Corporation Law
Week 1
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA
PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and
ROCES-REYES REALTY INC., respondents.
(ETO YONG BINAYARAN SA MAGKAPATID, JUDGEMENT
DEBT)
Facts: a lease contract was entered into between the
respondent corporation, Roces-reyes realty inc. and good
earth emporium inc.. During the term of lease, petitioner good
earth has failed to make good of the rentals due from them,
hence a case for unlawful detainer was filed against the
petitioner lessee.
The MTC manila has rendered a decision in favor of the
respondets, which ordered the vacation of the leased property
and payment of the rental arrears; thus a writ of execution was
filed by the respondents and ruled in their favor.
Petitioner raised a motion for the quashal of the writ of alias
execution, alleging among others that they have already
satisfied the judgement debt, which was ruled by RTC of
manila in favor of the petitioner.
However, on appeal to the respondent court, the Court of
appeals ruled that there was no actual satisfaction of debt and
so, reversed the ruling .
Issue: WON the writ of execution shall be quashed.
Held: No, The Supreme Court ruled that there is no evidence
that the judgement debt has been fully satisfied for; it was
ruled that payment shall be made in favor of whose obligation
was constituted, his successor in interest or any person
authorized to receive it.
However, It appears in this case that the payment made by the
petitioners was not in favor of Roces Realty but to roces
brothers, and there appears no evidence that it was received
by them as a payment to the judgement debt since the receipts
was named after them, whereas the supreme court ruled that it
raised the presumption that the payment was made unto them
and not for the roces realty, as a payment of a loan extended
by them to the petitioners. It is true despite of being the
president of the corporation at the time of the perfection of the
contract of lease, and in support the supreme court invoked the
juridical personality of a corporation as it states; A corporation
has a personality distinct and separate from its individual
stockholders or members. Being an officer or stockholder of a
corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities
(Traders Royal Bank v. CA-G.R. No. 78412, September 26,
1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no
legal sense the owners of corporate property (or credits) which
is owned by the corporation as a distinct legal person
(Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168,
December 19, 1989). As a consequence of the separate
juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of the corporation (Prof. Jose
Nolledo's "The Corporation Code of the Philippines, p. 5, 1988
Edition, citing Professor Ballantine).
In the absence of sufficient proof to the contrary, the Supreme
Court ruled that there has been no satisfaction of the
judgement debt.
Adm. Matter No. R-181-P July 31, 1987
ADELIO C. CRUZ, complainant,
vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC,
Manila, respondents.
(ETO YUNG SHERIFF NA MARUNONG PA SA KORTE)
Facts: Cruz has filed an administrative case against dalisay for
alleged “malfeasance, corrupt practices and serious
irregularities” for attaching his property to satisfy a judgement
debt in a labor case. On his defense, Dalisay said that he was
merely performing a ministerial duty, hence cannot be charged
of such allegation. Respondent hinges on the claim that
because of Dalisay’s affidavit stating that he is the president
/owner of the corporation involved in the labor case, the
plaintiff’s counsel advised him (dalisay) to go after Cruz’s
accounts.
Issue: WON dalisay shall held be responsible for piercing the
corporate veil.
Held: yes, the supreme court ruled that he has exceeded his
territorial jurisdiction and even stated that, The tenor of the
NLRC judgment and the implementing writ is clear enough. It
Darla Grey| Corporation Law Digest | 1
directed Qualitrans Limousine Service, Inc. to reinstate the
discharged employees and pay them full backwages.
Respondent, however, chose to "pierce the veil of corporate
entity" usurping a power belonging to the court and assumed
improvidently that since the complainant is the owner/president
of Qualitrans Limousine Service, Inc., they are one and the
same. It is a well-settled doctrine both in law and in equity that
as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The
mere fact that one is president of a corporation does not render
the property he owns or possesses the property of the
corporation, since the president, as individual, and the
corporation are separate entities.
[G.R. No. 120135. March 31, 2003]
BANK OF AMERICA NT&SA, BANK OF
AMERICA INTERNATIONAL, LTD., petitioners,
vs. COURT OF APPEALS, HON. MANUEL
PADOLINA, EDUARDO LITONJUA, SR., and
AURELIO K. LITONJUA, JR., respondents.
