their former
employees.
Valderrama VS. NLRC
Facts:
Maria Andrea Saavedra, herein private
respondent, filed a complaint against the COMMODEX
(Phils.), Inc., petitioner Consuelo Valderrama as owner,
Tranquilino Valderrama as executive vice president and
Jose Ma. Togle as vice president and general manager,
for reinstatement and backwages. On December 2,
1986, the Labor Arbiter rendered a decision, finding
private respondent to have been illegally dismissed and
holding the respondent COMMODEX liable. It was
shown that private respondent had been dismissed from
her employment due to her pregnancy, contrary to
allegations of petitioner and her co-respondents therein
that the termination of her employment was due to
redundancy and retrenchment.
A writ of execution was granted, but it was
returned unsatisfied. The sheriff reported that
COMMODEX had ceased operation, while the individual
officers, who were co-respondents in the case, took the
position that the writ could not be enforced against them
on the ground that the dispositive portion of the decision
mentioned only COMMODEX.
Private respondent filed a Motion for Clarification
in which she prayed that the body of the decision clearly
held the petitioner and her co-respondents therein to be
liable and that therefore, this Office is not precluded from
correcting the inadvertence by clarifying the words
respondent company which ought to have been
respondents jointly and severally in order to make the
fallo or dispositive part correspond or correlate with the
body of the final decision, considering that the unjust
dismissal of the complainant constitutes tort or quasi-
delict. (Article 2176, New Civil Code). Petitioner and her
co-respondents therein filed an opposition to the motion
for clarification. They contended that the decision of the
Labor Arbiter had become final and executory and could
no longer be amended.
The Labor Arbiter, citing our ruling in A. C.
Ransom Labor Union-CCLU v. NLRC, which held the
president of a corporation responsible and personally
liable for payment of backwages, granted the private
respondents motion and set it for hearing for reception of
evidence of the relationship of the petitioner and her
corespondents therein to COMMODEX. Private
respondent then presented the Articles of Incorporation,
List of Stockholders and the General Information Sheet
of COMMODEX, which showed that of the 2,000 shares
of stocks of the corporation, Consuelo Valderrama
owned 1,993 and that she was chairman of the board
and president of respondent company. The NLRC
affirmed the LA’s decision. Hence, this petition.
Issue:
W/N Petitioner cannot and should not be held
personally liable jointly and severally with Commodex
(Phils.), Inc. for the awards adjudged in favor of herein
Private Respondent Saavedra.
Ruling:
No, petitioner can be and should be held liable.
First. The rule that once a judgment becomes
final it can no longer be disturbed, altered, or modified is
not an inflexible one. It admits of exceptions, as where
facts and circumstances transpire after a judgment has
become final and executory which render its execution
impossible or unjust. In such a case the modification of
the decision may be sought by the interested party and
the court will modify and alter the judgment to harmonize
it with justice and the facts.
Petitioner seeks to distinguish that case from the
one at bar on the ground that the dispositive portion of
the decision in that case actually ordered the officers
and agents of A. C. Ransom to cease and desist from
committing further acts of certain labor practice thus:
IN VIEW OF ALL THE FOREGOING, . . . the A. C.
Ransom Philippine Corporation is guilty of unfair labor
practice of interference and discrimination hereinabove
held and specified, ordering its officers and agents to
cease and desist from committing the same, finding the
strike legal and justified; and to reinstate immediately . . .
to their respective positions with backwages from July
25, 1969 until actually reinstated, without loss of
seniority rights and other privileges appurtenant to their
employment.
A corporation can only act through its officers
and agents. That is why the cease and desist order was
directed to the officers and agents of A. C. Ransom,
which was actually found guilty of unfair labor practice.
But that case clearly also holds that any decision against
the company can be enforced against the officers in their
personal capacities should the corporation fail to satisfy
the judgment against it. The quoted portion of that
decision explaining the basis for such ruling makes that
clear. Agreeably with the ruling in A. C. Ransom Labor
Union-CCLU it was held in another case that where the
Employer corporation is no longer existing and [is]
unable to satisfy the judgment in favor of the employee,
the officer should be held liable for acting on behalf of
the corporation.
Similarly it was held in Carmelcraft Corp. v.
NLRC:
We also find untenable the contention of Carmen Yulo
that she is not liable for the acts of the petitioner
company, assuming it had acted illegally, because the
Carmelcraft Corporation is a distinct and separate entity
with a legal personality of its own. Yulo claims she is
only an agent of the company carrying out the decisions
of its board of directors. We do not agree. Our finding is
that she is in fact and legal effect the corporation, being
not only its president and general manager but also its
owner.
In this case, the documents presented by the
private respondent show that petitioner controlled the
company owning 1,993 of its 2,000 shares, with the rest
of the stockholders owning only nominal amounts.
GARCIA, petitioner
vs.
LIM CHU SING, respondent
G.R. No. L-39427 February 24, 1934
FACTS:
On June 20, 1930, the defendant-appellant Lim
Chu Sing executed and delivered to the Mercantile Bank
of China promissory note for the sum of P19,605.17 with
interest thereon at 6 per cent per annum, payable
monthly as follows: P1,000 on July 1, 1930; P500 on
August 1, 1930; and P500 on the first of every month
thereafter until the amount of the promissory note
together with the interest thereon is fully paid (Exhibit A).
One of the conditions stipulated in said promissory note
is that in case of defendant's default in the payment of
any of the monthly installments, as they become due,
the entire amount or the unpaid balance thereof together
with interest thereon at 6 per cent per annum, shall
become due and payable on demand. The defendant
had been, making several partial payments thereon,
leaving an unpaid balance of P9,105.17. However, he
defaulted in the payment of several installments by
reason of which the unpaid balance of P9,105.17 on the
promissory note has ipso facto become due and
demandable.
ISSUE:
Whether or not it is proper to compensate the
defendant-appellant's 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
plaintiff entity, the Mercantile Bank of China.
RULING:
NO.
According to the weight of authority, a share of
stock or the certificate thereof is not indebtedness to the
owner or 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.
TRILLANA, petitioner
vs.
QUEZON COLLEGE, INC., respondent
G.R. No. L-5003 June 27, 1953
FACTS:
Damasa Crisostomo sent a letter to the Board of
Trustees of the Quezon College subscribing to 200
shares of its capital stock at par value of Php100 each.
Damasa Crisostomo died on October 26, 1948. As no
payment appears to have been made on the
subscription mentioned in her letter, the Quezon
College, Inc. presented a claim before the Court of First
Instance of Bulacan in her testate proceeding, for the
collection of the sum of P20,000, representing the value
of the subscription to the capital stock of the Quezon
College, Inc. This claim was opposed by the
administrator of the estate, and the Court of First
Instance of Bulacan, after hearing issued an order
dismissing the claim of the Quezon College, Inc. on the
ground that the subscription in question was neither
registered in nor authorized by the Securities and
Exchange Commission. From this order the Quezon
College, Inc. has appealed.
ISSUE:
Whether or not the subscription applied for by
Damasa Crisostomo is an enforceable contract.
RULING:
NO.
It appears that the application sent by Damasa
Crisostomo to the Quezon College, Inc. was written on a
general form indicating that an applicant will enclose an
amount as initial payment and will pay the balance in
accordance with law and the regulations of the College.
On the other hand, in the letter actually sent by Damasa
Crisostomo, the latter (who requested that her
subscription for 200 shares be entered) not only did not
enclose any initial payment but stated that "babayaran
kong lahat pagkatapos na ako ay makapagpahuli ng
isda." There is nothing in the record to show that the
Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was
any acceptance the same came to her knowledge during
her lifetime. As the application of Damasa Crisostomo is
obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was
absolute necessity on the part of the College to express
its agreement to Damasa's offer in order to bind the
latter. Conversely, said acceptance was essential,
because it would be unfair to immediately obligate the
Quezon College, Inc. under Damasa's promise to pay
the price of the subscription after she had caused fish to
be caught. In other words, the relation between Damasa
Crisostomo and the Quezon College, Inc. had only thus
reached the preliminary stage whereby the latter offered
its stock for subscription on the terms stated in the form
letter, and Damasa applied for subscription fixing her
own plan of payment, — a relation, in the absence as in
the present case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa Crisostomo, that had
not ripened into an enforceable contract.
Indeed, the need for express acceptance on the
part of the Quezon College, Inc. becomes the more
imperative, in view of the proposal of Damasa
Crisostomo to pay the value of the subscription after she
has harvested fish, a condition obviously dependent
upon her sole will and, therefore, facultative in nature,
rendering the obligation void, under article 1115 of the
old Civil Code which provides as follows: "If the
fulfillment of the condition should depend upon the
exclusive will of the debtor, the conditional obligation
shall be void. If it should depend upon chance, or upon
the will of a third person, the obligation shall produce all
its effects in accordance with the provisions of this
code." It cannot be argued that the condition solely is
void, because it would have served to create the
obligation to pay, wherein only the potestative condition
was held void because it referred merely to the
fulfillment of an already existing indebtedness.
BAYLA, et al., petitioner
vs.
SILANG TRAFFIC CO., INC., respondent
G.R. Nos. L-48195 and 48196 May 1, 1942
FACTS:
Petitioners in G.R. No. 48195 instituted this
action in the Court of First Instance of Cavite against the
respondent Silang Traffic Co., Inc. (cross-petitioner in
G.R. No. 48196), to recover certain sums of money
which they had paid severally to the corporation on
account of shares of stock they individually agreed to
take and pay for under certain specified terms and
conditions. The agreements signed by the other
petitioners were of the same date (March 30, 1935) and
in identical terms as the foregoing except as to the
number of shares and the corresponding purchase price.
The petitioners agreed to purchase a total of 46 shares
and, up to April 30, 1937, had paid the corresponding
amount on account thereof.Petitioners' action for the
recovery of the sums above mentioned is based on a
resolution by the board of directors of the respondent
corporation on August 1, 1937.
The respondent corporation set up the following
defenses: (1) That the above-quoted resolution is not
applicable to the petitioners Sofronio T. Bayla, Josefa
Naval, and Paz Toledo because on the date thereof
"their subscribed shares of stock had already
automatically reverted to the defendant, and the
installments paid by them had already been forfeited";
and (2) that said resolution of August 1, 1937, was
revoked and cancelled by a subsequent resolution of the
board of directors of the defendant corporation dated
August 22, 1937.
ISSUE:
Whether or not the agreement was a contract of
subscription to the capital stock of the respondent
corporation.
RULING:
NO.
Whether a particular contract is a subscription or
a sale of stock is a matter of construction and depends
upon its terms and the intention of the parties. In the
Unson case just cited, this Court held that a subscription
to stock in an existing corporation is, as between the
subscriber and the corporation, simply a contract of
purchase and sale.
It seems clear from the terms of the contracts in
question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the
distinction between subscription and purchase "A
subscription, properly speaking, is the mutual agreement
of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent
agreement between the individual and the corporation to
buy shares of stock from it at stipulated price." In some
particulars the rules governing subscriptions and sales of
shares are different. For instance, the provisions of our
Corporation Law regarding calls for unpaid subscription
and assessment of stock do not apply to a purchase of
stock. Likewise the rule that corporation has no legal
capacity to release an original subscriber to its capital
stock from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
VELASCO VS. POIZAT
G.R. No. L-11528
FACTS: The plaintiff, as assignee in insolvency of "The
Philippine Chemical Product Company" (Ltd.) is seeking
to recover of the defendant, Jean M. Poizat, the sum of
P1,500, upon a subscription made by him to the
corporate stock of said company. It appears that the
corporation in question was originally organized by
several residents of the city of Manila, where the
company had its principal place of business, with a
capital of P50,000, divided into 500 shares. The
defendant subscribed for 20 shares of the stock of the
company, an paid in upon his subscription the sum of
P500, the par value of 5 shares . The action was brought
to recover the amount subscribed upon the remaining
shares. It appears that the defendant was a stock holder
in the company from the inception of the enterprise, and
for sometime acted as its treasurer and manager. While
serving in this capacity he called in and collected all
subscriptions to the capital stock of the company, except
the aforesaid 15 shares subscribed by himself and
another 15 shares owned by Jose R. Infante.
A meeting of the board of directors of the company was
held at which a majority of the stock was presented.
Upon this occasion two resolutions were adopted. The
first was a proposal that the directors, or shareholders,
of the company should make good by new subscriptions,
in proportion to their respective holdings, 15 shares
which had been surrendered by Infante. It seems that
this shareholder had already paid 25 per cent of his
subscription upon 20 shares, leaving 15 shares unpaid
for, and an understanding had been reached by him and
the management by which he was to be released from
the obligation of his subscription, it being understood
that what he had already paid should not be refunded.
Accordingly the directors present at this meeting
subscribed P1,200 toward taking up his shares, leaving
a deficiency of P300 to be recovered by voluntary
subscriptions from stockholders not present at the
meeting. The other proposition was o the effect that
Juan [Jean] M. Poizat, who was absent, should be
required to pay the amount of his subscription upon the
15 shares for which he was still indebted to the
company. The resolution further provided that, in case
he should refuse to make such payment, the
management of the corporation should be authorized to
undertake judicial proceedings against him. When
notification of this resolution reached Poizat through the
mail it evoked from him a manifestation of surprise and
pain, which found expression in a letter written by him in
reply, dated July 27, 1914, and addressed to Velasco, as
treasurer and administrator. In this letter Poizat states
that he had been given to understand by some member
of the board of directors that he was to be relieved from
his subscription upon the terms conceded to Infante. The
company soon went into voluntary insolvency, Velasco
being named as the assignee. At the hearing of the
Court of First Instance, judgment was rendered in favor
of the defendant, and the complaint was dismissed.
From this action the plaintiff has appealed.
ISSUE: WON Poizat is liable upon this subscription?
HELD: Poizat is liable upon his subscription. Section
36 of the Corporation Law clearly recognizes that a
stock subscription is subsisting liability from the
time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date
unless he is relieved from such liability by the by-
laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by
him as he would be to pay any other debt, and the
right of the company to demand payment is no less
incontestable. The provisions of the Corporation
Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock
subscriptions. The first and most special remedy
given by the statute consists in permitting the
corporation to put up the unpaid stock for sale and
dispose of it for the account of the delinquent
subscriber. In this case the provisions of section 38
to 48, inclusive, of the Corporation Law are
applicable and must be followed. Nothing in this Act
shall prevent the directors from collecting, by action
in any court of proper jurisdiction, the amount due
on any unpaid subscription, together with accrued
interest and costs and expenses incurred. The
assignee of the insolvent corporation succeeds to all
the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee
therefore has the same freedom with respect to
suing upon the stock subscription as the directors
themselves would have had under section 49 above
cited. There is another reason why the present
plaintiff must prevail in this case. That reason is this:
When insolvency supervenes upon a corporation
and the court assumes jurisdiction to wind up, all
unpaid stock subscriptions become payable on
demand, and are at once recoverable in an action
instituted by the assignee or receiver appointed by
the court. It is now quite well settled that when the
corporation becomes insolvent, with proceedings
instituted by creditors to wind up and distribute its
assets, no call or assessment is necessary before
the institution of suits to collect unpaid balances on
subscription. It evidently cannot be permitted that a
subscriber should escape from his lawful obligation
by reason of the failure of the officers of the
corporation to perform their duty in making a call;
and when the original model of making the call
becomes impracticable, the obligation must be
treated as due upon demand. The better doctrine is
that when insolvency supervenes all unpaid
subscriptions become at once due and enforceable.
The circumstance that the board of directors in their
meeting of July 13, 1914, resolved to release Infante
from his obligation upon a subscription for 15
shares is no wise prejudicial to the right of the
corporation or its assignee to recover from Poizat
upon a subscription made by him. In releasing
Infante the board transcended its powers, and he no
doubt still remained liable on such of his shares as
were not taken up and paid for by other persons.The
general doctrine is that the corporation has no legal
capacity to release an original subscriber to its
capital stock from the obligation of paying for his
shares, in whole or in part.The suggestion contained
in Poizat's letter of July 27, 1914, to the effect that he
understood that he was to be relieved upon the
same terms as Infante is, for the same reason, of no
merit as matter of defense, even if an agreement to
that effect had been duly proved.
PHILIPPINE NATIONAL BANK, plaintiff
vs.
BITULOK SAWMILL INC., defendant
G.R. Nos. L-24177-85 June 29, 1968
FACTS:
The Philippine Lumber Distributing Agency, Inc.,
according to the lower court, "was organized sometime
in the early part of 1947 upon the initiative and
insistence of the late President Manuel Roxas of the
Republic of the Philippines who for the purpose, had
called several conferences between him and the
subscribers and organizers of the Philippine Lumber
Distributing Agency, Inc." The purpose was praiseworthy,
to insure a steady supply of lumber, which could be sold
at reasonable prices to enable the war sufferers to
rehabilitate their devastated homes. At the beginning,
the lumber producers were reluctant to organize the
cooperative agency as they believed that it would not be
easy to eliminate from the retail trade the alien
middlemen who had been in this business from time
immemorial, but because the late President Roxas made
it clear that such a cooperative agency would not be
successful without a substantial working capital which
the lumber producers could not entirely shoulder, and 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."
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
on July 28, 1947, payable on or before April 30, 1958,
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.
ISSUE:
Whether or not the non-compliance with a plain
statutory command, considering the persuasiveness of
the plea that defendants-appellees would "not have
subscribed to the capital stock" of the Philippine Lumber
Distributing Agency "were it not for the assurance of the
then President of the Republic that the Government
would back it up by investing P9.00 for every
peso" subscribed, a condition which was not fulfilled,
such commitment not having been complied with, be
justified.
RULING:
NO.
It would be unwarranted to ascribe to the late
President Roxas the view that the payment of the stock
subscriptions, as thus required by law, could be
condoned in the event that the counterpart fund to be
invested by the Government would not be available.
Even if such were the case, however, and such a
promise were in fact made, to further the laudable
purpose to which the proposed corporation would be
devoted and the possibility that the lumber producers
would lose money in the process, still the plain and
specific wording of the applicable legal provision as
interpreted by this Court must be controlling. It is a well-
settled principle that with all the vast powers lodged in
the Executive, he is still devoid of the prerogative of
suspending the operation of any statute or any of its
terms.
NATIONAL EXCHANGE CO.,
INC., petitioner
vs.
I.B. DEXTER, respondent
G.R. No. L-27872 February 25, 1928
FACTS:
This action was instituted in the Court of First
Instance of Manila by the National Exchange Co., Inc.,
as assignee (through the Philippine National Bank) of C.
S. Salmon & Co., for the purpose of recovering from I. B.
Dexter a balance of P15,000, the par value of one
hundred fifty shares of the capital stock of C. S. Salmon
& co., with interest and costs. Upon hearing the cause
the trial judge gave judgment for the plaintiff to recover
the amount claimed, with lawful interest from January 1,
1920, and with costs. From this judgment the defendant
appealed.
It appears that on August 10, 1919, the
defendant, I. B. Dexter, signed a written subscription to
the corporate stock of C. S. Salmon & Co. in the
following form: I hereby subscribe for three hundred
(300) shares of the capital stock of C. S. Salmon and
Company, payable from the first dividends declared on
any and all shares of said company owned by me at the
time dividends are declared, until the full amount of this
subscription has been paid.
Upon this subscription the sum of P15,000 was
paid in January, 1920, from a dividend declared at about
that time by the company, supplemented by money
supplied personally by the subscriber. Beyond this
nothing has been paid on the shares and no further
dividend has been declared by the corporation. There is
therefore a balance of P15,000 still paid upon the
subscription.
ISSUE:
Whether or not the stipulation contained in the
subscription to the effect that the subscription is payable
from the first dividends declared on the shares has the
effect of relieving the subscriber from personal liability in
an action to recover the value of the shares.
RULING:
NO.
In discussing this problem we accept as sound
law the proposition propounded by the appellant's
attorneys and taken from Fletcher's Cyclopedia as
follows: In the absence of restrictions in its character, a
corporation, under its general power to contract, has the
power to accept subscriptions upon any special terms
not prohibited by positive law or contrary to public policy,
provided they are not such as to require the performance
of acts which are beyond the powers conferred upon the
corporation by its character, and provided they do not
constitute a fraud upon other subscribers or
stockholders, or upon persons who are or may become
creditors of the corporation.
Pursuant to such, we find that the Philippine
Commission inserted in the Corporation Law, enacted
March 1, 1906, the following provision: "no corporation
shall issue stock or bonds except in exchange for actual
cash paid to the corporation or for property actually
received by it at a fair valuation equal to the par value of
the stock or bonds so issued."
The prohibition against the issuance of shares
by corporations except for actual cash to the par value of
the stock to its full equivalent in property is thus
enshrined in both the organic and statutory law of the
Philippine; Islands; and it would seem that our
lawmakers could scarely have chosen language more
directly suited to secure absolute equality stockholders
with respect to their liability upon stock subscriptions.
Now, if it is unlawful to issue stock otherwise than as
stated it is self-evident that a stipulation such as that
now under consideration, in a stock subcription, is illegal,
for this stipulation obligates the subcriber to pay nothing
for the shares except as dividends may accrue upon the
stock. In the contingency that dividends are not paid,
there is no liability at all. This is discrimination in favor of
the particular subcriber, and hence the stipulation is
unlawful.
ONG YONG, et al., petitioner
vs.
TIU, et al., respondent
G.R. No. 144476 8 April 2003
FACTS:
In 1994, the construction of the Masagana
Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned
by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See
Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the
Tius), encountered dire financial difficulties. It was
heavily indebted to the Philippine National Bank (PNB)
for P190 million. To stave off foreclosure of the mortgage
on the two lots where the mall was being built, the Tius
invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the
Ongs), to invest in FLADC. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par
value of P100.00 each while the Tius were to subscribe
to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of 450,200
shares. Furthermore, they agreed that the Tius were
entitled to nominate the Vice-President and the
Treasurer plus 5 directors while the Ongs were entitled
to nominate the President, the Secretary and 6 directors
(including the chairman) to the board of directors of
FLADC. Moreover, the Ongs were given the right to
manage and operate the mall. Accordingly, the Ongs
paid P100 million in cash for their subscription to
1,000,000 shares of stock while the Tius committed to
contribute to FLADC a four-storey building and two
parcels of land respectively valued at P20 million (for
200,000 shares), P30 million (for 300,000 shares) and
P49.8 million (for 49,800 shares) to cover their additional
549,800 stock subscription therein. The Ongs paid in
another P70 million 3 to FLADC and P20 million to the
Tius over and above their P100 million investment, the
total sum of which (P190 million) was used to settle the
P190 million mortgage indebtedness of FLADC to PNB.
The business harmony between the Ongs and the Tius
in FLADC, however, was shortlived because the Tius, on
23 February 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of (1) refusing
to credit to them the FLADC shares covering their real
property contributions; (2) preventing David S. Tiu and
Cely Y. Tiu from assuming the positions of and
performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office
spaces agreed upon. The controversy finally came to a
head when the case was commenced by the Tius on 27
February 1996 at the Securities and Exchange
Commission (SEC), seeking confirmation of their
rescission of the Pre-Subscription Agreement.
ISSUE:
Whether or not the rescission of Pre-
Subscription Agreement would result in unauthorized
liquidation.
RULING:
YES.
The rescission of the Pre-Subscription
Agreement will effectively result in the unauthorized
distribution of the capital assets and property of the
corporation, thereby violating the Trust Fund Doctrine
and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when
distribution of capital assets and property of the
corporation is allowed. Rescission will, in the final
analysis, result in the premature liquidation of the
corporation without the benefit of prior dissolution in
accordance with Sections 117, 118, 119 and 120 of the
Corporation Code.
What is a “Subscription”
ONG YONG, et al., petitioner
vs.
TIU, et al., respondent
G.R. No. 144476 8 April 2003
FACTS:
In 1994, the construction of the Masagana
Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned
by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See
Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the
Tius), encountered dire financial difficulties. It was
heavily indebted to the Philippine National Bank (PNB)
for P190 million. To stave off foreclosure of the mortgage
on the two lots where the mall was being built, the Tius
invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the
Ongs), to invest in FLADC. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par
value of P100.00 each while the Tius were to subscribe
to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of 450,200
shares. Furthermore, they agreed that the Tius were
entitled to nominate the Vice-President and the
Treasurer plus 5 directors while the Ongs were entitled
to nominate the President, the Secretary and 6 directors
(including the chairman) to the board of directors of
FLADC. Moreover, the Ongs were given the right to
manage and operate the mall. Accordingly, the Ongs
paid P100 million in cash for their subscription to
1,000,000 shares of stock while the Tius committed to
contribute to FLADC a four-storey building and two
parcels of land respectively valued at P20 million (for
200,000 shares), P30 million (for 300,000 shares) and
P49.8 million (for 49,800 shares) to cover their additional
549,800 stock subscription therein. The Ongs paid in
another P70 million 3 to FLADC and P20 million to the
Tius over and above their P100 million investment, the
total sum of which (P190 million) was used to settle the
P190 million mortgage indebtedness of FLADC to PNB.
ISSUE:
Whether or not the pre-Subscription Agreement
executed by the Ongs is actually a subscription contract.
RULING:
YES.
FLADC was originally incorporated with an
authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital.
When the Tius invited the Ongs to invest in FLADC as
stockholders, an increase of the authorized capital stock
became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription
Agreement. The authorized capital stock was thus
increased from 500,000 shares to 2,000,000 shares with
a par value of P100 each, with the Ongs subscribing to
1,000,000 shares and the Tius to 549,800 more shares
in addition to their 450,200 shares to complete
1,000,000 shares. Thus, the subject matter of the
contract was the 1,000,000 unissued shares of FLADC
stock allocated to the Ongs. Since these were unissued
shares, the parties' Pre-Subscription Agreement was in
fact a subscription contract as defined under Section 60,
Title VII of the Corporation Code. A subscription contract
necessarily involves the corporation as one of the
contracting parties since the subject matter of the
transaction is property owned by the corporation — its
shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the
law, one between the Ongs and FLADC, not between
the Ongs and the Tius.
G.R. No. 144476 April 8, 2003
ONG YONG, JUANITA TAN ONG, WILSON T. ONG,
ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and
JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN
SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C.
TIU, INTRALAND RESOURCES DEVELOPMENT
CORP., MASAGANA TELAMART, INC., REGISTER
OF DEEDS OF PASAY CITY, and the SECURITIES
AND EXCHANGE COMMISSION, respondents.
x-----------------------------x
G.R. No. 144629 April 8, 2003
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN
SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C.
TIU, and INTRALAND RESOURCES DEVELOPMENT
CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG,
ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and
JULIA ONG ALONZO, respondents.
FACTS:
In 1994, the construction of the Masagana Citimall in
Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned
by the Tius, encountered dire financial difficulties. It was
heavily indebted to the Philippine National Bank (PNB)
for P190 million.
To stave off foreclosure of the mortgage on the two lots
where the mall was being built, the Tius invited the
Ongs to invest in FLADC.
Under the Pre-Subscription Agreement they entered
into, the Ongs and the Tius agreed to maintain equal
shareholdings in FLADC.
Furthermore, they agreed that the Tius were entitled to
nominate the Vice-President and the Treasurer plus five
directors while the Ongs were entitled to nominate the
President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC.
Moreover, the Ongs were given the right to manage and
operate the mall.
The business harmony between the Ongs and the Tius
in FLADC, however, was shortlived because the Tius, on
February 23, 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of:
(1) refusing to credit to them the FLADC shares
covering their real property contributions;
(2) preventing David S. Tiu and Cely Y. Tiu from
assuming the positions of and performing their
duties as Vice-President and Treasurer,
respectively, and
(3) refusing to give them the office spaces
agreed upon.
In their defense, the Ongs said that David S. Tiu and
Cely Y. Tiu had in fact assumed the positions of Vice-
President and Treasurer of FLADC but that it was they
who refused to comply with the corporate duties
assigned to them.
This case was commenced by the Tius on February 27,
1996 at the SEC, seeking confirmation of their rescission
of the Pre-Subscription Agreement. After hearing, the
SEC issued a decision confirming the rescission sought
by the Tius.
SEC en banc affirmed and confirmed the rescission of
the Pre-Subscription Agreement.
On appeal, the Court of Appeals likewise affirmed the
SEC decision. However, the CA concluded that both the
Ongs and the Tius were in pari delicto (which would not
have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it
was best to separate the two groups by rescinding the
Pre-Subscription Agreement, returning the original
investment of the Ongs and awarding practically
everything else to the Tius.
Both parties filed separate petitions for review before the
Supreme Court.
This Court affirmed the fact that both the Ongs and the
Tius violated their respective obligations under the Pre-
Subscription Agreement. The Ongs prevented the Tius
from assuming the positions of Vice-President and
Treasurer of the corporation. On the other hand, the
Decision established that the Tius failed to turn over
FLADC funds to the Ongs and that the Tius diverted
rentals due to FLADC to their MATTERCO account.
Consequently, it held that rescission was not possible
since both parties were in pari delicto.
However, this Court agreed with the Court of Appeals
that the remedy of specific performance, as espoused by
the Ongs, was not practical and sound either and would
only lead to further "squabbles and numerous litigations"
between the parties.
ISSUE:
Whether or not the Tius could legally rescind the Pre-
Subscription Agreement.
RULING:
In the instant case, the rescission of the Pre-
Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since
rescission of a subscription agreement is not one of the
instances when distribution of capital assets and
property of the corporation is allowed.
Contrary to the Tius' allegation, rescission will, in the
final analysis, result in the premature liquidation of the
corporation without the benefit of prior dissolution in
accordance with Sections 117, 118, 119 and 120 of the
Corporation Code.
The Tius maintain that rescinding the subscription
contract is not synonymous to corporate liquidation
because all rescission will entail would be the simple
restoration of the status quo ante and a return to the two
groups of their cash and property contributions. We wish
it were that simple. Very noticeable is the fact that the
Tius do not explain why rescission in the instant case will
not effectively result in liquidation. The Tius merely refer
in cavalier fashion to the end-result of rescission (which
incidentally is 100% favorable to them) but turn a blind
eye to its unfair, inequitable and disastrous effect on the
corporation, its creditors and the Ongs.
The Tius claim that rescission of the agreement will not
result in an unauthorized liquidation of the corporation
because their case is actually a petition to decrease
capital stock pursuant to Section 38 of the Corporation
Code. Section 122 of the law provides that "(e)xcept by
decrease of capital stock…, no corporation shall
distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and
liabilities." The Tius claim that their case for rescission,
being a petition to decrease capital stock, does not
violate the liquidation procedures under our laws. All that
needs to be done, according to them, is for this Court to
order (1) FLADC to file with the SEC a petition to issue a
certificate of decrease of capital stock and (2) the SEC
to approve said decrease. This new argument has no
merit.
The Tius' case for rescission cannot validly be deemed a
petition to decrease capital stock because such action
never complied with the formal requirements for
decrease of capital stock under Section 33 of the
Corporation Code. No majority vote of the board of
directors was ever taken. Neither was there any
stockholders meeting at which the approval of
stockholders owning at least two-thirds of the
outstanding capital stock was secured. There was no
revised treasurer's affidavit and no proof that said
decrease will not prejudice the creditors' rights. On the
contrary, all their pleadings contained were alleged acts
of violations by the Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion into
the internal affairs of the corporation to compel
FLADC to file at the SEC a petition for the issuance
of a certificate of decrease of stock. Decreasing a
corporation's authorized capital stock is an
amendment of the Articles of Incorporation. It is a
decision that only the stockholders and the directors
can make, considering that they are the contracting
parties thereto. In this case, the Tius are actually not
just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a
corporate decision for FLADC. We decline to intervene
and order corporate structural changes not voluntarily
agreed upon by its stockholders and directors.
Truth to tell, a judicial order to decrease capital stock
without the assent of FLADC's directors and
stockholders is a violation of the "BUSINESS
JUDGMENT RULE" which states that:
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.29
The reason behind the rule is aptly explained by Dean
Cesar L. Villanueva, an esteemed author in corporate
law, thus:
Courts and other tribunals are wont to override
the business judgment of the board mainly
because, courts are not in the business of
business, and the laissez faire rule or the free
enterprise system prevailing in our social and
economic set-up dictates that it is better for the
State and its organs to leave business to the
businessmen; especially so, when courts are ill-
equipped to make business decisions. More
importantly, the social contract in the corporate
family to decide the course of the corporate
business has been vested in the board and not
with courts.30
Apparently, the Tius do not realize the illegal
consequences of seeking rescission and control of the
corporation to the exclusion of the Ongs. Such an act
infringes on the law on reduction of capital stock.
Ordering the return and distribution of the Ongs' capital
contribution without dissolving the corporation or
decreasing its authorized capital stock is not only against
the law but is also prejudicial to corporate creditors who
enjoy absolute priority of payment over and above any
individual stockholder thereof.
Stripped to its barest essentials, the issue of rescission
in this case is not difficult to understand. If rescission is
denied, will injustice be inflicted on any of the parties?
The answer is no because the financial interests of both
the Tius and the Ongs will remain intact and safe within
FLADC. On the other hand, if rescission is granted, will
any of the parties suffer an injustice? Definitely yes
because the Ongs will find themselves out in the streets
with nothing but the money they had in 1994 while the
Tius will not only enjoy a windfall estimated to be
anywhere from P450 million to P900 million but will also
take over an extremely profitable business without much
effort at all.
G.R. No. L-19893 March 31, 1923
ARNALDO F. DE SILVA, plaintiff-appellant, vs.
ABOITIZ & COMPANY, INC., defendant-appellee.
Facts: The plaintiff subscribed for 650 shares of stock of
the defendant corporation of the value of P500 each, of
which he has paid only the total value of 200 shares,
there remaining 450 shares unpaid, for which he was
indebted to the corporation in the sum of P225,000, the
value thereof. He was notified by the secretary of the
corporation of a resolution adopted by the board of
directors of the corporation on the preceding day,
declaring the unpaid subscriptions to the capital stock of
the corporation to have become due and payable on the
following May 31st at the office thereof, the payment to
be made to the treasurer, and stating that all such
shares as may have not been paid then, with the
accrued interest up to that date, will be declared
delinquent, advertised for sale at public auction, and sold
on the following June 16th, for the purpose of paying up
the amount of the subscription and accrued interest, with
the expenses of the advertisement and sale, unless said
payment was made before.
The proper advertisement having been published, as
announced in the aforesaid notice, the plaintiff filed a
complaint against the said corporation, wherein, after
relating the above-mentioned facts, he prayed for a
judgment in his favor, decreeing that, in prescribing
another method of paying the subscription to the capital
stock different from that provided in article 46 of its by-
laws, in declaring the aforesaid 450 shares delinquent,
and in directing the sale thereof, as advertised, the
corporation had exceeded its executive authority, and as
a consequence thereof he asked that a writ of injunction
be issued against the said defendant, enjoining it from
taking any further action of whatever nature in
connection with the acts complained of and that it pay
the costs of this suit.
The plaintiff alleged as the grounds of his petition: (1)
That, according to aforesaid article 46 of the by-law of
the corporation, which was inserted in the complaint, all
the shares subscribed to by the incorporation that were
not paid for at the time of the incorporation, shall be paid
out of the 70 per cent of the profit obtained, the same to
be distributed among the subscribers, who shall not
receive any dividend until said shares were paid in full;
(2) that in declaring the plaintiff's unpaid subscription to
the capital stock to have become due and payable on
May 31st, and in publishing the aforesaid notice
declaring his unpaid shares delinquent, the defendant
corporation has violated the aforesaid article, which
prescribes an operative method of paying for the shares
continuously until their full amortization, thus violating
and disregarding a right of the plaintiff vested under the
said by-laws; (3) that the aforesaid acts of the defendant
corporation were in excess of its powers and executive
authority and the plaintiff had no other plain, speedy and
adequate remedy in the ordinary course of law than that
prayed for in the said complaint, to prevent the
defendant from taking any further action in connection
with the sale and alienation of the said shares.
A preliminary injunction having been issued against the
defendant, period elapsed without the plaintiff having
amended his complaint, upon motion of the defendant,
that court, dismissed the complaint and ordered the
dissolution of the preliminary injunction previously
issued, with costs, to which orders the plaintiff excepted,
asking at the same time for the annulment thereof and a
new hearing, which motion was denied by the lower
court. To that ruling the plaintiff also excepted, and
brought the case to this court by the proper bill of
exceptions.
Issue: Whether or not, under the provision of article 46 of
the by-laws of the defendant corporation, the latter may
declare the unpaid shares delinquent, or collect their
value by another method different from that prescribed in
the aforecited article?
Ruling: Yes. The first and most special remedy given by
the statute consists in permitting the corporation to put
the unpaid stock for sale and dispose of it for the
account of the delinquent subscriber. In this case the
provisions of sections 38 to 48, inclusive, of the
Corporation Law are applicable and must be followed.
The other remedy is by action in court concerning which
we find in section 49 the following provision:
"Nothing in this Act prevent the directors from collecting,
by action in any court of proper jurisdiction, the amount
due on any unpaid subscription, together with accrued
interest and costs and expenses incurred."