(ETO YONG LOAN SA MGA VESSEL, FORUM SHOPPING)
Facts: Litonjua-s filed a complaint against petitioner bank
alleging that: they were engaged in shipping business and
owned two vessels through they wholly owned corporations, as
their business doing well, respondent bank induced them to
obtain more vessels and so an additional four was procured by
them from the respondent bank, these vessels were put on the
exclusive control and disposition of the petitioners. The bank,
being a trustee of the corporation claimed that the petitioner
bank did not fully render an account from the operations of the
vessels as well as the proceeds of the subsequent foreclosure
sale; due to such the loans acquired for the additional
purchase of the four vessels has matured and not paid
therefore been foreclosed and sold for public auction to answer
for obligations incurred for and in behalf of the operation of the
vessels.
The Litonjuas prayed for the accounting of the revenues
derived in the operation of the six vessels and of the proceeds
of the sale thereof at the foreclosure proceedings instituted by
petitioners; damages for breach of trust; exemplary damages
and attorneys fees.
As to the first assigned error: Petitioners argue that the
borrowers and the registered owners of the vessels are the
foreign corporations and not private respondents Litonjuas who
are mere stockholders; and that the revenues derived from the
operations of all the vessels are deposited in the accounts of
the corporations. Hence, petitioners maintain that these foreign
corporations are the legal entities that have the personalities to
sue and not herein private respondents; that private
respondents, being mere shareholders, have no claim on the
vessels as owners since they merely have an inchoate right to
whatever may remain upon the dissolution of the said foreign
corporations and after all creditors have been fully paid and
satisfied;[19] and that while private respondents may have
allegedly spent amounts equal to 10% of the acquisition costs
of the vessels in question, their 10% however represents their
investments as stockholders in the foreign corporations
Petitioner argues that respondents has no legal personalities to
sue for being a mere stockholders of the foreign corporation,
hence the case shall be dismissed.
Issue: WON the respondent court has committed grave abuse
of discretion in refusing to dismiss the case.
Held: No, Petitioners argument that private respondents, being
mere stockholders of the foreign corporations, have no
personalities to sue, and therefore, the complaint should be
dismissed, is untenable. A case is dismissible for lack of
personality to sue upon proof that the plaintiff is not the real
party-in-interest. Lack of personality to sue can be used as a
ground for a Motion to Dismiss based on the fact that the
complaint, on the face thereof, evidently states no cause of
action.[35] In San Lorenzo Village Association, Inc. vs. Court of
Appeals, this Court clarified that a complaint states a cause of
action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If
these elements are absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure
to state a cause of action. To emphasize, it is not the lack or
absence of cause of action that is a ground for dismissal of the
complaint but rather the fact that the complaint states no cause
of action. Failure to state a cause of action refers to the
insufficiency of allegation in the pleading, unlike lack of cause
of action which refers to the insufficiency of factual basis for
the action. Failure to state a cause of action may be raised at
the earliest stages of an action through a motion to dismiss the
complaint, while lack of cause of action may be raised any time
after the questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.
In the case at bar, the complaint contains the three elements of
a cause of action. It alleges that: (1) plaintiffs, herein private
respondents, have the right to demand for an accounting
from defendants (herein petitioners), as trustees by
reason of the fiduciary relationship that was created
between the parties involving the vessels in question; (2)
petitioners have the obligation, as trustees, to render such
an accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the
private respondents as they are mere stockholders of the
corporation; that the corporate entities have juridical
personalities separate and distinct from those of the private
respondents. Private respondents maintain that the
Darla Grey| Corporation Law Digest | 2
corporations are wholly owned by them and prior to the
incorporation of such entities, they were clients of
petitioners which induced them to acquire loans from said
petitioners to invest on the additional ships.
We agree with private respondents. As held in the San
Lorenzo case,
xxx assuming that the allegation of facts constituting plaintiffs
cause of action is not as clear and categorical as would
otherwise be desired, any uncertainty thereby arising should
be so resolved as to enable a full inquiry into the merits of the
action.
As this Court has explained in the San Lorenzo case, such a
course, would preclude multiplicity of suits which the law
abhors, and conduce to the definitive determination and
termination of the dispute. To do otherwise, that is, to abort the
action on account of the alleged fatal flaws of the complaint
would obviously be indecisive and would not end the
controversy, since the institution of another action upon a
revised complaint would not be foreclosed.