Admitting that the provision of article 46 of the said by-
laws maybe regarded as a contract between the
defendant corporation and its stockholders , yet as it is
only to the board of directors of the corporation that said
articles gives the authority or right to apply on the
payment of unpaid subscriptions such amount of the 70
per cent of the profit distributable among the
shareholders in equal parts as may be deemed fit, it
cannot be maintained that the said article has prescribe
an operative method for the payment of said subscription
continuously until their full amortization, or, what would
be the same thing, that said article has prescribe that
sole and exclusive method for that purpose, for, in the
first place, the adoption of that method for the purpose of
collecting the value of subscriptions due and unpaid lies,
according to said article, within the discretion of the
board of directions, that is, it is subject to this condition,
and this can in no way be reconciled with the idea of
method, which implies something fixed as a rule or
permanent standard, and not variable at the will of
somebody and according to the circumstances; and, in
the second place, in connection with the provision of the
said article relative to the aforesaid discretionary power
of the board of directors to adopt that method, there is
also the discretionary power granted the same board of
directors to avail itself, for the same purpose, to either of
the two remedies prescribed in sections 38 to 49,
inclusive, of the aforecited Corporation Law.
In the instant case, the defendant corporation, through
its board of directors, made use of its discretionary
power, taking advantage of the first of the two remedies
provided by the aforesaid law. On the other hand, the
plaintiff has no right whatsoever under the provision of
the above cited article 46 of the said by-laws to prevent
the board of directors from following, for that purpose,
any other method than that mentioned in the said article,
for the very reason that the same does not give the
stockholders any right in connection with the
determination of the question whether or not there
should be deducted from the 70 per cent of the profit
distributable among the stockholders such amount as
may be deemed fit for the payment of subscriptions due
and unpaid. Therefore, it is evident that the defendant
corporation has not violated, nor disregarded any right of
the plaintiff recognized by the said by-laws, nor
exceeded its authority in the discharge of its executive
functions, nor abused its discretion when it performed
the acts mentioned in the complaint as grounds thereof,
and, consequently, the facts therein alleged do not
constitute a cause of action.
For the foregoing, the orders appealed from are
affirmed, with the costs of both instances against the
appellant. So ordered.
G.R. No. 118043 July 23, 1998
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY,
INC. (now JARDINE-CMG LIFE INSURANCE CO.
INC.), petitioner,vs.
COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
Facts: Petitioner, now the Jardine-CMG Life Insurance
Company, Inc., is a domestic corporation engaged in the
life insurance business. It issued 50,000 shares of stock
as stock dividends, with a par value of P100 or a total of
P5 million. Petitioner paid documentary stamp taxes on
each certificate on the basis of its par value. The
question in this case is whether in determining the
amount to be paid as documentary stamp tax, it is the
par value of the certificates of stock or the book value of
the shares which should be considered. The pertinent
provision of law, as it stood at the time of the questioned
transaction, reads as follows:
Sec. 224.Stamp tax on original issues of certificates of
stock. — On every original issue, whether on
organization, reorganization or for any lawful purpose, of
certificates of stock by any association, company or
corporation, there shall be collected a documentary
stamp tax of one peso and ten centavos on each two
hundred pesos, or fractional part thereof, of the par
value of such certificates: Provided, That in the case of
the original issue of stock without par value the amount
of the documentary stamp tax herein prescribed shall be
based upon the actual consideration received by the
association, company, or corporation for the issuance of
such stock, and in the case of stock dividends on the
actual value represented by each share.
The Commissioner of Internal Revenue took the view
that the book value of the shares, amounting to
P19,307,500.00, should be used as basis for
determining the amount of the documentary stamp tax.
Accordingly, respondent Internal Revenue
Commissioner issued a deficiency documentary stamp
tax assessment in the amount of P78,991.25 in excess
of the par value of the stock dividends.
Together with another documentary stamp tax
assessment which it also questioned, petitioner
appealed the Commissioner's ruling to the Court of Tax
Appeals. The CTA rendered its decision holding that the
amount of the documentary stamp tax should be based
on the par value stated on each certificate of stock.
Respondent Commissioner of Internal Revenue
appealed to the Court of Appeals which, reversed the
CTA's decision and held that, in assessing the tax in
question, the basis should be the actual value
represented by the subject shares on the assumption
that stock dividends, being a distinct class of shares, are
not subject to the qualification in the law as to the type of
certificate of stock used (with or without par value).
Issue: Whether or not respondent court of appeals erred
in holding that stock dividends involving shares with par
value are subject to documentary stamp tax based on
the book value of said shares?
Ruling: Yes. Conformably, in the case of stock
certificates with par value, the documentary stamp tax is
based on the par value of the stock; for stock certificates
without par value, the same tax is computed from the
actual consideration received by the corporation,
association or company; but for stock dividends,
documentary stamp tax is to be paid "on the actual value
represented by each share."
Since in dividends, no consideration is technically
received by the corporation, petitioner is correct in
basing the assessment on the book value thereof
rejecting the principles enunciated in Commissioner of
Internal Revenue vs. Heald Lumber Co. (10 SCRA 372)
as the said case refers to purchases of no-par
certificates of stocks and not to stock dividends.
Apparently, the Court of Appeals treats stock dividends
as distinct from ordinary shares of stock for purposes of
the then §224 of the National Internal Revenue Code.
There is, however, no basis for considering stock
dividends as a distinct class from ordinary shares of
stock since under this provision only certificates of stock
are required to be distinguished (into either one with par
value or one without) rather than the classes of shares
themselves.
Stock dividends are in the nature of shares of stock, the
consideration for which is the amount of unrestricted
retained earnings converted into equity in the
corporation's books. Thus,
A "stock dividend'' is any dividend payable in shares of
stock of the corporation declaring or authorizing such
dividend. It is, what the term itself implies, a distribution
of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a
corporation is a dividend paid in shares of stock instead
of cash, and is properly payable only out of surplus
profits. So, a stock dividend is actually two things: (1) a
dividend and (2) the enforced use of the dividend money
to purchase additional shares of stock at par.
LINGAYEN GULF ELECTRIC POWER COMPANY,
INC.
vs.
IRINEO BALTAZAR
G.R. No. L-4824, June 30, 1953
FACTS:
The respondent subscribed stocks of the
petitioner. After paying several amount, the respondent
failed to pay its outstanding balance, even after a
demand made by the corporation. The latter hence
opted to collect the unpaid balance of the subscription
made. However, the respondent refused to pay on the
contention that he has been released from his liability
under Resolution No. 17. Furthermore, he countered
that, as the President of the corporation, he was entitled
to compensation.
The trial court rendered judgment in favor of respondent.
ISSUE:
Whether or not the respondent is entitled to
compensation.
RULING:
NO.
It is clear that he is not entitled to the same. The
by-laws of the company are silent as to the salary of the
President. And, while resolutions of the incorporators
and stockholders provide salaries for the general
manager, secretary-treasurer and other employees,
there was no provision for the salary of the President.
On the other hand, other resolutions provide for per
diems to be paid to the President and the directors of
each meeting attended, P10 for the President and P8 for
each director, which were later increased to P25 and
P15, respectively. This leads to the conclusions that the
President and the board of directors were expected to
serve without salary, and that the per diems paid to them
were sufficient compensation for their services.
Furthermore, for defendant's several years of service as
President and up to the filing of the action against him,
he never filed a claim for salary.
Lingayen Gulf Electric Power Company, Inc. VS.
Baltazar
Facts:
The plaintiff, Lingayen Gulf Electric Power
Company is a domestic corporation with an authorized
capital stock of P300,000 divided into 3,000 shares with
a par value of P100 per share. The defendant, Irineo
Baltazar appears to have subscribed for 600 shares on
account of which he had paid upon the organization of
the corporation the sum of P15,000. After incorporation,
the defendant made further payments on account of his
subscription, leaving a balance of P18,500 unpaid for,
which amount, the plaintiff now claims in this action.
On July 23, 1946, a majority of the stockholders
of the corporation, among them the herein defendant,
held a meeting and adopted stockholders' resolution No.
17. By said resolution, it was agreed upon by the
stockholders present to call the balance of all unpaid
subscribed capital stock as of July 23, 1946, the first 50
per cent payable within 60 days beginning August 1,
1946, and the remaining 50 per cent payable within 60
days beginning October 1, 1946. The resolution also
provided, that all unpaid subscription after the due dates
of both calls would be subject to 12 per cent interest per
annum. Lastly, the resolution provided, that after the
expiration of 60 days' grace which would be on
December 1, 1946, for the first call, and on February 1,
1947, for the second call, all subscribed stocks
remaining unpaid would revert to the corporation.
On September 22, 1946, the plaintiff corporation
wrote a letter to the defendant reminding him that the
first 50 per cent of his unpaid subscription would be due
on October 1, 1946. The plaintiff requested the
defendant to "kindly advise the company thru the
undersigned your decision regarding this matter. The
defendant answered on September 25, 1946, asking the
corporation that he be allowed to pay his unpaid
subscription by February 1, 1947. In his answer, the
defendant also agreed that if he could not pay the
balance of his subscription by February 1, 1947, his
unpaid subscription would be reverted to the corporation.
A case was file in which the lower court found
that the call for payment embodied in resolution No. 17
of July 23, 1946 was null and void for lack of publication;
consequently, he dismissed the complaint as premature.
He further held said resolution null and void in so far as it
tried to relieve the defendant from liability on his unpaid
subscription, on the ground that the resolution was not
approved by all the stockholders of the corporation. He
also dismissed the defendant's counterclaim for
compensation as president of the corporation.
Issue:
W/N Resolution No. 17 of 1946 released him
from the obligation to pay for his unpaid subscription.
Ruling:
No.
The authorities are generally agreed that in
order to effect the release, there must be unanimous
consent of the stockholders of the corporation. We quote
some authorities:
Subject to certain exceptions, considered in subdivision
(3) of this section, the general rule is that a valid and
binding subscription for stock of a corporation cannot be
cancelled so as to release the subscriber from liability
thereon without the consent of all the stockholders or
subscribers. Furthermore, a subscription cannot be
cancelled by the company, even under a secret or
collateral agreement for cancellation made with the
subscriber at the time of the subscription, as against
persons who subsequently subscribed or purchased
without notice of such agreement. (18 C.J.S. 874).
(3) Exceptions.
In particular circumstances, as where it is given
pursuant to a bona fide compromise, or to set off a debt
due from the corporation, a release, supported by
consideration, will be effectual as against dissenting
stockholders and subsequent and existing creditors. A
release which might originally have been held invalid
may be sustained after a considerable lapse of time. (18
C.J.S. 874).
In the present case, the release claimed by
defendant and appellant does not fall under the
exception above referred to, because it was not given
pursuant to a bona fide compromise, or to set off a debt
due from the corporation, and there was no
consideration for it.
Section 66. Interest on unpaid subscriptions.
- Subscribers for stock shall pay to the corporation
interest on all unpaid subscriptions from the date of
subscription, if so required by, and at the rate of
interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be
the legal rate.
Section 67. Payment of balance of
subscription. - Subject to the provisions of the
contract of subscription, the board of directors of
any stock corporation may at any time declare due
and payable to the corporation unpaid subscriptions
to the capital stock and may collect the same or
such percentage thereof, in either case with accrued
interest, if any, as it may deem necessary. 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.
Another authority:
SEC. 850. Unanimous consent of stockholders
necessary to release subscriber. — It may be asserted
as the first rule under this proposition that, after a valid
subscription to the capital stock of a corporation has
been made and accepted, there can be no cancellation
or release from the obligation without the consent of the
corporation and all the stockholders; . . . . (2 Thompson
on Corporation, p. 186).
He states the reason for the rule as follows:
SEC. 855. Right to withdraw as against subscribers. —
A contract of subscription is, at least in the sense which
creates as estoppel, a contract among the several
subscribers. For this reason no one of the subscribers
can withdraw from the contract without the consent of all
the others, and thereby diminish, without the universal
consent, the common fund in which all have acquired an
interest. . . . (2 Thompson on Corporations, p. 194.).
As already found by the trial court, the release
attempted in Resolution No. 17 of 1946 was not valid for
lack of a unanimous vote. If found that at least seven
stockholders were absent from the meeting when said
resolution was approved.
Defendant and appellant, however, contends
that after dismissing the complaint for being premature,
there was no necessity or reason for the trial court to go
further and say that defendant was not validly released
from the payment for his unpaid subscription. It must be
borne in mind, however, that this was one of the
principal issues involved in the case and the trial court
was called upon to pass upon it, because unless so
passed upon and deter- mined, it might decisively affect
the case on appeal. Supposing that on appeal the
appellate court decides that the call was valid, then it
would be important to know whether or not in spite of the
validity of the call, defendant was nevertheless not liable
because he had been validly released by a resolution of
the corporation. If that question was not decided by the
trial court, and naturally was not touched upon in the
appeal, then the appellate court would have no occasion
to pass upon it, and it might be necessary to bring
another action to determine the point, which means
multiplicity of suits. Moreover, the authority given to the
courts to render judgments for declaratory relief in order
to determine the rights or duties of parties over a certain
transaction or under a certain written instrument, or to
remove the uncertainty or controversy over the same
(Rule 66 of the Rules of Court), justified the trial court in
passing upon this question of release.
PHILIPPINE TRUST COMPANY, as assignee in
insolvency of "La Cooperativa Naval Filipina"
vs.
MARCIANO RIVERA
G.R. No. L-19761. January 29, 1923
FACTS:
In 1918 the Cooperativa Naval Filipina was duly
incorporated under the laws of the Philippine Islands,
with a capital of P100,000, divided into one thousand
shares of a par value of P100 each. Among the
incorporators of this company was numbered the
defendant Mariano Rivera, who subscribed for 450
shares representing a value of P45,000, the remainder
of the stock being taken by other persons.
In the course of time the company became
insolvent and went into the hands of the Philippine Trust
Company, as assignee in bankruptcy; and by it this
action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has
never been paid.
The reason given for the failure of the defendant
to pay the entire subscription is a meeting of its
stockholders occurred, at which a resolution was
adopted to the effect that the capital should be reduced
by 50 per centum and the subscribers released from the
obligation to pay any unpaid balance of their subscription
in excess of 50 per centum of the same.
ISSUE:
Whether or not the reduction of the company’s
capital by 50 per centum and the subscribers released
from the obligation to pay any unpaid balance of their
subscription in excess of 50 per centum is valid.
RULING:
NO.
The Court ruled that defendant was still liable for
the unpaid balance of his subscription. It is established
doctrine that subscription to the capital of a corporation
constitute a find to which creditors have a right to look
for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the
payment of its debts.
A corporation has no power to release an
original subscriber to its capital stock from the obligation
of paying for his shares, without a valuable consideration
for such release; and as against creditors a reduction of
the capital stock can take place only in the manner an
under the conditions prescribed by the statute or the
charter or the articles of incorporation. Moreover, strict
compliance with the statutory regulations is necessary.
In the case before us the resolution releasing the
shareholders from their obligation to pay 50 per centum
of their respective subscriptions was an attempted
withdrawal of so much capital from the fund upon which
the company's creditors were entitled ultimately to rely
and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.
GARCIA, plaintiff
vs.
SUAREZ, defendant
G.R. No. L-45493 April 21, 1939
FACTS:
On October 4, 1924, the appellant subscribed to
sixteen shares of the capital stock of the Compañia
Hispano-Filipina, Inc., a corporation which is duly formed
and organized. Of the sixteen subscribed shares, at the
par value of P100 each, the appellant only paid P400,
the value of four shares. On June 5, 1931, the plaintiff-
appellee was appointed by the court receiver of the
Compañia Hispano-Filipina, Inc., to collect all the credits
of said corporation, pay its debts and dispose of the
remainder of its assets and of its properties. On June 18,
1931, the plaintiff-appellee in vain made demand upon
the defendant-appellant to pay the balance of his
subscription. On July 10, 1933, the plaintiff, as receiver,
brought an action in the Court of First Instance of Manila
to recover from the defendant-appellant and other
shareholders the balance of their subscriptions, but the
complaint was dismissed for lack of prosecution. On
October 10, 1935, a similar complaint was filed against
the appellant, and after trial, judgment was rendered
therein ordering the said defendant to pay to the plaintiff,
as receiver of Compañia Hispano-Filipina, Inc., the sum
of P1,200, with legal interest thereon from October 4,
1924, and the costs. The defendant appealed and in this
instance contends that the trial court erred in holding that
the action of the plaintiff-appellee has not prescribed,
and that the appellant has not been released from his
obligation to pay the balance of his subscription.
ISSUE:
Whether or not the obligation contracted by the
appellant to pay the value of his subscription was
demandable from the date of subscription in the absence
of any stipulation to the contrary.
RULING:
NO.
Section 37 of the Corporation Law provides
when the obligation to pay interest arises and when
payment should be made, but it is absolutely silent as to
when the subscription to a stock should be paid. Of
course, the obligation to pay arises from the date of the
subscription, but the coming into being of an obligation
should not be confused with the time when it becomes
demandable. In a loan for example, the obligation to pay
arises from the time the loan is taken; but the maturity of
that obligation, the date when the debtor can be
compelled to pay, is not the date itself of the loan,
because this would be absurd. The date when payment
can be demanded is necessarily distinct from and
subsequent to that the obligation is contracted.
By the same token, the subscription to the
capital stock of the corporation, unless otherwise
stipulation, is not payable at the moment of the
subscription but on a subsequent date which may be
fixed by the corporation. Hence, section 38 of the
Corporation Law, amended by Act No. 3518, provides
that: The board of directors or trustees of any stock
corporation formed, organized, or existing under this Act
may at any time declare due and payable to the
corporation unpaid subscriptions to the capital stock.
The board of directors of the Compañia
Hispano-Filipino, Inc., not having declared due and
payable the stock subscribed by the appellant, the
prescriptive period of the action for the collection thereof
only commenced to run from June 18, 1931 when the
plaintiff, in his capacity as receiver and in the exercise of
the power conferred upon him by the said section 38 of
the Corporation Law, demanded of the appellant to pay
the balance of his subscription. The present action
having been filed on October 10, 1935, the defense of
prescription is entirely without basis.
TAN, petitioner
vs.
SECURITIES AND EXCHANGE COMMISSION,
respondent
G.R. No. 95696 March 3, 1992
FACTS:
Respondent corporation was registered on
October 1, 1979. As incorporator, petitioner had four
hundred (400) shares of the capital stock standing in his
name at the par value of P100.00 per share, evidenced
by Certificate of Stock No. 2. He was elected as
President and subsequently reelected, holding the
position as such until 1982 but remained in the Board of
Directors until April 19, 1983 as director.
On January 31, 1981, while petitioner was still
the president of the respondent corporation, two other
incorporators, namely, Antonia Y. Young and Teresita Y.
Ong, assigned to the corporation their shares,
represented by certificate of stock No. 4 and 5 after
which, they were paid the corresponding 40% corporate
stock-in-trade.
Petitioner's certificate of stock No. 2 was
cancelled by the corporate secretary and respondent
Patricia Aguilar by virtue of Resolution No. 1981 (b),
which was passed and approved while petitioner was
still a member of the Board of Directors of the
respondent corporation.
Due to the withdrawal of the aforesaid
incorporators and in order to complete the membership
of the five (5) directors of the board, petitioner sold fifty
(50) shares out of his 400 shares of capital stock to his
brother Angel S. Tan. Another incorporator, Alfredo B.