G.R. No. 117932 July 20, 1995
AVON DALE GARMENTS, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
LILIA DUMANTAY, ET AL., respondents.
(ETO YONG MAY TSHIRT FACTORY, UNSATISFIED
JUDGEMENT DEBT)
Facts: respondents were employees of petitioner avon dale
garments and its predecessor in interest avon dale shirt
factory. Following a dispute brought about by the rotation of
workers, a compromise agreement was entered into between
petitioner and private respondents wherein the latter were
terminated from service and given their corresponding
separation pay.
However, petitioners refused to compute their separation pay
while they were employed by avond dale shirts amounting to
deficiency in their separation pay.
On its defense, avon dale raised before the court that it has
separate and distinct personality from its predecessor-in-
interest avon dale shirts.
Pending resolution of the instant petition, counsel for private
respondents informed the court that they’ve entered into an
amicable settlement by virtue of which a waiver and a quitclaim
was executed, without however the knowledge and
participation of NLRC.
Issue: WON avon dale garments is a separate and distinct
entity from avon dale shirt factory.
Held: No, Petitioner failed to establish that Avon Dale
Garments, Inc., is a separate and distinct entity from Avon
Dale Shirt Factory, absent any showing that there was indeed
an actual closure and cessation of the operations of the latter.
The mere filing of the Articles of Dissolution with the Securities
and Exchange Commission, without more, is not enough to
support the conclusion that actual dissolution of an entity in
fact took place.
On the contrary, the prevailing circumstances in this case
indicated that petitioner company is not distinct from its
predecessor Avon Dale Shirt Factory, but in fact merely
continued the operations of the latter under the same
owners, the same business venture, at same address6, and
even continued to hire the same employees (herein private
respondents).
Thus, conformably with established jurisprudence, the two
entities cannot be deemed as separate and distinct where
there is a showing that one is merely the continuation of
the other.7 In fact, even a change in the corporate name
does not make a new corporation, whether effected by a
special act or under a general law, it has no effect on the
identity of the corporation, or on its property, rights, or
liabilities.8 Respondent NLRC therefore, did not commit any
grave abuse of discretion in holding that petitioner should
likewise include private respondents' employment with Avon
Dale Shirt Factory in computing private respondents'
separation pay as petitioner failed to substantiate its claim that
it is a distinct entity.
[G.R. No. 108734. May 29, 1996]
CONCEPT BUILDERS, INC., petitioner, vs. THE
NATIONAL LABOR RELATIONS COMMISSION,
(ILLEGAL DISMISSAL DAW, IDENTITY RULE)
PONENCIA:
The corporate mask may be lifted and the corporate veil may
be pierced when a corporation is just but the alter ego of a
person or of another corporation. Where badges of fraud exist;
where public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction or the notion
of legal entity should come to naught. The law in these
instances will regard the corporation as a mere association of
persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a
corporations subsidiary liability for damages, the corporation
may not be heard to say that it has a personality separate and
Darla Grey| Corporation Law Digest | 3
distinct from the other corporation. The piercing of the
corporate veil comes into play.
Facts: Petitioner is a construction corporation while
respondents were employee of the former as carpenters and
riggers.
On November 1981, respondents were served individual
written notices of termination by reason of expiration of their
contract and the project they were hired was already
completed.
Public respondent found it to be, the fact, however, that at the
time of the termination of private respondents employment, the
project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-
contractors whose workers performed the functions of private
respondents.
Aggrieved, private respondents filed a labor case against the
petitioner.
The case brought before the labor arbiter has favored the
private respondents, and so a writ of execution was sought by
them to satisfy the judgement debt.
a certain Dennis Cuyegkeng filed a third-party claim with the
Labor Arbiter alleging that the properties sought to be levied
upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI)
of which he is the Vice-President.
Private respondents filed a Motion for Issuance of a Break-
Open Order, alleging that HPPI and petitioner corporation were
owned by the same incorporator! stockholders. They also
alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and
that private respondents were willing to post an indemnity bond
to answer for any damages which petitioner and HPPI may
suffer because of the issuance of the break-open order.
HPPI submitted its GIS and opposed the issuance of
break-open order alleging that they have separate and
distinct personality from the petitioner.