Uy, also sold fifty (50) of his 400 shares of capital stock
to Teodora S. Tan and both new stockholders attended
the special meeting, Angel Tan was elected director and
on March 27, 1981, the minutes of said meeting was
filed with the SEC. These facts stand unchallenged.
ISSUE:
Whether or not the cancellation and transfer of
petitioner's shares and Certificate of Stock No. 2 as well
as the issuance and cancellation of Certificate of Stock
No. 8 was patently and palpably unlawful, null and void,
invalid and fraudulent.
RULING:
YES.
Under the instant case, the fact of the matter is,
the new holder, Angel S. Tan has already exercised his
rights and prerogatives as stockholder and was even
elected as member of the board of directors in the
respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of fifty
(50) shares, Angel S. Tan was clothed with rights and
responsibilities in the board of the respondent
corporation when he was elected as officer thereof.
Besides, in Philippine jurisprudence, a certificate
of stock is not a negotiable instrument. "Although it is
sometime regarded as quasi-negotiable, in the sense
that it may be transferred by endorsement, coupled with
delivery, it is well-settled that it is non-negotiable,
because the holder thereof takes it without prejudice to
such rights or defenses as the registered owner/s or
transferor's creditor may have under the law, except
insofar as such rights or defenses are subject to the
limitations imposed by the principles governing
estoppel."
To follow the argument put up by petitioner
which was upheld by the Cebu SEC Extension Office
Hearing Officer, Felix Chan, that the cancellation of
Stock Certificate Nos. 2 and 8 was null and void for lack
of delivery of the cancelled "mother" Certificate No. 2
whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the
transfer of stock in violation of the corporation law itself
as the only law governing transfer of stocks. While
Section 47(s) grants stock corporations the authority to
determine in the by-laws "the manner of issuing
certificates" of shares of stock, however, the power to
regulate is not the power to prohibit, or to impose
unreasonable restrictions of the right of stockholders to
transfer their shares.
APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO
vs.
J. HOWARD MCGRATH ATTORNEY GENERAL OF
THE UNITED STATES, SUCCESSOR TO THE
PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF
THE UNITED STATES, REPUBLIC OF THE
PHILIPPINES
G.R. No. L-4818 February 28, 1955
FACTS:
This action involves the title to 1,600,000 shares
of stock of the Lepanto Consolidated Mining Co., Inc., a
corporation duly organized and existing under the laws
of the Philippines, hereinafter referred to, for the sake of
brevity, as the Lepanto. Originally, one-half of said
shares of stock were claimed by plaintiff, Apolinario de
los Santos, and the other half, by his co-plaintiff Isabelo
Astraquillo. During the pendency of this case, the latter
has allegedly conveyed and assigned his interest in and
to said half claimed by him to the former. The shares of
stock in question are covered by several stock
certificates issued in favor of Vicente Madrigal, who is
registered in the books of the Lepanto as owner of said
stocks and whose indorsement in blank appears on the
back of said certificates, all of which, except certificates
No. 2279 — marked Exhibit 2 — covering 55,000
shares, are in plaintiffs' possession. So was said Exhibit
2, up to sometime in 1945 or 1946 when said
possession was lost under the conditions set forth in
subsequent pages.
ISSUE:

Whether or not the plaintiffs had the owners of
the shares of stock in question.
RULING:
NO.
In the case at bar, neither madrigal nor the
Mitsuis had alienated shares of stock in question. It is
not even claimed that either had, through negligence,
given — occasion for an improper or irregular disposition
of the corresponding stock certificates. Plaintiffs
merely argue without any evidence whatsoever thereon
— that Kitajimamight have, or must have, assigned the
certificates on or before December 1942, although, as
above stated, this is, not only, improbable, under the
conditions, then obtaining, but, also., impossible,
considering that, in April 1943, Kitajima delivered the
instruments to Miwa, who kept them in its
possession until 1945. At any rate, such assignment by
Miwa — granting for the sake of argument the accuracy
of the surmise of plaintiffs herein — was unauthorized by
the mitsuis, who, in the light of the precedents cited
above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of
embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the
plaintiffs, the title of his assignees and successors in
interest would still be subject to the rights of the
registered owner, namely, Madrigal, and consequently,
of the party for whose benefit and account the latter held
the corresponding shares of stock, that is to say, the
Mitsuis.
In conclusion, when the Property Custodian
issued the Vesting Order complained of, the shares of
stock in question belonged to the Mitsuis, admittedly an
enemy corporation, so that Vesting Order is in
conformity with law and should be upheld. Wherefore,
the decision appealed from is hereby reversed, and the
complaint, accordingly, dismissed, with costs against the
plaintiffs-appellees. It is so ordered.
Ponce vs. Alsons Cement Corporation
[GR 139802, 10 December 2002]
Second Division, Quisumbing (J): 4 concur
Facts: On 25 January 1996, Vicente C. Ponce, filed a
complaint with the SEC for mandamus and damages
against Alsons Cement Corporation and its corporate
secretary Francisco M. Giron, Jr. In his complaint, Ponce
alleged, among others, that "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; that on 8 February 1968, Ponce and
Fausto Gaid executed a "Deed of Undertaking" and
"Indorsement" whereby the latter acknowledges that the
former is the owner of said shares and he was therefore
assigning/endorsing the same to Ponce; that on 10 April
1968, VCC was renamed Floro Cement Corporation
(FCC); that on 22 October 1990, FCC was renamed
Alsons Cement Corporation (ACC); that from the time of
incorporation of VCC up to the present, no certificates of
stock corresponding to the 239,500 subscribed and fully
paid shares of Gaid were issued in the name of Fausto
G. Gaid and/or Ponce; and that despite repeated
demands, ACC and Giron refused and continue to
refuse without any justifiable reason to issue to Ponce
the certificates of stocks corresponding to the 239,500
shares of Gaid, in violation of Ponce's right to secure the
corresponding certificate of stock in his name. ACC and
Giron moved to dismiss. SEC Hearing Officer Enrique L.
Flores, Jr. granted the motion to dismiss in an Order
dated 29 February 1996. Ponce appealed the Order of
dismissal. On 6 January 1997, the Commission En Banc
reversed the appealed Order and directed the Hearing
Officer to proceed with the case. In ruling that a transfer
or assignment of stocks need not be registered first
before it can take cognizance of the case to enforce
Ponce's rights as a stockholder, the Commission En
Banc cited the Supreme Court's ruling in Abejo vs. De la
Cruz, 149 SCRA 654 (1987). Their motion for
reconsideration having been denied, ACC and Giron
appealed the decision of the SEC En Banc and the
resolution denying their motion for reconsideration to the
Court of Appeals. In its decision, the Court of Appeals
held that in the absence of any allegation that the
transfer of the shares between Gaid and Ponce was
registered in the stock and transfer book of ACC, Ponce
failed to state a cause of action. Thus, said the appellate
court, "the complaint for mandamus should be dismissed
for failure to state a cause of action." Ponce's motion for
reconsideration was denied in a resolution dated 10
August 1999. Ponce filed the petition for review on
certiorari.
Issue: Whether Ponce can require the corporate
secretary, Giron, to register Gaid’s shares in his name.
Held: Fausto Gaid was an original subscriber of ACC's
239,500 shares. From the Amended Articles of
Incorporation approved on 9 April 1995, each share had
a par value of P1.00 per share. Ponce had not made a
previous request upon the corporate secretary of ACC,
Francisco M. Giron Jr., to record the alleged transfer of
stocks. Pursuant to Section 63 of the Corporation Code,
a transfer of shares of stock not recorded in the stock
and transfer book of the corporation is non-existent as
far as the corporation is concerned. As between the
corporation on the one hand, and its shareholders and
third persons on the other, the corporation looks only to
its books for the purpose of determining who its
shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one of
its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises.
Hence, without such recording, the transferee may not
be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the
issuance of stock certificates in the name of the
transferee even when there has been compliance with
the requirements of Section 64 of the Corporation Code.
The stock and transfer book is the basis for ascertaining
the persons entitled to the rights and subject to the
liabilities of a stockholder. Where a transferee is not yet
recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the
transferee's name. A petition for mandamus fails to state
a cause of action where it appears that the petitioner is
not the registered stockholder and there is no allegation
that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make
the transfer. The deed of undertaking with indorsement
presented by Ponce does not establish, on its face, his
right to demand for the registration of the transfer and
the issuance of certificates of stocks. Under the
provisions of our statute touching the transfer of stock,
the mere indorsement of stock certificates does not in
itself give to the indorsee such a right to have a transfer
of the shares of stock on the books of the company as
will entitle him to the writ of mandamus to compel the
company and its officers to make such transfer at his
demand, because, under such circumstances the duty,
the legal obligation, is not so clear and indisputable as to
justify the issuance of the writ. As a general rule, as
between the corporation on the one hand, and its
shareholders and third persons on the other, the
corporation looks only to its books for the purpose of
determining who its shareholders are, so that a mere
indorsee of a stock certificate, claiming to be the owner,
will not necessarily be recognized as such by the
corporation and its officers, in the absence of express
instructions of the registered owner to make such
transfer to the indorsee, or a power of attorney
authorizing such transfer. Thus, absent an allegation that
the transfer of shares is recorded in the stock and
transfer book of ACC, there appears no basis for a clear
and indisputable duty or clear legal obligation that can
be imposed upon the corporate secretary, so as to justify
the issuance of the writ of mandamus to compel him to
perform the transfer of the shares to Ponce.
C. N. HODGES and RICARDO GURREA, in their own
behalf as majority stockholders and for and in behalf
of the La Paz Ice Plant & Cold Storage Co., Inc.,
plaintiffs-appellees,
vs.
JOSE MANUEL LEZAMA, defendant,
PAQUITA B. LEZAMA, defendant-appellant.
FACTS:
A complaint was filed by plaintiffs C. N. Hodges and
Ricardo Gurrea (stockholders of La Paz Ice Plant & Cold
Storage Co., Inc.) against the defendants Jose Manuel
Lezama and Paquita B. Lezama (President-Manager
and Secretary) alleging that Jose Manuel Lezama
mismanaged the corporation and misappropriated the
corporate funds thereby causing losses to the
corporation.
Plaintiff Ricardo Gurrea sold and transferred a number of
his shares of stock in the corporation to several
individuals, but the defendants, as president-manager
and secretary respectively, refused to register in the
corporate books to transfer and to issue the
corresponding certificates of stock.
To avoid irreparable damages to the corporation which is
on the verge of insolvency, the plaintiffs pray that an
order ex parte be issued appointing Ricardo Gurrea
receiver of all funds, assets and business of the
corporation.
After the issues had been joined by the parties and while
the case was pending trial, a motion was filed by Ricardo
Jeruta, Jr., Felipe Espinosa and Isidro Perlado alleging
that on 4 August 1958 plaintiff Ricardo Gurrea, who is
the registered owner of 134 shares of stock of the La
Paz Ice Plant & Cold Storage Co., Inc., evidenced by
certificate of stock No. 14 of the corporation, had sold
seven shares thereof to the movants and that before and
after the court had appointed Jose Dineros receiver of
the corporation on 26 September 1958 the movants
exerted efforts to have said shares of stock registered in
their names in the books of the corporation, "but the
persons concerned refused to do so;" and praying that
the trial court order the receiver to record such transfer
of shares of stock in the books of the corporation and to
issue in their names the certificates of the shares of
stock sold to them in lieu of those of plaintiff Gurrea.
Acting on the motion, the Court rendered an order
ordering the Secretary of the corporation to transfer in
the books of the defendant corporation the sale of the
shares of stock of Ricardo Gurrea in favor of Ricardo
Jeruta, Jr., Felipe Espinosa and Isidro Perlado after
surrendering the certificates to the secretary of the
corporation.
On 18 November 1958, the defendant secretary moved
for a reconsideration and setting aside of the above
order, on the ground that the duly-appointed receiver of
the corporation should decide what to do with the
aforesaid transfer of shares.
The movants filed an objection to the defendant's
(Paquita B. Lezama's) motion for reconsideration of the
order of 29 November 1958 contending that as a result
of the appointment of a receiver, the court may order the
secretary of the corporation to transfer in the corporate
books the sales of the shares of stock of plaintiff Gurrea
to the three movants, the conveyance being a business
transaction and the properties of the corporation being in
the hands of the receiver, or in custodia legis.
ISSUE:
Whether or not the order of the Court is proper.
RULING:
The plaintiff Ricardo Gurrea is the registered owner of
215 shares of the capital stock of the corporation. On 4
August 1958, in a notarized instrument, he sold seven of
the shares to herein movants-appellees and on 26
September 1958 the corporation was placed under
receivership. Despite surrender of the owner's (Gurrea's)
certificate No. 14 and efforts exerted by the purchasers
(movants) to have the transfer registered in the "stock
and transfer books" of the corporation, the appellant as
secretary of the corporation refused the registration and
transfer. The appellant never questioned the legality of
the transfer sought to be registered, she having admitted
in her answer that Gurrea owned 215 shares of stock of
the corporation.
This Court has ruled and held that a trial court has
jurisdiction to order a receiver of a corporation under
receivership to do any act so as to protect and preserve
his properties, and to that end it may order the secretary
to do an act within the internal affairs of the corporation
aimed at protecting the interests of the stockholders.1
Sections 35 and 52 of the Corporation Law, as amended
by Act 3471, which require that all transfers of shares to
be valid as far as the corporation is concerned must be
entered and noted upon the books of the corporation,
contemplate no restriction as to whom the shares may
be transferred or sold.2 The assets and business of the
corporation having been placed under receivership, the
court is in duty bound and has the authority to require
the appellant as secretary of the corporation to perform
her duties under the law.
G.R. No. 118043 July 23, 1998
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY,
INC. (now JARDINE-CMG LIFE INSURANCE CO.
INC.), petitioner,vs.
COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
Facts: Petitioner, now the Jardine-CMG Life Insurance
Company, Inc., is a domestic corporation engaged in the
life insurance business. It issued 50,000 shares of stock
as stock dividends, with a par value of P100 or a total of
P5 million. Petitioner paid documentary stamp taxes on
each certificate on the basis of its par value. The
question in this case is whether in determining the
amount to be paid as documentary stamp tax, it is the
par value of the certificates of stock or the book value of
the shares which should be considered. The pertinent
provision of law, as it stood at the time of the questioned
transaction, reads as follows:
Sec. 224.Stamp tax on original issues of certificates of
stock. — On every original issue, whether on
organization, reorganization or for any lawful purpose, of
certificates of stock by any association, company or
corporation, there shall be collected a documentary
stamp tax of one peso and ten centavos on each two
hundred pesos, or fractional part thereof, of the par
value of such certificates: Provided, That in the case of
the original issue of stock without par value the amount
of the documentary stamp tax herein prescribed shall be
based upon the actual consideration received by the
association, company, or corporation for the issuance of
such stock, and in the case of stock dividends on the
actual value represented by each share.
The Commissioner of Internal Revenue took the view
that the book value of the shares, amounting to
P19,307,500.00, should be used as basis for
determining the amount of the documentary stamp tax.
Accordingly, respondent Internal Revenue
Commissioner issued a deficiency documentary stamp
tax assessment in the amount of P78,991.25 in excess
of the par value of the stock dividends.
Together with another documentary stamp tax
assessment which it also questioned, petitioner
appealed the Commissioner's ruling to the Court of Tax
Appeals. The CTA rendered its decision holding that the
amount of the documentary stamp tax should be based
on the par value stated on each certificate of stock.
Respondent Commissioner of Internal Revenue
appealed to the Court of Appeals which, reversed the
CTA's decision and held that, in assessing the tax in
question, the basis should be the actual value
represented by the subject shares on the assumption
that stock dividends, being a distinct class of shares, are
not subject to the qualification in the law as to the type of
certificate of stock used (with or without par value).
Issue: Whether or not respondent court of appeals erred
in holding that stock dividends involving shares with par
value are subject to documentary stamp tax based on
the book value of said shares?
Ruling: Yes. Conformably, in the case of stock
certificates with par value, the documentary stamp tax is
based on the par value of the stock; for stock certificates
without par value, the same tax is computed from the
actual consideration received by the corporation,
association or company; but for stock dividends,
documentary stamp tax is to be paid "on the actual value
represented by each share."
Since in dividends, no consideration is technically
received by the corporation, petitioner is correct in
basing the assessment on the book value thereof
rejecting the principles enunciated in Commissioner of
Internal Revenue vs. Heald Lumber Co. (10 SCRA 372)
as the said case refers to purchases of no-par
certificates of stocks and not to stock dividends.
Apparently, the Court of Appeals treats stock dividends
as distinct from ordinary shares of stock for purposes of
the then §224 of the National Internal Revenue Code.
There is, however, no basis for considering stock
dividends as a distinct class from ordinary shares of
stock since under this provision only certificates of stock
are required to be distinguished (into either one with par
value or one without) rather than the classes of shares
themselves.
Stock dividends are in the nature of shares of stock, the
consideration for which is the amount of unrestricted
retained earnings converted into equity in the
corporation's books. Thus,
A "stock dividend'' is any dividend payable in shares of
stock of the corporation declaring or authorizing such
dividend. It is, what the term itself implies, a distribution
of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a
corporation is a dividend paid in shares of stock instead
of cash, and is properly payable only out of surplus
profits. So, a stock dividend is actually two things: (1) a
dividend and (2) the enforced use of the dividend money
to purchase additional shares of stock at par.
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION), EUGENIA D.
APOSTOL, JOSE A. APOSTOL, MR. & MS.
PUBLISHING CO., LETTY J. MAGSANOC, AND
ADORACION G. NUYDA
G.R. No. 123553. July 13, 1998
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION) and
EDGARDO B. ESPIRITU
(CA-G.R. No. 33873) July 13, 1998
FACTS:
Bitong alleged that she was the treasurer and
member of the BoD of Mr. & Mrs. Corporation. She filed
a complaint with the SEC to hold respondent spouses
Apostol liable for fraud, misrepresentation, disloyalty,
evident bad faith, conflict of interest and
mismanagement in directing the affairs of the
corporation to the prejudice of the stockholders. She
alleges that certain transactions entered into by the
corporation were not supported by any stockholder’s
resolution. The complaint sought to enjoin Apostol from
further acting as president-director of the corporation
and from disbursing any money or funds.
Apostol contends that Bitong was merely a
holder-in-trust of the JAKA shares of the corporation,
hence, not entitled to the relief she prays for. SEC
Hearing Panel issued a writ enjoining Apostol. After
hearing the evidence, SEC Hearing Panel dissolved the
writ and dismissed the complaint filed by Bitong. Bitong
appealed to the SEC en banc which reversed SEC
Hearing Panel decision. Apostol filed petition for review
with the CA. CA reversed SEC en banc ruling holding
that Bitong was not the owner of any share of stock in
the corporation and therefore, not a real party in interest
to prosecute the complaint.