Petitioner alleges that the NLRC committed grave abuse of
discretion when it ordered the execution of its decision despite
a third-party claim on the levied property. Petitioner further
contends, that the doctrine of piercing the corporate veil should
not have been applied, in this case, in the absence of any
showing that it created HPPI in order to evade its liability to
private respondents. It also contends that HPPI is engaged in
the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that
petitioner and HPPI shared the same premises, the same
President and the same set of officers and subscribers.
ISSUE: WON HPPI and CONCEPT BUILDERS has a separate
and distinct personality for being two different corporations.
Held: No, It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be
connected. But, this separate and distinct personality of a
corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion
of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
or is used as a device to defeat the labor laws, this
separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is
true likewise when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be
accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both
corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of
policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents
piercing the corporate veil. in applying the instrumentality
or alter ego doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the
individual defendants relationship to that operation.
Darla Grey| Corporation Law Digest | 4
In the case at bar, it appears that, Both information sheets
were filed by the same Virgilio O. Casino as the corporate
secretary of both corporations. It would also not be amiss to
note that both corporations had the same president, the same
board of directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant
shared the same address and/or premises. Under this
circumstances, (sic) it cannot be said that the property levied
upon by the sheriff were not of respondents.
Clearly, petitioner ceased its business operations in order to
evade the payment to private respondents of backwages and
to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.
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.
[G.R. No. 115849. January 24, 1996]
FIRST PHILIPPINE INTERNATIONAL BANK
(Formerly Producers Bank of the Philippines)
and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS
(ETO YONG NAGSULATAN ANG MGA ULOL SA BENTAHAN
NG LUPA)
Facts: The defendant Producer bank acquired six parcels of
land formerly owned by BYME investment and development
corporation which had them mortgaged with the bank as
collateral form of loan. The original plaintiffs were interested in
the property and thus initiated negotiations for that purpose.
An exchange of letters as an offer were made for the proposed
purchase of the subject properties,
On their initial offer, they wasn’t able to meet the counter offer
of the bank, but later on agreed to purchase the same on the
tenure of the bank’s proposal.
Comes now the question of fact is that whether or not there
was a sale made by merely exchanging of letters.
Now plaintiffs demanded for the execution of the sale after
tendering the agreed purchase price to which the bank
declines and refused to received the same.
Thus, prompting plaintiffs to file a case for specific
performance to enforce the sale, wherein Henry Co, brother of
Luis Co, filed a motion to intervene alleging that 80% of the
bank’s outstanding shares of stock, to where the court
answered denying the motion ruling that trial had already been
concluded.
Private respondent Ejercito vigorously argues that in spite of
this verification, petitioners are guilty of actual forum shopping
because the instant petition pending before this Court involves
identical parties or interests represented, rights asserted and
reliefs sought (as that) currently pending before the Regional
Trial Court, Makati Branch 134 in the Second Case. In fact, the
issues in the two cases are so intertwined that a judgment or
resolution in either case will constitute res judicata in the other.
On the other hand, petitioners explain that there is no forum-
shopping because:
1) In the earlier or First Case from which this proceeding arose,
the Bank was impleaded as a defendant, whereas in the
Second Case (assuming the Bank is the real party in interest in
a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of
the corporation under the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra)
signed by the Bank president and attached to the Petition
identifies the action as a derivative suit, it does not mean that it
is one and (t)hat is a legal question for the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned
it in the said VERIFICATION/CERTIFICATION.
Issue(s):1. WON the sale has been perfected through the
bank’s corporate officer Rivera?
2. was there a forum shopping?
Held: 1. Yes, The Supreme Court Ruled in the case of 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
agents apparent representation yields to the principals true
representation and the contract is considered as entered into
between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA
166).
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
Darla Grey| Corporation Law Digest | 5
scope of their authority (9 C.J.S., p. 417). A bank holding out
its officers and agents as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it
be permitted to shirk its responsibility for such frauds, even
though no benefit may accrue to the bank therefrom (10 Am
Jur 2d, p. 114). 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 even though, in the particular case, the
agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for
his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND
752, 204 NW 818, 40 ALR 1021).
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. His
acts for receiving the letter, signing and making a counter offer
to it and arranging meeting between the buyer and Luis Co, as
well as the newspaper advertisement confirming his authority
and that he is a manager of the bank and In fact, Rivera was
the officer mentioned in the Banks advertisements offering for
sale the property in question.