ISSUE:
Whether or not petitioner validly declared
dividends.
RULING:
YES.
The records show that the original stock and
transfer book and the stock certificate book of Mr. & Ms.
were in the possession of petitioner before their custody
was transferred to the Corporate Secretary, Atty.
Augusto San Pedro. On 25 May 1988, Assistant
Corporate Secretary Renato Jose Unson wrote Mr.& Ms.
about the lost stock and transfer book which was also
noted by the corporation's external auditors,
Punongbayan and Araullo, in their audit. Atty. Unson
even informed respondent Eugenia D. Apostol as
President of Mr. & Ms. that steps would be undertaken to
prepare and register a new Stock and Transfer Book
with the SEC. Incidentally, perhaps strangely, upon
verification with the SEC, it was discovered that the
general file of the corporation with the SEC was missing.
Hence, it was even possible that the original Stock and
Transfer Book might not have been registered at all.
This simply shows that as of 1988 there still
existed certain issues affecting the ownership of the
JAKA shares, thus raising doubts whether the alleged
transactions recorded in the Stock and Transfer Book
were proper, regular and authorized. JAKA retained its
ownership of Mr.& Ms. shares as clearly shown by its
receipt of the dividends issued in December 1986. This
only means, very obviously, that Mr.& Ms. shares in
question still belonged to JAKA and not to petitioner.
For, dividends are distributed to stockholders pursuant to
their right to share in corporate profits. When a dividend
is declared, it belongs to the person who is the
substantial and beneficial owner of the stock at the time
regardless of when the distribution profit was earned.
Bachrach Motor Co. VS. Lacson Ledesma
Facts:
Bachrach obtained judgment (in 1927) against
Ledesma in two civil cases. The sheriff, in compliance
with the writ of execution issued in favor of Bachrach,
attached and sold the right of redemption of Ledesma
over several properties, and attached as well all right,
title to and interest that Ledesma had in “Any bonus,
dividend, shares of stock, money, or other property
which Ledesma was entitled to receive from Talisay-
Silay Milling Co. Inc. on account of being a stockholder
in that corporation or which he is entitled to receive from
that corporation for any other cause or pretext
whatsoever.” The properties and the shares Ledesma
owned in Talisay were mortgaged to PNB as securities
to ensure his payment of P624,000. There was another
mortgage over the real properties in favor of PNB to
answer for the debts of Central Talisay-Silay Milling.
Central resolved to grant a bonus or compensation to
the owners of the properties mortgaged for the risk
incurred from being subjected to said mortgage lien.
Under the resolution, Ledesma was allotted P19,911.11.
This was payable only in January, 1930. PNB brought an
action against Ledesma and his wife for recovery of
mortgage credit (1928). In 1929, they amended the
complaint to include Bachrach, “because they claim to
have some right to certain properties which are the
subject matter of the complaint.” The court ruled in favor
of PNB, and ordered the sale of properties mortgaged.
PNB was also granted the authority to sell the stock
certificates.
During the pendency of the case of PNB v. Ledesma,
Bachrach filed an action against Talisay to recover
P13,850 which by virtue of the resolution was bestowed
upon Ledesma by Central. PNB intervened, alleging a
preferred right, as said bonus being a civil fruit of the
mortgaged lands, the bank became entitled to it as the
mortgage had become due. Judgment was rendered in
favor of Bachrach. The SC held that the bonus had no
immediate relation to the lands in question but merely a
remote and accidental one. It was not a civil fruit, being a
mere personal right of Ledesma.
In January, 1930, Stock Cert. 772 was issued in
favor of Ledesma by Talisay. Ledesma ordered this to
be delivered to PNB. The 6,300 shares constituted the
2,100 original shares that was given as pledge to PNB
under the deed of mortgage. On Feb. 1931, the sheriff
sold the whole 6,300 shares covered by 772, and not
only the 2,100 original shares. PNB informed Talisay of
the sale, and Talisay issued Stock Cert. 1155
representing 8,968 shares (6,300 + 2,100).
Issues:
-W/N Bachrach had a preferred right by virtue of
the judgment and attachment made (1927) - NO W/N the
pledge was ineffective as against Bachrach because
evidence of its date was not made to appear in a public
instrument – NO
-W/N the pledge could not legally exist as the
Cert. was not the shares themselves - NO
HELD:
Plaintiff said it had a preferred right over the
6,300 shares because the stocks were in custodia legis
by virtue of the attachment/garnishment when Cert 772
was delivered to PNB, and when Talisay issued Cert
1155 in favor of PNB. This contention was unfounded as
it appeared that the stocks were pledged to the bank
prior to the garnishment.
Cert 772 was delivered to PNB on Feb 27, 1930.
The garnishment was notified to the parties and became
effective on August 11, 1930, more than five months
after delivery. On Feb, 1931, Talisay issued Cert 1155 in
favor of PNB.
According to Article 1865 of the Civil Code then,
in order that a pledge may be effective as against third
persons, evidence of its date must appear in a public
instrument in addition to the delivery of the thing pledged
to the creditor. However, Sec. 4 of the Chattel Mortgage
Law implicitly modified 1865 – a contract of pledge and
that of chattel mortgage need not appear in public
instruments to be effective against third persons,
provided that delivery was made. Therefore, the pledge
of the 6,300 shares was valid against Bachrach.
The contention that a certificate of stock or of
stock dividends cannot be the subject matter of contract
of pledge or chattel mortgage was untenable.
Certificates of stock or of stock dividends are quasi
negotiable instruments. They may be given in pledge or
mortgage to secure an obligation. They are transferable,
when properly indorsed, by mere delivery, and by
estoppel against the corporation or against prior holders,
as good a title to the transferee as if they were
negotiable. It is to the public interest that such use
should be simplified and facilitated by placing them as
nearly as possible on the plane of commercial paper.
ENRIQUE RAZON
vs.
INTERMEDIATE APPELLATE COURT and VICENTE
B. CHUIDIAN, in his capacity as Administrator of the
Estate of the Deceased JUAN T. CHUIDIAN
G .R. No. 74306 March 16, 1992
FACTS:
In his complaint filed on June 29, 1971, and
amended on November 16, 1971, Vicente B. Chuidian
prayed that defendants Enrique B. Razon, E. Razon,
Inc., Geronimo Velasco, Francisco de Borja, Jose
Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and
Luis M. de Razon be ordered to deliver certificates of
stocks representing the shareholdings of the deceased
Juan T. Chuidian in the E. Razon, Inc. with a prayer for
an order to restrain the defendants from disposing of the
said shares of stock, for a writ of preliminary attachment
v. properties of defendants having possession of shares
of stock and for receivership of the properties of
defendant corporation.
In their answer filed on June 18, 1973,
defendants alleged that all the shares of stock in the
name of stockholders of record of the corporation were
fully paid for by defendant, Razon; that said shares are
subject to the agreement between defendants and
incorporators; that the shares of stock were actually
owned and remained in the possession of Razon.
Appellees also alleged . . . that neither the late Juan T.
Chuidian nor the appellant had paid any amount
whatsoever for the 1,500 shares of stock in question
ISSUE:
Whether or not petitioner have right over the
ownership of the 1,500 shares of stock in E. Razon, Inc.
RULING:
NO.
In the instant case, there is no dispute that the
questioned 1,500 shares of stock of E. Razon, Inc. are in
the name of the late Juan Chuidian in the books of the
corporation. Moreover, the records show that during his
lifetime Chuidian was ellected member of the Board of
Directors of the corporation which clearly shows that he
was a stockholder of the corporation. From the point of
view of the corporation, therefore, Chuidian was the
owner of the 1,500 shares of stock. In such a case, the
petitioner who claims ownership over the questioned
shares of stock must show that the same were
transferred to him by proving that all the requirements for
the effective transfer of shares of stock in accordance
with the corporation's by laws, if any, were followed or in
accordance with the provisions of law.
The petitioner failed in both instances. The
petitioner did not present any by-laws which could show
that the 1,500 shares of stock were effectively
transferred to him. In the absence of the corporation's
by-laws or rules governing effective transfer of shares of
stock, the provisions of the Corporation Law are made
applicable to the instant case.
The law is clear that in order for a transfer of
stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of
stock is vested in the transferee by the delivery of
the duly indorsed certificate of stock. Since the certificate
of stock covering the questioned 1,500 shares of stock
registered in the name of the late Juan Chuidian was
never indorsed to the petitioner, the inevitable
conclusion is that the questioned shares of stock belong
to Chuidian. The petitioner's asseveration that he did not
require an indorsement of the certificate of stock in view
of his intimate friendship with the late Juan Chuidian can
not overcome the failure to follow the procedure required
by law or the proper conduct of business even among
friends. To reiterate, indorsement of the certificate of
stock is a mandatory.
BERNARDO BAUTISTA, JAIME CUSTODIO,
OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and
JUANITA BAUTISTA OF THE RURAL BANK OF LIPA
CITY, INC.,
vs.
HONORABLE COURT OF APPEALS, HONORABLE
COMMISSION EN BANC, SECURITIES AND
EXCHANGE COMMISSION, HONORABLE ENRIQUE
L. FLORES, JR., in his capacity as Hearing Officer,
REYNALDO VILLANUEVA, SR, AVELINA M.
VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO,
EDGARDO REYES, ALEJANDRA TONOGAN
G.R. No. 124535 September 28, 2001
FACTS:
Private respondent 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 Four Million Pesos (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 on November 15, 1993, the Villanueva spouses
assured the Board that their debt would be paid on or
before December 31 of that same year; otherwise, the
Bank would be entitled to liquidate their shareholdings,
including those under their control.
When the Villanueva spouses failed to settle
their obligation to the Bank on the due date, the Board
sent them a letter3 demanding: (1) the surrender of all
the stock certificates issued to them; and (2) the delivery
of sufficient collateral to secure the balance of their debt
amounting to P3,346,898.54.
ISSUE:
Whether or not the transfer of title to such
shares is ineffective until and unless the duly indorsed
certificate of stock is delivered to them notwithstanding
the execution of the deed of assignment in favor of the
petitioners.
RULING:
NO.
The rule is that 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
transferee. Thus, title may be vested in the transferee
only by delivery of the duly indorsed certificate of stock.
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-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. 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 parties, meaning the
private respondents as assignors and the petitioners as
assignees. While the assignment may be valid and
binding on the petitioners and private respondents, it
does not necessarily make the transfer effective.
Consequently, the petitioners, as mere assignees,
cannot enjoy the status of a stockholder, cannot vote nor
be voted for, and will not be entitled to dividends, insofar
as the assigned shares are concerned. Parenthetically,
the private respondents cannot, as yet, be deprived of
their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is
resolved with finality.
BALTAZAR, plaintiff
vs.
LINGAYEN GULF ELECTRIC POWER CO., INC.,
respondent
G.R. No. L-16236 June 30, 1965
FACTS:
The Lingayen Gulf Electric Power Co., Inc.,
hereinafter referred to as Corporation, was doing
business in the Philippines, with principal offices at
Lingayen, Pangasinan, and with an authorized capital
stock of P300.000.00 divided into 3,000 shares of voting
stock at P100.00 par value, per share. Plaintiffs Baltazar
and Rose were among the incorporators, having
subscribed to 600 and 400 shares of the capital stock, or
a total par value of P60,000.00 and P40.000.00,
respectively. It is alleged that it has always been the
practice and procedure of the Corporation to issue
certificates of stock to its individual subscribers for
unpaid shares of stock. Of the 600 shares of capital
stock subscribed by Baltazar, he had fully paid 535
shares of stock, and the Corporation issued to him
several fully paid up and non-assessable certificates of
stock, corresponding to the 535 shares. After having
made transfers to third persons and acquired new ones,
Baltazar had to his credit, on the filing of the complaint
341 shares fully paid and non-assessable.
The respondents Ungson, Estrada, Fernandez
and Yuson were small stockholders of the Corporation,
all holding a total number of fully paid-up shares of
stock, of not more than 100 shares, with a par value of
P10,000.00 and the defendant Acena, was likewise an
incorporator and stockholder, holding 600 shares of
stock, for which certificate of stock were issued to him
and as such, was the largest individual stockholder
thereof. Defendants Ungson, Estrada, Fernandez and
Yuzon, constituted the majority of the holdover seven-
member Board of Directors of the Corporation, in 1955,
two (2) of said defendants having been elected as
members of the Board in the annual stockholders'
meeting held in May 1954, largely on the vote of their co-
defendant Acena, while the other two (2) were elected
mainly on the vote of the plaintiffs and their group of
stockholders. Let the first group be called theUngson
group and the second, the Baltazar group.
ISSUE:
Whether or not a stockholder, in a stock
corporation, subscribes to a certain number of shares of
stock, and he pays only partially, for which he is issued
certificates of stock, is he entitled to vote the latter,
notwithstanding the fact that he has not paid the balance
of his subscription, which has been called for payment or
declared delinquent.
RULING:
YES.
The cases at bar do not come under the aegis of
the principle enunciated in the Fua Cun v.
Summers case, because it was the practice and
procedure, since the inception of the corporation, to
issue certificates of stock to its individual subscribers for
unpaid shares of stock and gave voting power to shares
of stock fully paid. And even though no agreement
existed, the ruling in said case does not now reflect the
correct view on the matter, for better than an agreement
or practice, there is the law, which renders the said case
of Fua Cun-Summers, obsolescent.
In the cases at bar, the defendant-corporation
had chosen to apply payments by its stockholders to
definite shares of the capital stock of the corporation and
had fully paid capital stock shares certificates for said
payments; its call for payment of unpaid subscription and
its declaration of delinquency for non-payment of said
call affecting only the remaining number of shares of its
capital stock for which no fully paid capital stock shares
certificates have been issued, "and only these have
been legally shorn of their voting rights by said
declaration of delinquency" (amended decision).
SANTAMARIA, assisted by her husband,
FRANCISCO SANTAMARIA, Jr. vs.
THE HONGKONG AND SHANGHAI BANKING
CORPORATION and R. W. TAPLIN.
G.R. No. L-2808 August 31, 1951
FACTS:
Mrs. Josefa T. Santamaria bought 10,000
shares of the Batangas Minerals, Inc., through the
offices of Woo, Uy-Tioco & Naftaly, a stock brokerage
firm and pay therefore the sum of P8,041.20 as shown
by receipt Exh. B. The buyer received Stock Certificate
No. 517 issued in the name of Woo, Uy-Tioco & Naftaly
and indorsed in bank by this firm.
 On March 9, 1937, Mrs. Santamaria placed an
order for the purchase of 10,000 shares of the Crown
Mines, Inc. with R.J. Campos & Co., a brokerage firm,
and delivered Certificate No. 517 to the latter as security
therefor with the understanding that said certificate
would be returned to her upon payment of the 10,000
Crown Mines, Inc. shares. Exh. D. is the receipt of the
certificate in question signed by one Mr. Cosculluela,
Manager of the R.J. Campos & Co., Inc. According to
certificate Exh. E, R. J. Campos & Co., Inc. bought for
Mrs. Josefa Santamaria 10,000 shares of the Crown
Mines, Inc. at .225 a share, or the total amount of
P2,250. Two days later, on March 11, Mrs. Santamaria
went to R.J. Campos & Co., Inc. to pay for her order of
10,000 Crown Mines shares and to get back Certificate
No. 517. Cosculluela then informed her that R.J.
Campos & Co., Inc. was no longer allowed to transact
business due to a prohibition order from Securities and
Exchange Commission. She was also inform that her
Stock certificate was in the possession of the Hongkong
and Shanghai Banking Corporation.
ISSUE:
Whether or not the obligation of the defendant
Bank to have inquired into the ownership of the
certificate when it received it from R.J. Campos & Co.,
Inc. and not conclude that the Bank was negligent for not
having done so, contrary to the claim of the plaintiff that
defendant Bank acted negligently, if not in bad faith, in
accepting delivery of said certificate from RJ. Campos &
Co., Inc.
RULING:
YES.
Certificate No. 517 came into the possession of
the defendant Bank because R.J. Campos & Co., Inc.
had opened an overdraft account with said Bank and to
this effect it had executed on April 16, 1946, a letter of
hypothecation by the terms of which R.J. Campos & Co.,
Inc. pledged to the said Bank "all Stocks, Shares and
Securities which I/we may hereafter come into their
possession on my/our account and whether originally
deposited for safe custody only or for any other purpose
whatever or which may hereafter be deposited by me/us
in lieu of or in addition to the Stocks, Shares, and
Securities now deposited or for any other purpose
whatsoever."
It should be noted that the certificate of stock in
question was issued in the name of the brokerage firm-
Woo, Uy-Tioco & Naftaly and that it was duly indorsed in
blank by said firm, and that said indorsement was
guaranteed by R.J. Campos & Co., Inc., which in turn
indorsed it in blank. This certificate is what it is known as
street certificate. Upon its face, the holder was entitled to
demand its transfer into his name from the issuing
corporation. The Bank was not obligated to look beyond
the certificate to ascertain the ownership of the stock at
the time it received the same from R.J. Campos & Co.,
Inc., for it was given to the Bank pursuant to their letter
of hypothecation. Even if said certificate had been in the
name of the plaintiff but indorsed in blank, the Bank
would still have been justified in believing that R.J.
Campos & Co., Inc. had title thereto for the reason that it
is a well-known practice that a certificate of stock,
indorsed in blank, is deemed quasi negotiable, and as
such the transferee thereof is justified in believing that it
belongs to the holder and transferor.
NEUGENE M ARKETING INC., ET AL, PETITIONERS
V.
COURT OF APPEALS ET AL, RESPONDENTS 1
GR no. 112941 February 18, 1999
Purisima, J.
SV: 3 out of 5 shareholders of Neugene voted for the
dissolution of the corporation. The dissolution was
acknowledged by the SEC. The 2 other stockholders
questioned the dissolution alleging that at the time the
meeting for voting for the dissolution was held, the 3 did
not own the requisite 2/3 of the outstanding capital stock
to validly vote for the dissolution since majority of their
shares of stock has already been transferred to new
stockholders. SEC held that the dissolution is not valid
but CA reversed the decision
SC: the dissolution is valid. The transfers were
fraudulently made. The stocks after issuance by the
corporation, were endorsed in blank to the UY family
(the beneficial owner of Neugene) for safekeeping. This
was agreed upon by the stockholders and the Uy Family.
For the transfer to be valid it was agreed upon that the
owners of stocks intended to be transferred must give its
approval first. It was also found by the court that there
was no consideration for the transfer of stocks.
1. Neugene was duly registered with the SEC to
engage in the trading business for a term of 50
years with the ff incorporators: Johnson Lee, Lok
Chun Suen, Charles O. Sy, Eugenio Flores, Jr.,
Arsenio Yang Jr.
2. The authorized capital stock of Neugene is
PhP3Million divided into 30,000 shares with a
par value of 100 pesos each. 600,000 has been
subscribed by the ff
a. Johnson Lee: 600 shares
P60,000
b. Lok Chun Suen: 1,200 shares
P120,000
1NEUGENE MARKETING INC., LEONCIO TAN, NICANOR
MARTIN, SONNY MORENO, JOHNSON LEE and SECURITIES
AND EXCHANGE COMMISSION, petitioners,
vs.
COURT OF APPEALS, ARSENIO YANG, JR., CHARLES O. SY,
LOK CHUN SUEN, BAN HUA U. FLORES, BAN HA U. CHUA
and ROGER REYES, respondents.
 c. Charles O. Sy 1,800 Shares d. Lee sold the said shares of stock to
P180,000 Leoncio Tan (2,100 out of 2,800 shares
d. Eugenio Flores, Jr. 2,100 shares of Charles O. Sy were assigned to him
P210,000 in addition to the 350 out of 1,050
e. Arsenio Yang Jr. 300 shares shares of Yang) and Nicanor Martin
P30,000 (1,400 shares of Suen were assigned to
3. Out of the aforesaid subscription 150,000 had Martin)
been paid by the ff: e. That Yang and Sy who each had 700
a. Johnson Lee shares, and Suen, who was no longer a
P15,000 stockholder could no longer validly vote
b. Lok Chun Suen for the dissolution of Neugene, hence
P30,000 the proceedings and the meetings were
c. Charles O. Sy improperly called and are null and void
P450,000 11. The respondents , SY, YANG and SUEN
d. Eugenio Flores, Jr. theorized that the alleged assignments of shares
P52,500 of stock in favor of Tan and Martin were
e. Arsenio Yang Jr. simulated and fraudulently effected as there
P7,500 were never an agreement entered into by the Uy
4. The shareholdings were increased by 10% by Family to award the NEugene shares of stock.
virtue of stock dividend declaration in the amt of They delivered the shares of stock to the Uy
60,000 pesos. Again it declared a stock dividend Family for safe keeping and the said certificates
later amounting to P40,000 in proportion to the were kept inside the confidential vault of the Uy
shareholdings of the stockholders as of April 30, Family but were stolen by Johnny KH Uy and
1981. Magdalena Go-Uy without the knowledge and
5. Eugenio Flores Jr. transferred and conveyed hi authority of the Uy Family
entire shareholdings of 2450 shares to a. That Sonny Moreno conspired with the
a. Sonny Moreno 1,050 shares fraudulent transfer of stocks when he
b. Arsenio Yang Jr. 700 shares recorded the fraudulent assignments in
c. Charles O. Sy 700 shares the stock and transfer book
6. So now, the stockholders appearing in the stock 12. SEC nullified the certification on the dissolution
and transfer book are as follows of Neugene, ruling that the Sy and Yang no
a. Johnson Lee 700 longer hold the 2/3 of the outstanding capital
b. Lok Chun Suen 1,400 stocks of NEugene at the time they presented
c. Sonny Moreno 1,050 the petition for dissolution.
d. Charles O. Sy 2,800 13. CA reversed and upheld the validity of the
e. Arsenio Yang Jr. 1,050 dissolution ruling that the stock certificates were
7. Sy and Yang (total shares 5,250)sent notice to not validly transferred to Martin and Tan. That to
the directors for a board meeting. They also sent constitute a valid transfer a stock certificate must
notice for a special stockholder’s meeting on the be delivered and its delivery must be coupled
same day, November 30, 1987 to consider the with an intention of constituting the person to
dissolution of Neugene whom the stock is delivered the transferee. And
8. Sy, Yang and Suen, the directors and in order that there is a valid transfer, the person
stockholders then present voted for and to whom the certificates are endorsed to must be
approved a resolution dissolving NEugene a bona fide transferee for value
9. SEC issued a certificate of dissolution a. No receipt or transaction showing
10. The petitioners, Johnson Lee, Sonny Moreno, payment for the stocks.
Leoncio Tan and Nicanor Martin brought an b. The supposed partition and division of
action to annul or set aside the SEC certificate the properties of the Uy Family was a
on the dissolution of Neugene they alleged that: mere Xerox copy whose original was
a. They are the majority stockholders of never produced in court. It also
Neugene owning 80% of its outstanding contained erasures and/insertion and it
capital stock is written in Chinese with no translation
b. That on July 1, 1987 Yang , Sy and submitted.
Suen divested themselves of their 14. CA denied MR hence this petition
stockholdings when they endorsed their
stock certificates in blank and delivered ISSUE: Whether or not the dissolution was valid
the same to the Uy Family, the (meaning that the stockholders who voted for it
beneficial owners of NEugene. owned at least 2/3 of the outstanding capital stock)
c. The Uy Family agreed to award
YES
Neugene’s stock certificates to Johnny
KH Uy who authorized Lee to dispose of
the same
  Entries in the Stock and Transfer book support
the conclusion arrived at by the CA that Suen,
SY and Yang owned at least 2/3 of the
outstanding capital stock on the day of the
meetings
 It was shown that they owned 5,250 shares out
of the 7,000 outstanding capital stock,
constituting at least 2/3
 SC agreed with the conclusion that the
certificates of stock were stolen and therefore
not validly transferred and the transfers of stock
relied upon by the petitioners were fraudulently
recorded in the STB of NEugene under the
column “Certificates Cancelled” (this was relied
upon by the petitioners as evidence that the 3
did not own at least 2/3 of the outstanding
capital stock)
 SEC overlooked certain facts of substance and
value when it declared the dissolution as not
valid
o It misappreciated the true nature of the
relationship between the stockholders
and the Uy Family. They had an
understanding that subject shares of
stock were, immediately upon issuance,
endorsed in blank by the shareholders
and entruseed to the Uy Family for
safekeeping.
o Johnson Lee and Sonny Moreno knew
this and were in bad faith in assigning
the stock certificates to Martin and Tan
and in recording it in the STB
o As nominees of the UY family, Sy, Suen
and Yang’s approval was necessary for
the effectivity of the transfer. In this case
the transfer lacked the requisite
approval
o No valuable consideration for the
supposed transfer of stocks. The
complete absence of a cause or
consideration renders the contract
absolutely void and inexistent.
Petition Dismissed. CA decision Affirmed
Justin Benedict A. Moreto
G.R. No. L-19441 March 27, 1923
FUA CUN (alias Tua Cun), plaintiff-appellee,
vs.
RICARDO SUMMERS, in his capacity as Sheriff ex-
oficio of the City of Manila, and the CHINA BANKING
CORPORATION, defendants-appellants
FACTS:
On August 26, 1920, one Chua Soco subscribed for
500 shares of stock of the defendant Banking
Corporation at a par value of P100 per share [P 50,000].
However, he only paid the sum of P 25,000 which is 1/2
of the subscription price, in cash for which a receipt
was issued.
On May 18, 1921, Chua Soco executed a promissory
note in favor of the plaintiff Fua Cun for the sum of
P25,000 payable in ninety days and drawing interest at
the rate of 1 per cent per month, securing the note with a
chattel mortgage on the shares of stock subscribed for
by Chua Soco, who also endorsed the receipt above
mentioned and delivered it to the mortgagee.
The Fua Cun, the plaintiff, thereupon took the receipt to
the manager of the defendant Bank and informed him of
the transaction with Chua Soco, but was told to await
action upon the matter by the Board of Directors.
Meanwhile, Chua Soco appears to have become
indebted to the China Banking Corporation in the sum of
P37,731.68 for dishonored acceptances of commercial
paper and in an action brought against him to recover
this amount, Chua Soco's interest in the five hundred
shares subscribed for was attached and the receipt
seized by the sheriff.
Fua Cun thereupon brought the present action
maintaining that by virtue of the payment of the one-half
of the subscription price of the 500 shares Chua Soco in
effect became the owner 250 shares and praying that
his, the plaintiff's, lien on said shares, by virtue of the
chattel mortgage, be declared to hold priority over the
claim of the defendant Banking Corporation; that the
defendants be ordered to deliver the receipt in question
to him; and that he be awarded the sum of P5,000 in
damages for wrongful attachment.
The trial court rendered judgment in favor of the Fua
Cun declaring that Chua Soco, through the payment of
the P25,000, acquired the right to two hundred and fifty
shares fully paid up, upon which shares the plaintiff
holds a lien superior to that of the China Banking
Corporation and ordering that the receipt be returned to
said plaintiff. From this judgment the defendants appeal.
ISSUE/S
1) Whether Chua Soco, through the payment of
the P25,000, acquired the right to 250 shares
which were fully paid up. (main issue for
corp)
2) Whether the plaintiff holds a lien superior to
that of the defendant Banking Corporation
and ordering that the receipt be returned to
said plaintiff. (main issue in the case)
HELD:
1) No.
The Court stated that the payment of half the
subscription price does not make the holder of stock the
owner of half the subscribed shares. Plaintiff's rights
consist in equity in 500 shares and upon payment of the
unpaid portion of the subscription price he becomes
entitled to the issuance of certificate for the said 500
shares in his favor.
However, shares for which no certificate of stock has
been issued may validly be mortgaged in whole (and not
just with respect to the portion paid-up) and the
corporation receiving notice thereof is bound to respect
the security arrangement.
Equity in shares of stock may be assigned. The
assignment becomes effective as between the parties
and as to third parties with notice. Equity in shares of
stock may be a subject of a chattel mortgage but such
will operate as a conditional equitable assignment.
2) Yes, the plaintiff has a superior lien over the
bank.
The claim of the defendant Banking Corporation upon
which it brought the action in which the writ of
attachment was issued, was for the non-payment of
drafts accepted by Chua Soco and had no direct
connection with the shares of stock in question.
At common law a corporation has no lien upon the
shares of stockholders for any indebtedness to the
corporation and our attention has not been called to any
statute creating such lien here.
On the contrary, section 120 of the Corporation Act
provides that "no bank organized under this Act shall
make any loan or discount on the security of the shares
of its own capital stock, nor be the purchaser or holder of
any such shares, unless such security or purchase shall
be necessary to prevent loss upon a debt previously
contracted in good faith, and stock so purchased or
acquired shall, within six months from the time of its
purchase, be sold or disposed of at public or private
sale, or, in default thereof, a receiver may be appointed
to close up the business of the bank in accordance with
law."
The reasons for this doctrine are obvious; if banking
corporations were given a lien on their own stock for the
indebtedness of the stockholders, the prohibition against
granting loans or discounts upon the security of the
stock would become largely ineffective.
FUA CUN, petitioner
vs.
SUMMERS, respondent
G.R. No. L-19441 March 27, 1923
FACTS:
It appears from the evidence that on August 26,
1920, one Chua Soco subscribed for five hundred
shares of stock of the defendant Banking Corporation.
On May 18, 1921, Chua Soco executed a
promissory note in favor of the plaintiff Fua Cun for the
sum of P25,000 payable in ninety days and drawing
interest at the rate of 1 per cent per month, securing the
note with a chattel mortgage on the shares of stock
subscribed for by Chua Soco, who also endorsed the
receipt above mentioned and delivered it to the
mortgagee. The plaintiff thereupon took the receipt to the
manager of the defendant Bank and informed him of the
transaction with Chua Soco, but was told to await action
upon the matter by the Board of Directors.
In the meantime Chua Soco appears to have
become indebted to the China Banking Corporation in
the sum of P37,731.68 for dishonored acceptances of
commercial paper and in an action brought against him
to recover this amount, Chua Soco's interest in the five
hundred shares subscribed for was attached and the
receipt seized by the sheriff. The attachment was levied
after the defendant bank had received notice of the facts
that the receipt had been endorsed over to the plaintiff.
Fua Cun thereupon brought the present action
maintaining that by virtue of the payment of the one-half
of the subscription price of five hundred shares Chua
Soco in effect became the owner of two hundred and
fifty shares and praying that his, the plaintiff's, lien on
said shares, by virtue of the chattel mortgage, be
declared to hold priority over the claim of the defendant
Banking Corporation; that the defendants be ordered to
deliver the receipt in question to him; and that he be
awarded the sum of P5,000 in damages for wrongful
attachment.
ISSUE:
Whether or not the interest held by Chua Soco
was merely an equity which could not be made the
subject of a chattel mortgage.
RULING:
NO.
Though the courts have uniformly held that
chattel mortgages on shares of stock and other choses
in action are valid as between the parties, there is still
much to be said in favor of the defendants' contention
that the chattel mortgage here in question would not
prevail over liens of third parties without notice; an equity
in shares of stock is of such an intangible character that
it is somewhat difficult to see how it can be treated as a
chattel and mortgaged in such a manner that the
recording of the mortgage will furnish constructive notice
to third parties.
In regard to a chattel mortgage of shares of
stock: These certificates of stock are in the pockets of
the owner, and go with him where he may happen to
locate, as choses in action, or evidence of his right,
without any means on the part of those with whom he
proposes to deal on the faith of such a security of
ascertaining whether or not this stock is in pledge or
mortgaged to others. The chief office of the company
may be at one place to-day and at another tomorrow.
The owner may have no fixed or permanent abode, and
with his notes in one pocket and his certificates of stock
in the other.
But a determination of this question is not
essential in the present case. There can be no doubt
that an equity in shares of stock may be assigned and
that the assignment is valid as between the parties and
as to persons to whom notice is brought home. Such an
assignment exists here, though it was made for the
purpose of securing a debt.
ENRIQUE MONSERRAT
vs.
CARLOS G. CERON, ET AL. ERMA, INC., and, THE
SHERIFF OF MANILA
G.R. No. 37078 September 27, 1933
FACTS:
Enrique Monserrat, was the president and
manager of the Manila Yellow Taxicab Co., Inc., and the
owner of P1,200 common shares of stock thereof. On
March 25, 1930, in consideration of the interest shown
and the financial aid extended him in the organization of
the corporation by Carlos G. Ceron, one of the
defendants herein, Enrique Monserrat assigned to the
former the usufruct of half of the aforesaid common
shares of stock, the corresponding certificate of stock
No. 7, having been issued in the name of said Carlos G,
Ceron to that effect on March 24, 1930. (Exhibit 1.) Said
assignment or transfer only gave the transferee the right
to enjoy, during his lifetime, the profits which might be
derived from the shares assigned him, prohibiting him
from selling, mortgaging, encumbering, alienating or
otherwise exercising any act implying absolute
ownership of all or any of the shares in question, the
transferor having reserved for himself and his heirs the
right to vote derived from said shares of stock and to
recover the ownership thereof at the termination of the
usufruct (Exhibit A). Stock certificate No. 7 was recorded
in the name of Carlos G. Ceron and the aforesaid deed
of transfer Exhibit A, was noted by himself as secretary,
on page 22 of the Stock and Transfer Book of the Manila
Yellow Taxicab Co., Inc.
ISSUE:
Whether or not it is necessary to enter upon the
books of the corporation a mortgage constituted on
common shares of stock in order that such mortgage
may be valid and may have force and effect as against
third persons.
RULING:
YES.
A "transfer" is the act by which owner of a thing
delivers it to another with the intent of passing the rights
which he has in it to the latter, and a chattel mortgage is
not within the meaning of such term.
Therefore, the chattel mortgage is not the
transfer referred to in section 35 of Act No. 1459
commonly known as the Corporation law, which transfer
should be entered and noted upon the books of a
corporation in order to be valid, and which, as has
already been said, means the absolute and
unconditional conveyance of the title and ownership of a
share of stock.
If, in accordance with said section 35 of the
Corporation Law, only the transfer or absolute
conveyance of the ownership of the title to a share need
be entered and noted upon the books of the corporation
in order that such transfer may ba valid, therefore,
inasmuch as a chattel mortgage of the aforesaid title is
not a complete and absolute alienation of the dominion
and ownership thereof, its entry and notation upon the
books of the corporation is not necessary requisite to its
validity.
GONZALO CHUA
GUAN
vs.
SAMAHANG MAGSASAKA, INC., and SIMPLICIO
OCAMPO, ADRIANO G. SOTTO, and EMILIO
VERGARA, as president, secretary and treasurer
respectively of the same
G.R. No. L-42091 November 2, 1935
FACTS:
Samahang Magsasaka, Inc., is a corporation
duly organized under the laws of the Philippine Islands
with principal office in Cabanatuan, Nueva Ecija, and
that the individual defendants are the president,
secretary and treasurer respectively of the same; that on
June 18, 1931, Gonzalo H. Co Toco was the owner of
5,894 shares of the capital stock of the said corporation
represented by nine certificates having a par value of P5
per share; that on said date Gonzalo H. Co Toco, a
resident of Manila, mortgaged said 5,894 shares to Chua
Chiu to guarantee the payment of a debt of P20,000 due
on or before June 19, 1932. The said certificates of stock
were delivered with the mortgage to the mortgagee,
Chua Chiu. The said mortgage was duly registered in
the office of the register of deeds of Manila on June 23,
1931, and in the office of the said corporation on
September 30, 1931. On November 28, 1931, Chua
Chiu assigned all his right and interest in the said
mortgage to the plaintiff and the assignment was
registered in the office of the register of deeds in the City
of Manila on December 28, 1931, and in the office of the
said corporation on January 4, 1932.
The debtor, Gonzalo H. Co Toco, having
defaulted in the payment of said debt at maturity, the
plaintiff foreclosed said mortgage and delivered the
certificates of stock and copies of the mortgage and
assignment to the sheriff of the City of Manila in order to
sell the said shares at public auction. The sheriff
auctioned said 5,894 shares of stock on December 22,
1932, and the plaintiff having been the highest bidder for
the sum of P14,390, the sheriff executed in his favor a
certificate of sale of said shares. The plaintiff tendered
the certificates of stock standing in the name of Gonzalo
H. Co Toco to the proper officers of the corporation for
cancellation and demanded that they issue new
certificates in the name of the plaintiff. The said officers
(the individual defendants) refused and still refuse to
issue said new shares in the name of the plaintiff.
ISSUE:
Whether or not the mortgage registered
considered the certificate of registration in the
corporation.
RULING:
YES.
By analogy with the foregoing and considering
the ownership of shares in a corporation as property
distinct from the certificates which are merely the
evidence of such ownership, it seems to us a reasonable
construction of section 4 of Act No. 1508 to hold that the
property in the shares may be deemed to be situated in
the province in which the corporation has its principal
office or place of business. If this province is also the
province of the owner's domicile, a single registration
sufficient. If not, the chattel mortgage should be
registered both at the owner's domicile and in the
province where the corporation has its principal office or
place of business. In this sense the property mortgaged
is not the certificate but the participation and share of the
owner in the assets of the corporation.
Uson VS. Diosomito
Facts:
Toribia Uson attached the shares of stocks
owned by Vicente Diosomito, which was given by
the latter as security for a loan obtained from Uson.
However, it was later on found out that the same
shares were sold to Jollye even before the
attachment. But the problem is, the sale was not
registered in the stock and transfer book of the
corporation. The same was only brought to the
attention of the corporation after nine months when
the attachment was levied.
Issue:
W/N the attachment will take precedence
over the sale.