We note that the Banks repudiation, through Conservator
Encarnacion, of Riveras authority and action, particularly the
latters counter-offer of P5.5 million, as being unauthorized and
illegal came only on May 12, 1988 or more than seven (7)
months after Janolos acceptance. Such delay, and the
absence of any circumstance which might have justifiably
prevented the Bank from acting earlier, clearly characterizes
the repudiation as nothing more than a last-minute attempt on
the Banks part to get out of a binding contractual obligation.
2. Yes, There is forum-shopping whenever, as a result of an
adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts
but also in connection with litigations commenced in the courts
while an administrative proceeding is pending, as in this case,
in order to defeat administrative processes and in anticipation
of an unfavorable administrative ruling and a favorable court
ruling. This is specially so, as in this case, where the court in
which the second suit was brought, has no jurisdiction [18]
The test for determining whether a party violated the rule
against forum-shopping has been laid down in the 1986 case
of Buan vs. Lopez,[19] also by Chief Justice Narvasa, and that
is, forum-shopping exists where the elements of litis pendentia
are present or where a final judgment in one case will amount
to res judicata in the other, as follows:
There thus exists between the action before this Court and
RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well
as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two
preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful,
amount to res adjudicata in the action under consideration: all
the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and
RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction
will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional
Trial Court in Civil Case No. 86-36563 promulgated on July 15,
1986, which dismissed the petition upon grounds which appear
persuasive.
Consequently, where a litigant (or one representing the same
interest or person) sues the same party against whom another
action or actions for the alleged violation of the same right and
the enforcement of the same relief is/are still pending, the
defense of litis pendencia in one case is a bar to the others;
and, a final judgment in one would constitute res judicata and
thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground
to ask for summary dismissal of the two[20] (or more)
complaints or petitions, and for the imposition of the other
sanctions, which are direct contempt of court, criminal
prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and
comparing it with the Second Case, it is obvious that there
exist identity of parties or interests represented, identity of
rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo
which gave rise to the instant petition was filed by the buyer
(herein private respondent and his predecessors-in-interest)
against the seller (herein petitioners) to enforce the alleged
perfected sale of real estate. On the other hand, the
complaint[21] in the Second Case seeks to declare such
purported sale involving the same real property as
unenforceable as against the Bank, which is the petitioner
herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to
Darla Grey| Corporation Law Digest | 6
accomplish what the Bank itself failed to do in the original case
in the trial court. In brief, the objective or the relief being
sought, though worded differently, is the same, namely, to
enable the petitioner Bank to escape from the obligation to sell
the property to respondent. In Danville Maritime, Inc. vs.
Commission on Audit,[22] this Court ruled that the filing by a
party of two apparently different actions, but with the same
objective, constituted forum shopping:
In the attempt to make the two actions appear to be different,
petitioner impleaded different respondents therein - PNOC in
the case before the lower court and the COA in the case
before this Court and sought what seems to be different reliefs.
Petitioner asks this Court to set aside the questioned letter-
directive of the COA dated October 10, 1988 and to direct said
body to approve the Memorandum of Agreement entered into
by and between the PNOC and petitioner, while in the
complaint before the lower court petitioner seeks to enjoin the
PNOC from conducting a rebidding and from selling to other
parties the vessel T/T Andres Bonifacio, and for an extension
of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that
although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the
same, that is, the approval of the sale of vessel in favor of
petitioner, and to overturn the letter-directive of the COA of
October 10, 1988 disapproving the sale. (italics supplied)
In an earlier case,[23] but with the same logic and vigor, we
held:
In other words, the filing by the petitioners of the instant special
civil action for certiorari and prohibition in this Court despite the
pendency of their action in the Makati Regional Trial Court, is a
species of forum-shopping. Both actions unquestionably
involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity
simply because the PCGG had not been impleaded in the RTC
suit, and the suit did not involve certain acts which transpired
after its commencement, is specious. In the RTC action, as in
the action before this Court, the validity of the contract to
purchase and sell of September 1, 1986, i.e., whether or not it
had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the
amount of their loans, obtaining the release of the pledged
shares, etc.) were the basic issues. So, too, the relief was the
same: the prevention of such implementation and/or the
restoration of the status quo ante. When the acts sought to be
restrained took place anyway despite the issuance by the Trial
Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for
obtention of relief; and petitioners remedy in the premises was
plain and patent: the filing of an amended and supplemental
pleading in the RTC suit, so as to include the PCGG as
defendant and seek nullification of the acts sought to be
enjoined but nonetheless done. The remedy was certainly not
the institution of another action in another forum based on
essentially the same facts. The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and
both their actions, in this Court as well as in the Court a quo,
dismissible.
In the instant case before us, there is also identity of parties, or
at least, of interests represented. Although the plaintiffs in the
Second Case (Henry L. Co. et al.) are not name parties in the
First Case, they represent the same interest and entity,
namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they
have no direct personal interest in the matter in controversy.
They are not principally or even subsidiarily liable; much less
are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case
show that the stockholders are bringing a derivative suit. In the
caption itself, petitioners claim to have brought suit for and in
behalf of the Producers Bank of the Philippines.[24] Indeed,
this is the very essence of a derivative suit:
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. (Gamboa v. Victoriano,
90 SCRA 40, 47 [1979]; italics supplied).
In the face of the damaging admissions taken from the
complaint in the Second Case, petitioners, quite strangely,
sought to deny that the Second Case was a derivative suit,
reasoning that it was brought, not by the minority shareholders,
but by Henry Co et al., who not only own, hold or control over
80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being
so, then they really represent the Bank. So, whether they sued
derivatively or directly, there is undeniably an identity of
interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that
the personality of the Bank is separate and distinct from its
shareholders. But the rulings of this Court are consistent:
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.[25]
In addition to the many cases[26] where the corporate fiction
has been disregarded, we now add the instant case, and
Darla Grey| Corporation Law Digest | 7
declare herewith that the corporate veil cannot be used to
shield an otherwise blatant violation of the prohibition against
forum-shopping. Shareholders, whether suing as the majority
in direct actions or as the minority in a derivative suit, cannot
be allowed to trifle with court processes, particularly where, as
in this case, the corporation itself has not been remiss in
vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. To rule otherwise
would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules against
forum shopping.
Finally, petitioner Bank argued that there cannot be any forum
shopping, even assuming arguendo that there is identity of
parties, causes of action and reliefs sought, because it (the
Bank) was the defendant in the (first) case while it was the
plaintiff in the other (Second Case), citing as authority
Victronics Computers, Inc. vs. Regional Trial Court, Branch 63,
Makati, etc. et al.,[27] where the Court held:
The rule has not been extended to a defendant who, for
reasons known only to him, commences a new action against
the plaintiff - instead of filing a responsive pleading in the other
case - setting forth therein, as causes of action, specific
denials, special and affirmative defenses or even
counterclaims. Thus, Velhagens and Kings motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of
forum-shopping as such did not exist in the first place. (italics
supplied)
Petitioner pointed out that since it was merely the defendant in
the original case, it could not have chosen the forum in said
case.
Respondent, on the other hand, replied that there is a
difference in factual setting between Victronics and the present
suit. In the former, as underscored in the above-quoted Court
ruling, the defendants did not file any responsive pleading in
the first case. In other words, they did not make any denial or
raise any defense or counter-claim therein. In the case before
us however, petitioners filed a responsive pleading to the
complaint - as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing
counter-claims in their responsive pleadings, the petitioners
became plaintiffs themselves in the original case, giving unto
themselves the very remedies they repeated in the Second
Case.
Ultimately, what is truly important to consider in determining
whether forum-shopping exists or not is the vexation caused
the courts and parties-litigant by a party who asks different
courts and/or administrative agencies to rule on the same or
related causes and/or to grant the same or substantially the
same reliefs, in the process creating the possibility of
conflicting decisions being rendered by the different fora upon
the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a
possible decision in the Second Case barring the parties from
enforcing or implementing the said sale. Indeed, a final
decision in one would constitute res judicata in the other.[28]
The foregoing conclusion finding the existence of forum-
shopping notwithstanding, the only sanction possible now is
the dismissal of both cases with prejudice, as the other
sanctions cannot be imposed because petitioners present
counsel entered their appearance only during the proceedings
in this Court, and the Petitions
VERIFICATION/CERTIFICATION contained sufficient
allegations as to the pendency of the Second Case to show
good faith in observing Circular 28-91. The lawyers who filed
the Second Case are not before us; thus the rudiments of due
process prevent us from motu propio imposing disciplinary
measures against them in this Decision. However, petitioners
themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping
and not to trifle with court proceedings and processes. They
are warned that a repetition of the same will be dealt with more
severely.