Ruling:
Yes, the Court ruled that the
attachment is to take precedence over the sale,
and the same shall be respected.
Prior to the ruling in Uson, registration
merely meant notice to the corporation. The same
has nothing to do with the validity or invalidity of
the transaction. As such actual knowledge >
registration. However, in this case the court held
that registration accords validity or invalidity to the
transfer. If the same is not registered, the
transaction is void as to the fact of those who have
no notice and it is also void as to the transaction
itself.
When the corporation is party to the
transaction and it accepts the notice duly given to
it, then it binds the corporation, even in the transfer
of ownership; most especially if the corporation
already recognized the transferee as the owner.
With the latter situation, the corporation can no
longer assert non-registration. However, when the
corporation is not a party to the transaction, then
the corporation cannot be bound by the notice.
(The notice pertained herein is the sale of the
shares of stock to Jollye and not the attachment of
Uson.)
RICARDO NAVA
vs.
PEERS MARKETING CORP., RENATO CUSI and
AMPARO CUSI
GR L-28120, 25 November 1976
FACTS:
Teofilo Po as an incorporator subscribed to
eighty shares of Peers Marketing Corporation at one
hundred pesos a share or a total par value of eight
thousand pesos. Po paid two thousand pesos or twenty-
five percent of the amount of his subscription. No
certificate of stock was issued to him or, for that matter,
to any incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for
two thousand pesos twenty of his eighty shares. In the
deed of sale Po represented that he was "the absolute
and registered owner of twenty shares" of Peers
Marketing Corporation.
Nava requested the officers of the corporation to
register the sale in the books of the corporation. The
request was denied because Po has not paid fully the
amount of his subscription. Nava was informed that Po
was delinquent in the payment of the balance due on his
subscription and that the corporation had a claim on his
entire subscription of eighty shares which included the
twenty shares that had been sold to Nava.
ISSUE:
Whether or not Peers may be compelled by
mandamus to register the stocks in Nava’s name.
RULING:
NO.
There’s no certificate of stock issued in favor of
Po. Shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. "Title may
be vested in the transferee by delivery of the certificate
with a written assignment or indorsement thereof" There
should be compliance with the mode of transfer
prescribed by law.
The usual practice is for the stockholder to sign
the form on the back of the stock certificate. The
certificate may thereafter be transferred from one person
to another. If the holder of the certificate desires to
assume the legal rights of a shareholder to enable him to
vote at corporate elections and to receive dividends, he
fills up the blanks in the form by inserting his own name
as transferee. Then he delivers the certificate to the
secretary of the corporation so that the transfer may be
entered in the corporation's books. The certificate is then
surrendered and a new one issued to the transferee.
That procedure cannot be followed in the instant
case because, as already noted, the twenty shares in
question are not covered by any certificate of stock in
Po's name. Moreover, the corporation has a claim on the
said shares for the unpaid balance of Po's subscription.
A stock subscription is a subsisting liability from the time
the subscription is made. The subscriber is as much
bound to pay his subscription as he would be to pay any
other debt. The right of the corporation to demand
payment is no less incontestable.
In this case no stock certificate was issued to
Po. Without the stock certificate, which is the evidence of
ownership of corporate stock, the assignment of
corporate shares is effective only between the parties to
the transaction.
BATANGAS LAGUNA TAYABAS BUS COMPANY,
INC vs. BITANGA
G.R. No. 137934/ G.R. No. 137936 August 10,
2001
FACTS: On October 28, 1997, Dolores Potenciano, Max
Joseph Potenciano, Mercedelin Potenciano, Delfin
Yorro, and Maya Industries, Inc., entered into a Sale and
Purchase Agreement, whereby they sold to BMB
Property Holdings, Inc., represented by its President,
Benjamin Bitanga, their 21,071,114 shares of stock in
BLTB. The said shares represented 47.98% of the total
outstanding capital stock of BLTB. The purchase price
for the shares of stock was P72,076,425.00. A
downpayment was made while the balance was payable
on November 26, 1997. The contracting parties
stipulated that the downpayment was conditioned upon
receipt by the buyer of certain documents upon signing
of the Agreement, namely, the Secretary's Certificate
stating that the Board of Directors of Maya Industries,
Inc. authorized the sale of its shares in BLTB and the
execution of the Agreement, and designating Dolores A.
Potenciano as its Attorney-in-Fact; the Special Power of
Attorney executed by each of the sellers in favor of
Dolores A. Potenciano for purposes of the Agreement;
the undated written resignation letters of the Directors of
BLTB, except Henry John A. Potenciano, Michael A.
Potericiano and Candido A. Potenciano; a revocable
proxy to vote the subject shares made by the sellers in
favor of the buyer; a Declaration of Trust made by the
sellers in favor of the buyer acknowledging that the
subject shares shall be held in trust by the sellers
for the buyer pending their transfer to the latter's
name; and the duly executed capital gains tax return
forms covering the sale, indicating no taxable gain on
the same. Furthermore, the buyer guaranteed that it
shall take over the management and operations of BLTB
but shall immediately surrender the same to the sellers
in case it fails to pay the balance of the purchase price
on November 26, 1997. On November 21, 1997, at a
meeting of the stockholders of BLTB, Benjamin Bitanga
and Monina Grace Lim were elected as directors of the
corporation Subsequently, on November 28, 1997,
another stockholders' meeting was held, wherein
Laureano A. Siy and Renato L. Leveriza were elected as
directors. At the same meeting, the Board of Directors of
BLTB elected James Olayvar, Eduardo Azucena, Evelio
Custodia, and Gemma Santos as officers. During a
meeting of the Board of Directors on April 14, 1998, the
newly elected directors of BLTB scheduled the annual
stockholders' meeting on May 19, 1998, to be held at the
principal office of BLTB in San Pablo, Laguna. Before
the scheduled meeting, Michael Potenciano wrote
Benjamin Bitanga, requesting for a postponement of the
stockholders' meeting due to the absence of a thirty-day
advance notice. However, no response from Bitanga on
whether or not the request for postponement was
favorably acted upon. On the scheduled date of the
meeting, inasmuch as there was no notice of
postponement prior to that, a total of 286 stockholders,
representing 87% of the shares of stock of BLTB, arrived
and attended the meeting. The majority of the
stockholders present rejected the postponement and
voted to proceed with the meeting. The Potenciano
group was re-elected to the Board of Directors, and a
new set of officers was thereafter elected. On May 21,
1998, the Bitanga group filed with the SEC a Complaint
for Damages and Injunction. Their prayer for the
issuance of a temporary restraining order was, however,
denied at the ex-parte summary hearing conducted by
SEC Chairman Perfecto Yasay, Jr. Likewise, the
Potenciano group filed on May 25, 1998, a Complaint for
Injunction and Damages with Preliminary Injunction and
Temporary Restraining Order with the SEC. The SEC
Chairman Perfecto Yasay, Jr. issued a temporary
restraining order enjoining the Bitanga group from acting
as officers and directors of BLTB. On June 8, 1998, the
Bitanga group filed another complaint with application for
a writ of preliminary injunction and prayer for temporary
restraining order, seeking to annul the May 19, 1998
stockholders' meeting. A joint hearing was conducted.
On June 17, 1998, the SEC Hearing Panel granted the
Bitanga group's application for a writ of preliminary
injunction upon the posting of a bond in the amount of
P20,000,000.00. It declared that the May 19, 1998
stockholders' meeting was void on the grounds that, first,
Michael Potenciano had himself asked for its
postponement due to improper notice; and, second,
there was no quorum, since BMB Holdings, Inc.,
represented by the Bitanga group, which then owned
50.26% of BLTB's shares having purchased the same
from the Potenciano group, was not present at the said
meeting. The Hearing Panel further held that the Bitanga
Board remains the legitimate Board in a hold-over
capacity. The Potenciano group filed a petition for
certiorari with the SEC En Banc on June 29, 1998,
seeking a writ of preliminary injunction to restrain the
implementation of the Hearing Panel's assailed Order.
On July 21, 1998, the SEC En Banc set aside the June
17, 1998 Order of the Hearing Panel and issued the writ
of preliminary injunction prayed for. The Bitanga group
immediately filed a petition for certiorari with the Court of
Appeals on July 22, 1998, followed by a Supplemental
Petition on August 10, 1998. Meanwhile, on July 29,
1998, the SEC En Banc issued a writ of preliminary
injunction against the Bitanga group, after the
Potencianos posted the required bond
P20,000,000.00. On November 23, 1998, the CA
rendered the now assailed Decision, reversing the
assailed Orders of the SEC En Banc and reinstating the
Order of the Hearing Panel ordered dated June 17,
1998. The CA denied the Motions for Reconsideration in
a Resolution dated March 25, 1999. Hence, this petition
for review.
ISSUE: Whether or not the stockholders' meeting on
May 19, 1998 was void since BMB Holdings, Inc.,
represented by the Bitanga group was not present at the
said meeting.
RULING: Until registration is accomplished, the
transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the
unrecorded transferee, the Bitanga group in this
case, cannot vote nor be voted for. The purpose of
registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder,
including the right to vote and to be voted for, and to
inform the corporation of any change in share
ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a
stockholder. Until challenged in a proper
proceeding, a stockholder of record has a right to
participate in any meeting; his vote can be properly
counted to determine whether a stockholders'
resolution was approved, despite the claim of the
alleged transferee. On the other hand, a person who
has purchased stock, and who desires to be
recognized as a stockholder for the purpose of
voting, must secure such a standing by having the
transfer recorded on the corporate books. Until the
transfer is registered, the transferee is not a
stockholder but an outsider.
WHEREFORE, in view of all the foregoing, the instant
petitions for review are GRANTED. The Decision of the
Court of Appeals dated November 23, 1998 in CA-G.R.
SP No. 48374 and its resolution dated March 25, 1999
are SET ASIDE. The Orders of the SEC En Banc dated
July 21, 1998 and July 27, 1998 in SEC Case No. EB
611 are ordered REINSTATED.
BATANGAS LAGUNA TAYABAS BUS COMPANY,
INC., DOLORES A. POTENCIANO, MAX JOSEPH A.
POTENCIANO, MERCEDELIN A. POTENCIANO, and
DELFIN C. YORRO
vs.
BENJAMIN M. BITANGA, RENATO L. LEVERIZA,
LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO
A. AZUCENA, MONINA GRACE S. LIM, and GEMMA
M. SANTOS
G.R. No. 137934 August 10, 2001
FACTS:
Dolores A. Potenciano, Max Joseph A.
Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro,
of and Maya Industries, Inc., entered into a Sale and
Purchase Agreement, whereby they sold to BMB
Property Holdings, Inc., represented by its President,
Benjamin Bitanga, their 21,071,114 shares of stock in
BLTB. The said shares represented 47.98% of the total
outstanding capital stock of BLTB. The contracting
parties stipulated that the downpayment was conditioned
upon receipt by the buyer of certain documents upon
signing of the Agreement, namely, the Secretary's
Certificate stating that the Board of Directors of Maya
Industries, Inc. authorized the sale of its shares in BLTB
and the execution of the Agreement, and designating
Dolores A. Potenciano as its Attorney-in-Fact; the
Special Power of Attorney executed by each of the
sellers in favor of Dolores A. Potenciano for purposes of
the Agreement; the undated written resignation letters of
the Directors of BLTB, except Henry John A.
Potenciano, Michael A. Potericiano and Candido A.
Potenciano); a revocable proxy to vote the subject
shares made by the sellers in favor of the buyer; a
Declaration of Trust made by the sellers in favor of the
buyer acknowledging that the subject shares shall be
held in trust by the sellers for the buyer pending their
transfer to the latter's name; and the duly executed
capital gains tax return forms covering the sale,
indicating no taxable gain on the same.
ISSUE:
Whether or not the Bitanga group vote or be
voted upon.
RULING:
NO.
We are in full accord with the SEC En Banc on
this matter. Indeed, until registration is accomplished,
the transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the
unrecorded transferee, the Bitanga group in this case,
cannot vote nor be voted for. The purpose of
registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder,
including the right to vote and to be voted for, and to
inform the corporation of any change in share ownership
so that it can ascertain the persons entitled to the rights
and subject to the liabilities of a stockholder. Until
challenged in a proper proceeding, a stockholder of
record has a right to participate in any meeting; his vote
can be properly counted to determine whether a
stockholders' resolution was approved, despite the claim
of the alleged transferee. On the other hand, a person
who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting,
must secure such a standing by having the transfer
recorded on the corporate books. Until the transfer is
registered, the transferee is not a stockholder but an
outsider.
The Court finds no error either in jurisdiction or
judgment on the part of the SEC En Banc, since its
conclusions of law were anchored on established
principles and jurisprudence. The petition is denied.
NEMESIO GARCIA
vs.
NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of
Cebu and SPOUSES JOSE ATINON & SALLY
ATINON
G.R. No. 133969 January 26, 2000
FACTS:
Petitioner filed an action for injunction with
prayer for preliminary injunction against respondents
spouses Jose and Sally Atinon and Nicolas
Jomouad, ex-officio sheriff of Cebu.
Said action stemmed from an earlier case for
collection of sum of money, docketed as Civil Case No.
CEB-10433, before the RTC, Branch 10 of Cebu, filed by
the spouses Atinon against Jaime Dico. In that case
(collection of sum of money), 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,
respondent sheriff proceeded with its execution. In the
course thereof, the Proprietary Ownership Certificate
(POC) No. 0668 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, petitioner filed the aforesaid action for
injunction with prayer for preliminary injunction to enjoin
respondents from proceeding with the auction.
ISSUE:
Whether or not the appellate court erroneously
rely on Section 63 of the Corporation Code in upholding
the levy on the subject certificate to satisfy the judgment
debt of Dico in Civil Case No. CEB-14033.
RULING:
NO.
The transfer of the subject certificate made by
Dico to petitioner 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, as correctly ruled by the
CA, 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.
Accordingly, the CA committed no reversible error in
rendering the assailed decision.
CHEMPHIL EXPORT AND IMPORT CORPORATION
vs.
THE HON. COURT OF APPEALS (Former Twelfth
Division), PHILIPPINE INVESTMENTS SYSTEMS
ORGANIZATION (PISO), BANK OF THE PHILIPPINE
ISLANDS (BPI), PHILIPPINE COMMERCIAL
INDUSTRIAL BANK (PCIB), RIZALCOMMERCIAL
BANKING CORPORATION (RCBC) and LAND BANK
OF THE PHILIPPINES (LBP)
G.R. No. 97217 April 10, 1992
FACTS
Dynetics, Inc. and Antonio M. Garcia filed a
complaint for declaratory relief and/or injunction against
the PISO, BPI, LBP, PCIB and RCBC or the consortium
with the Regional Trial Court of Makati, Branch 45 (Civil
Case No. 8527), seeking judicial declaration,
construction and interpretation of the validity of the
surety agreement that Dynetics and Garcia had entered
into with the consortium and to perpetually enjoin the
latter from claiming, collecting and enforcing any
purported obligations which Dynetics and Garcia might
have undertaken in said agreement.
The consortium filed their respective answers
with counterclaims alleging that the surety agreement in
question was valid and binding and that Dynetics and
Garcia were liable under the terms of the said
agreement. It likewise applied for the issuance of a writ
of preliminary attachment against Dynetics and Garcia.
ISSUE:
Whether or not the attachment of shares of
stock, in order to bind third persons, must be recorded in
the stock and transfer book of the corporation.
RULING:
NO.
Section 7(d), Rule 57 of the Rules of Court was
complied with by the consortium (through the Sheriff of
the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president
of Chemphil on July 19, 1985. Indeed, to bind third
persons, no law requires that an attachment of shares of
stock be recorded in the stock and transfer book of a
corporation. The statement attributed by the Regional
Trial Court to the Supreme Court in Samahang
Magsasaka, Inc. vs. Gonzalo Chua Guan, G.R. No. L-
7252, February 25, 1955 (unreported), to the effect that
"as between two attaching creditors, the one whose
claim was registered first on the books of the corporation
enjoys priority," is an obiter dictum that does not modify
the procedure laid down in Section 7(d), Rule 57 of the
Rules of Court.
Therefore, ruled the Court of Appeals, the
attachment made over the Chemphil shares in the name
of Garcia on July 19, 1985 was made in accordance with
law and the lien created thereby remained valid and
subsisting at the time Garcia sold those shares to FCI
(predecessor-in-interest of appellee CEIC) in 1988.
MAGSAYSAY-LABRADOR, petitioner
vs.
COURT OF APPEALS, respondent
G.R. No. 58168 December 19, 1989
FACTS:
On February 9, 1979, Adelaida Rodriguez-
Magsaysay, widow and special administratix of the
estate of the late Senator Genaro Magsaysay, brought
before the then Court of First Instance of Olongapo an
action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank
(FILMANBANK) and the Register of Deeds of Zambales.
In her complaint, she alleged that in 1958, she and her
husband acquired, thru conjugal funds, a parcel of land
with improvements, known as "Pequena Island", covered
by TCT No. 3258; that after the death of her husband,
she discovered [a] an annotation at the back of TCT No.
3258 that "the land was acquired by her husband from
his separate capital;" [b] the registration of a Deed of
Assignment dated June 25, 1976 purportedly executed
by the late Senator in favor of SUBIC, as a result of
which TCT No. 3258 was cancelled and TCT No. 22431
issued in the name of SUBIC; and [c] the registration of
Deed of Mortgage dated April 28, 1977 in the amount of
P 2,700,000.00 executed by SUBIC in favor of
FILMANBANK; that the foregoing acts were void and
done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent
to the annotation on TCT No. 3258 was not obtained, the
change made by the Register of Deeds of the
titleholders was effected without the approval of the
Commissioner of Land Registration and that the late
Senator did not execute the purported Deed of
Assignment or his consent thereto, if obtained, was
secured by mistake, violence and intimidation. She
further alleged that the assignment in favor of SUBIC
was without consideration and consequently null and
void. She prayed that the Deed of Assignment and the
Deed of Mortgage be annulled and that the Register of
Deeds be ordered to cancel TCT No. 22431 and to issue
a new title in her favor.
ISSUE:
Whether or not petitioner’s ownership in the
outstanding capital stock of SUBIC entitles them to a
significant vote in the corporate affairs.
RULING:
NO.
The words "an interest in the subject" mean a
direct interest in the cause of action as pleaded, and
which would put the intervenor in a legal position to
litigate a fact alleged in the complaint, without the
establishment of which plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-
movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share
in the profits thereof and in the properties and assets
thereof on dissolution, after payment of the corporate
debts and obligations.
While a share of stock represents a
proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of
corporate property, which is owned by the corporation as
a distinct legal person.