Having said that, let it be emphasized that this petition should
be dismissed not merely because of forum-shopping but also
because of the substantive issues raised, as will be discussed
shortly.
[G.R. No. 100812. June 25, 1999]
FRANCISCO MOTORS
CORPORATION, petitioner, vs. COURT OF
APPEALS and SPOUSES GREGORIO and
LIBRADA MANUEL, respondents.
(ETO YONG SA JEEP, TSAKA ESTATE NI BENITA
TRINIDAD)
Facts: Petitioner filed a case for recovery of sum of money
against respondents representing the balance of unpaid
jeepney body purchased by manuels from the petitioner, as
well as for its repairs and other expenses for the costs of suit.
Respondents interposed a counterclaim alleging that Manuel
merely withholds na money for his unpaid legal services due to
the incorporators of the petitioner.
Manuel stated that during his employment as a assistant legal
officer, he represented the members of Francisco family for the
intestate proceedings in the judicial settlement of the properties
left by the late Benita Trinidad; whereas the petitioners did not
paid for his services after such settlement, adding that the
parties in the settlement were incorporators, directors and
officers of the petitioner corporation to which the trial court
ruled in favor of manuel.
Darla Grey| Corporation Law Digest | 8
Petitioner submits that respondent court should not have
resorted to piercing the veil of corporate fiction because the
transaction concerned only respondent Gregorio Manuel and
the heirs of the late Benita Trinidad. According to petitioner,
there was no cause of action by said respondent against
petitioner; personal concerns of the heirs should be
distinguished from those involving corporate affairs.Petitioner
further contends that the present case does not fall among the
instances wherein the courts may look beyond the distinct
personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to
collect fees from petitioner are personal in nature. Hence, it
avers the heirs should have been sued in their personal
capacity, and not involve the corporation.
Issue: WON the court of appeals erred in piercing the
corporate veil.
Held: Yes, Basic in Corporation law is the principle that a
corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be
connected. However, under the doctrine of piercing the veil of
corporate entity, the corporations separate juridical personality
may be disregarded, for example, when the corporate identity
is used to defeat public convenience, justify wrong, protect
fraud, or defend crime. Also, where the corporation is a mere
alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation, then its distinct
personality may be ignored. In these circumstances, the courts
will treat the corporation as a mere aggrupation of persons and
the liability will directly attach to them. The legal fiction of a
separate corporate personality in those cited instances, for
reasons of public policy and in the interest of justice, will be
justifiably set aside.
In our view, however, given the facts and circumstances of this
case, the doctrine of piercing the corporate veil has no relevant
application here. Respondent court erred in permitting the trial
courts resort to this doctrine. The rationale behind piercing a
corporations identity in a given case is to remove the
barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes
of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the
case at bar, instead of holding certain individuals or
persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the
personal liability of certain individual directors, officers
and incorporators concerned. Hence, it appears to us that
the doctrine has been turned upside down because of its
erroneous invocation. Note that according to private
respondent Gregorio Manuel his services were solicited as
counsel for members of the Francisco family to represent
them in the intestate proceedings over Benita Trinidads
estate. These estate proceedings did not involve any
business of petitioner.
Note also that he sought to collect legal fees not just from
certain Francisco family members but also from petitioner
corporation on the claims that its management had requested
his services and he acceded thereto as an employee of
petitioner from whom it could be deduced he was also
receiving a salary. His move to recover unpaid legal fees
through a counterclaim against Francisco Motors Corporation,
to offset the unpaid balance of the purchase and repair of
a jeep body could only result from an obvious
misapprehension that petitioners corporate assets could
be used to answer for the liabilities of its individual
directors, officers, and incorporators. Such result if
permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly
inequitous to petitioner.