Asset Privatization Trust VS. Sandiganbayan
Facts:
Roberto Garcia, Rosario Olivares, Tuynita Salud
Soriano, Rosita Sosing, Jose Luna Castro, Araceli
Linsangan, Luisa Linsangan, Reynaldo Naval, Manuel
Salak and Augusto Villianueva, and the Development
Bank of the Philippines represented by Alicia Ll. Reyes,
signed an instrument denominated as a Deed of
Assignment of Voting Shares.
In another instrument dated January 16, 1979,
denominated as Supplement to the Deed of Assignment,
the parties made the following covenants and
stipulations, to wit: This assignment shall secure not only
the foreign currency loan of US $124,140.00 referred to
above but also all previous and future accommodations
granted/to be granted in favor of PJI by the ASSIGNEE.
The assignment is subject to the same terms
and conditions of the deed of assignment of June 17,
1977, and said terms and conditions are hereby
reiterated, confirmed and continued to be in full force
and effect, making said terms and conditions integral
parts hereof by reference. The ASSIGNORS further bind
themselves to assign such additional shares as may
later be registered in their names, so as to complete and
maintain at all times the assignment in favor of the
ASSIGNEE at not less than 67% of the total subscribed
and paid-up shares of the company. On February 27,
1987, the DBP pursuant to the provisions of
Proclamation No. 50, transferred its rights in PJI to the
Asset Privatization Trust (APT). In the exercise of its
assigned rights, APT opted to enforce the provisions of
the above-mentioned deed of assignment and its
supplement.
On January 31, 1992, respondent Rosario B.
Olivares filed with the Sandiganbayan an urgent ex-parte
motion to order the appearance of DBP or APT
representatives to vote the 67% shares in the
stockholders meeting of PJI set for February 4, 1992 at
2:00 in the afternoon.
Issue:
W/N the assignment to DBP and later to APT of
voting shares of the PJI was an assignment of voting
rights or voting shares.
Ruling:
Voting shares.
The Deed of Assignment is very clear that what
was assigned to DBP (APT) were voting shares as
distinguished from non-voting shares. Obviously, it
meant that the assignees of the shares had the right as
though they were owners of the shares. It is true that the
assignment was predicated on the intention that it would
serve as security vis--vis DBPs financial accommodation
extended to PJI, but it was a valid and duly executed
assignment, subject to a resolutory condition, which was
the settlement of PJIs loan obligation with DBP.
Private respondent Olivares submitted the view
that what was assigned to DBP/APT was merely voting
rights and adduced the endorsements attached to each
stock certificate representing the assigned shares to
DBP/APT.
It is clear in the endorsements that what was
given to DBP was not just voting rights but a transfer and
assignment of the shares. The phrase counter-signed by
Delia S. Tantuico simply clarifies that the transfer and
assignment include also the right to vote the shares. The
deed executed between DBP and the assignors was
denominated as a Deed of Assignment of voting shares,
not of voting rights.
The private respondent contends that since the
shares involved were sequestered shares, jurisdiction
over the subject of the dispute lies with the
Sandiganbayan. The issue between APT and
respondent Olivares involved a dispute between
stockholders, clearly intra-corporate in nature, hence,
outside the jurisdiction of the Sandiganbayan and
squarely was within the jurisdiction of the Securities and
Exchange Commission.
It seems that the assignment of voting shares as
security for a loan operates to give the assignee not only
the right to vote on the shares, but would also treat the
assignee as the owner of the shares (not just an
equitable mortgage): “It is true that the assignment was
predicated on the intention that it would serve as security
vis-à-vis DBP’s financial accommodation extended to
PJI, but it was a valid and duly executed assignment,
subject to a resolutory condition, which was the
settlement of PJI’s loan obligation with DBP.”
LIM TAY
vs.
COURT OF APPEALS, GO FAY AND CO. INC., SY
GUIOK, and THE ESTATE OF ALFONSO LIM
G.R. No. 126891, August 5, 1998
FACTS:
On January 8, 1980, Respondent-Appellee Sy
Guiok secured a loan from the petitioner in the amount
of P40,000 payable within six (6) months. To secure the
payment of the aforesaid loan and interest thereon,
Respondent Guiok executed a Contract of Pledge in
favor of the [p]etitioner whereby he pledged his three
hundred (300) shares of stock in the Go Fay & Company
Inc., Respondent Corporation, for brevity's sake.
Respondent Guiok obliged himself to pay interest on
said loan at the rate of 10% per annum from the date of
said contract of pledge. On the same date, Alfonso Sy
Lim secured a loan from the [p]etitioner in the amount of
P40,000 payable in six (6) months. To secure the
payment of his loan, Sy Lim executed a "Contract of
Pledge" covering his three hundred (300) shares of stock
in Respondent Corporation. Under said contract, Sy Lim
obliged himself to pay interest on his loan at the rate of
10% per annum from the date of the execution of said
contract.
However, Respondent Guiok and Sy Lim failed
to pay their respective loans and the accrued interests
thereon to the [p]etitioner. In October, 1990, the
petitioner filed a "Petition for Mandamus" against
Respondent Corporation, with the SEC entitled "Lim Tay
versus Go Fay & Company. Inc., SEC Case No. 03894".
ISSUE:
Whether or not there is there dacion en pago.
RULING:
NO.
At the outset, it must be underscored that
petitioner did not acquire ownership of the shares by
virtue of the contracts of pledge. Article 2112 of the Civil
Code states: The creditor to whom the credit has not
been satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall be
made at a public auction and with notification to the
debtor and the owner of the thing pledged in a proper
case, stating the amount for which the public sale is to
be held. If at the first auction the thing is not sold, a
second one with the same formalities shall be held; and
if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this case
he shall be obliged to give an acquaintance for his entire
claim.
There is no showing that petitioner made any
attempt to foreclose or sell the shares through public or
private auction, as stipulated in the contracts of pledge
and as required by Article 2112 of the Civil Code.
Therefore, ownership of the shares could not have
passed to him. The pledgor remains the owner during
the pendency of the pledge and prior to foreclosure and
sale, as explicitly provided by Article 2103 of the same
Code: Unless the thing pledged is expropriated, the
debtor continues to be the owner thereof.
Neither did petitioner acquire the shares by
virtue of a novation of the contract of pledge. Novation is
defined as "the extinguishment of an obligation by a
subsequent one which terminates it, either by changing
its object or principal conditions, by substituting a new
debtor in place of the old one, or by subrogating a third
person to the rights of the creditor." Novation of a
contract must not be presumed. "In the absence of an
express agreement, novation takes place only when the
old and the new obligations are incompatible on every
point.
G.R. No. 126891 August 5, 1998
LIM TAY, petitioner,
vs.
COURT OF APPEALS, GO FAY AND CO. INC., SY
GUIOK, and THE ESTATE OF ALFONSO LIM,
respondents.
FACTS:
On 8 January 1980, Sy Guiok secured a loan from Lim
Tay in the amount of P40,000 payable within 6 months.
To secure the payment of the aforesaid loan and interest
thereon, Guiok executed a Contract of Pledge in favor of
Lim Tay. He pledged his 300 shares of stock in the Go
Fay & Company Inc. Guiok obliged himself to pay
interest on said loan at the rate of 10% per annum from
the date of said contract of pledge.
On the same date, Alfonso Sy Lim secured a loan, from
Lim Tay in the amount of P40,000 payable in 6 months.
To secure the payment of his loan, Sy Lim executed a
"Contract of Pledge" covering his 300 shares of stock in
Go Fay & Co. Under said contract, Sy Lim obliged
himself to pay interest on his loan at the rate of 10% per
annum from the date of the execution of said contract.
The contract provided that Lim Tay was merely
authorized to foreclose the pledge upon maturity of the
loans, not to own them. The foreclosure is not automatic,
for it must be done in a public or private sale.
Guiok and Sy Lim endorsed their respective shares of
stock in blank and delivered the same to Lim Tay.
However, Guiok and Sy Lim failed to pay their respective
loans and the accrued interests thereon to Lim Tay.
In October 1990, Lim Tay filed a "Petition for Mandamus"
against Go Fay & Co., with SEC praying that an order be
issued directing the corporate secretary to register the
stock transfers and issue new certificates in favor of Lim
Tay; and ordering the corporation to pay all dividends
due and unclaimed on the said certificates to Lim Tay. In
the interim, Sy Lim died. Guiok and the Intestate Estate
of Alfonso Sy Lim, represented by Conchita Lim, filed
their Answer-In-Intervention with the SEC.
The SEC hearing officer dismissed Lim Tay's Complaint
on the ground that although the SEC had jurisdiction
over the action, he failed to prove the legal basis for the
secretary of the Corporation to be compelled to register
stock transfers in favor of Lim Tay and to issue new
certificates of stock under his name. His appeal was
denied by SEC. He appealed with CA.
The CA debunked Lim Tay's claim that he had acquired
ownership over the shares by virtue of novation, holding
that Guiok's and Sy Lim's endorsement and delivery of
the shares were pursuant to Articles 2093 and 2095 of
the Civil Code and that Lim Tay's receipt of dividends
was in compliance with Article 2102 of the same Code.
Arguments of Lim Tay: He contends that it has acquired
ownership of the shares "through extraordinary
prescription," pursuant to Article 1132 of the Civil Code,
and through respondents' subsequent acts, which
amounted to a novation of the contracts of pledge.
Petitioner also claims that there was dacion en pago, in
which the shares of stock were deemed sold to
petitioner, the consideration for which was the
extinguishment of the loans and the interests thereon.
Petitioner likewise claims that laches bars respondents
from recovering the subject shares.
ISSUE:
WON Lim Tay is the owner of the shares previously
subjected to pledge, for him to cause the registration of
said shares in his own name.
RULING: NO.
Lim Tay's ownership over the shares was not yet
perfected when the Complaint was filed. The contract of
pledge certainly does not make him the owner of the
shares pledged.
Further, whether prescription effectively transferred
ownership of the shares, whether there was a novation
of the contracts of pledge, and whether laches had set in
were difficult legal issues, which were unpleaded and
unresolved when Lim Tay asked the corporate secretary
of Go Fay to effect the transfer, in his favor, of the
shares pledged to him. Lim Tay has failed to establish a
clear legal right.
Lim Tay's contention that he is the owner of the said
shares is completely without merit. Lim Tay does not
have any ownership rights at all. At the time Lim Tay
instituted his suit at the SEC, his ownership claim had no
prima facie leg to stand on. At best, his contention was
disputable and uncertain.
Lim Tay cannot claim to have acquired ownership over
the certificates of stock through extraordinary
prescription, as provided for in Article 1132 of the Civil
Code. What is required by Article 1132 is possession in
the concept of an owner. Herein, Lim Tay's possession
of the stock certificates came about because they were
delivered to him pursuant to the contracts of pledge. His
possession as a pledgee cannot ripen into ownership by
prescription. Lim Tay expressly repudiated the pledge,
only when he filed his Complaint and claimed that he
was not a mere pledgee, but that he was already the
owner of the shares.
Based on the foregoing, Lim Tay has not acquired the
certificates of stock through extraordinary prescription.
Neither did Lim Tay acquire the shares by virtue of a
novation of the contract of pledge. Novation cannot be
presumed by Guiok's and Sy Lim's indorsement and
delivery of the certificates of stock covering the 600
shares, nor Lim Tay's receipt of dividends from 1980 to
1983, nor the fact that Guiok and Sy Lim have not
instituted any action to recover the shares since 1980.
Novation is never presumed inferred.
Notes: There is a contract of pledge between Guiok
(respondent) and Lim Tay (petitioner) & Sy Lim
(respondent) and Lim Tay (petitioner). What was
mortgaged? 300 shares of stock in the Go Fay &
Company Inc. by Guiok and 300 shares of stock in the
Go Fay & Company Inc. by Sy Lim. Date - January 8,
1980.
G.R. No. 129777 January 5, 2001
TCL SALES CORPORATION and ANNA TENG,
petitioners, vs.
HON. COURT OF APPEALS and TING PING LAY,
respondents.
Facts: Respondent TCL Corporation was organized and
registered sometime in 1973. The incorporators were
Teng Ching Lay, Henry Teng (son of Teng Ching Lay),
Anna Teng (daughter of Teng Ching Lay), Ismaelita
Maluto and Peter Chiu. The corporation started with an
authorized capital stock of 5,000 shares valued at
P1,000.00 per share with an aggregate value of
P500,000.00. In 1974 the Articles of Incorporation was
amended increasing its authorized capital stock to
20,000 shares valued at P2,000,000.00 of which 8,000
shares were subscribed and fully paid.
Petitioner Ting Ping Lay (the brother of Teng Ching Lay)
acquired by purchase four-hundred eighty (480) shares
of stocks (sic) of the corporation from stockholder Peter
Chiu.
Ting Ping Lay purchased another one-thousand four-
hundred (1,400) shares from his brother Teng Ching
Lay.
Ting Ping Lay acquired 1,440 more shares from
Ismaelita Maluto.
Teng Ching Lay served as president and operations
manager until his death. Respondent Anna Teng served
as the Corporate Secretary.
Henry Teng took over the management of the company
after his father's death.
Ting Ping Lay in order to protect his shareholdings with
the company requested Anna Teng to enter the transfer
of shares of stocks for the proper recording of his
acquisitions in the Stock and Transfer Book of the
corporation. Likewise, he demanded the issuance of the
new certificates of stock in his favor. However,
respondents refused despite repeated demands.
Ting Ping Lay filed a petition for mandamus with the
Securities and Exchange Commission against TCL
Corporation and Anna Teng.
After the trial, the hearing officer found for the petitioner.
The Commission en banc modified the aforequoted
ruling by deleting the liability of TCL Corporation relative
to the award of moral damages and attorney's fees.
Subsequently, herein petitioners filed with respondent
Court of Appeals a petition for review of the Order of the
SEC, the Court of Appeals dismissed the petition.
Issue: Whether or not the alleged transfer of shares in
favor of private respondent are valid and can be ordered
recorded?
Ruling: Yes, Moreover, the SEC en banc found that the
petitioners did not refute the validity of the transfers of
shares of stock to Ting Ping Lay, insofar as those shares
covered duly indorsed stock certificates were concerned.
Petitioners themselves conceded that they could not
assail the documents evincing the transfer of the shares
to Ting Ping Lay.
In Lim Tay vs. Court of Appeals, we held that the
registration of shares in a stockholder's name, the
issuance of stock certificates, and the right to receive
dividends which pertain to the shares are all rights that
flow from ownership. Respondent Ting Ping Lay was
able to establish prima facie ownership over the shares
of stocks in question, through deeds of transfer of shares
of stock of TCL Corporation. Petitioners could not its power of control and supervision over all corporations
repudiate these documents. Hence, the transfer of to encourage active public participation in the affairs of
shares to him must be recorded on the corporation's private corporations by way of investments.
stock and transfer book.

Noteworthy, of the petition before us contains a listing of

the corporation's stockholders and their respective Tayag vs Benguet Consolidated Inc
shares before and after the execution of a certain deed
26 SCRA 242 [GR No. L-23145 November 27,1968]
of assignment. Respondent Ting Ping Lay is listed as a
stockholder of the corporation in this document. By this
inclusion, petitioners have in effect rebutted their own
claim in their petition that Ting Ping Lay "is not and has Facts: County Trust Company of New York, United
neither been an incorporator nor a stockholder of the States of America is the domiciliary administration of the
corporation". Undoubtedly then, the dispute is an intra- decedent, Idonah Slade Perkins who owned 33,002
corporate controversy, involving as it does stockholders shares of stocks in the appellant, domestic corporation,
of TCL Corporation. Benguet Consolidated Inc. located in the Philippines. A
dispute arose between the appellee, Tayag who is the
The determination of whether or not a shareholder is appointed ancillary of Perkins in the Philippines and the
entitled to exercise the rights of a stockholder is within domiciliary administration as to who is entitled to the
the jurisdiction of the SEC.21 As held by the Court, thru possession of the certificate of shares, however, County
Justice A. Panganiban in Lim Tay: Trust Company refuses to transfer the said certificate to
Tayag despite the order of the court. Hence, the
"The duty of a corporate secretary to record transfers of
appellee was compelled to petition the court for the
stocks is ministerial. However, he cannot be compelled
appellant to declare the subject certificates as lost to
to do so when the transferee's title to said shares has no
which appellant allegeed that no new certificate can be
prima facie validity or is uncertain. More specifically, a
issued and the same cannot be rendered as lost in
pledgor, prior to foreclosure and sale, does not acquire
accordance with their by-laws.
ownership rights over the pledged shares and thus
cannot compel the corporate secretary to record his
alleged ownership of such shares on the basis merely of
the contract of pledge. Similarly, the SEC does not Issue: Whether or not the certificate of shares of stock
acquire jurisdiction over a dispute when a party's claim can be declared lost.
to being a shareholder is, on the face of the complaint,
invalid or inadequate or is otherwise negated by the very
allegations of such complaint. Mandamus will not issue
Held: Yes. Administration whether principal or ancillary
to establish a right, but only to enforce one that is
certainly extends to the assets of a decedent found
already established."
within the state or country where it was granted.
The fact that Ting Ping Lay is allegedly not yet a
stockholder of record does not remove the case from the
jurisdiction of the SEC, for it is precisely the right of It is often necessary to have more than one
recording and the right to be issued stock certificates administration of an estate. When a person dies
that said respondent sought to enforce by mandamus. intestate owning property located in the country of
his domicile as well as in a foreign country,
In addition, even if Ting Ping Lay were not a stockholder,
administration is had in both countries. That which
he is nonetheless a member of the public whose
is granted in the jurisdiction of decedent’s last
investment in the corporation the law seeks to protect
domicile is termed the principal administration, while
and encourage, as his purchase of the shares of stock
any other administration is termed the ancillary
has been established. After all, the principal function of
administration. The reason for the latter is because a
the SEC is the supervision and control of corporations,
grant of administration does not ex proprio vigore
partnerships and associations with the end in view that
have any effect beyond the limits of the country in
investments in these entities may be encouraged and
which it is granted.Hence, an administration
protected, and their activities pursued for the protection
appointed in a foreign state has no authority in the
of economic development. In other words, the
Philippines. The ancillary administration is proper,
jurisdiction of the SEC should be construed in relation to
whenever a person dies, leaving in a country other
than that of his last domicile, property to be
administered in the nature of the deceased’s liable
for his individual debts or to be distributed among
his heirs.

Since there is refusal, persistently adhered to by the

domiciliary administration in New York, to deliver the
shares of stocks of appellant corporation owned by the
decedent to the ancillary administration in the
Philippines, there was nothing unreasonable or arbitrary
in considering them lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby the task
incumbent under the law on the ancillary administration
could be discharged and his responsibility fulfilled.

Assuming that a contrariety exist between the provision

of the laws and the command of a court decree, the
latter is to be followed.

A corporation as known to Philippine jurisprudence is a

creature without any existence until it has received the
imprimatur of state according to law. It is logically
inconceivable therefore it will have rights and privileges
of a higher priority than that of its creator, more than
that, it cannot legitimately refuse to yield obedience to
acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.