Furthermore, considering the nature of the legal services
involved, whatever obligation said incorporators, directors
and officers of the corporation had incurred, it was
incurred in their personal capacity. When directors and
officers of a corporation are unable to compensate a party for a
personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be
thereby held liable therefor by piercing its corporate veil. While
there are no hard and fast rules on disregarding separate
corporate identity, we must always be mindful of its function
and purpose. A court should be careful in assessing the milieu
where the doctrine of piercing the corporate veil may be
applied. Otherwise an injustice, although unintended, may
result from its erroneous application.
The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities
ought to be kept separate in this case. The claim for legal fees
against the concerned individual incorporators, officers and
directors could not be properly directed against the corporation
without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be
prosecuted or defended in the name of the real party in
interest. It is plainly an error to lay the claim for legal fees of
private respondent Gregorio Manuel at the door of petitioner
(FMC) rather than individual members of the Francisco family.
[G.R. Nos. 116124-25. November 22, 2000]
BIBIANO O. REYNOSO, IV, petitioner, vs. HON.
COURT OF APPEALS and GENERAL CREDIT
CORPORATION, respondents.
(ETO YONG MANAGER NA NAG LOAN, NANALO KASE
WALA NAMAN EMBEZZLEMENT)
Darla Grey| Corporation Law Digest | 9
Facts: Commercial Credit Corporation (CCC) has decided to
branch out, and pursuant to its goal, it created another
corporation named CCC-QC , (Quezon City). Petitioner
Reynoso was a resident manager of CCC. CCC-QC entered
into an exclusive management contract with CCC whereby the
latter was granted the management and full control of the
business activities of the former. Under the contract, CCC-QC
shall sell, discount and/or assign its receivables to CCC.
Subsequently, however, this discounting arrangement was
discontinued pursuant to the so-called DOSRI Rule, prohibiting
the lending of funds by corporations to its directors, officers,
stockholders and other persons with related interests therein.
As Resident Manager of CCC-QC, petitioner oversaw the
operations of CCC-QC and supervised its employees. The
business activities of CCC-QC pertain to the acceptance of
funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned out
to various borrowers. Petitioner, in order to boost the business
activities of CCC-QC, deposited his personal funds in the
company. In return, CCC-QC issued to him its interest-bearing
promissory notes.
a complaint for sum of money with preliminary attachment was
filed by CCC-QC against the petitioner alleging that there was
an embezzlement of company funds, among the causes of
action it stated that petitioner obtained a specific immovable
property which was mortgaged to CCC and later on was
foreclosed.
Petitioner denied having unlawfully used funds of CCC-QC and
asserted that the sum represented his money placements in
CCC-QC, as shown by twenty-three (23) checks which he
issued to the said company.
The court ruled in favor of reynoso awarding him moral and
exemplary damage, however the award to reynoso remained
unsatisfied, hence a writ of execution was sought by him.
General Credit Corporation filed a Special Appearance and
Opposition on December 2, 1991, alleging that it was not a
party to the case, and therefore petitioner should direct his
claim against CCC-QC and not General Credit Corporation.
Petitioner filed his reply, stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore,
petitioner invoked the decision of the Securities and Exchange
Commission in SEC Case No. 2581, entitled, Avelina G.
Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit
Corporation, CCC-Equity and other franchised companies
including CCC-QC were declared as one corporation.
The latter contends that it is a corporation separate and distinct
from CCC-QC and, therefore, its properties may not be levied
upon to satisfy the monetary judgment in favor of petitioner. In
short, respondent raises corporate fiction as its defense. Issue:
whether or not the judgment in favor of petitioner may be
executed against respondent General Credit Corporation.
Held: The defense of separateness will be disregarded where
the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even when
there is dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.
We stated in Tomas Lao Construction v. National Labor
Relations Commission, that the legal fiction of a corporation
being a judicial entity with a distinct and separate personality
was envisaged for convenience and to serve justice.
Therefore, it should not be used as a subterfuge to commit
injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of
Commercial Credit Corporation was intended to publicly
identify it as a component of the CCC group of companies
engaged in one and the same business, i.e., investment
and financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and
CCC-Cagayan Valley. The organization of subsidiary
corporations as what was done here is usually resorted to for
the aggrupation of capital, the ability to cover more territory
and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages.
But when the mother corporation and its subsidiary cease to
act in good faith and honest business judgment, when the
corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate
fiction is used to perpetrate fraud or promote injustice, the law
steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues
for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the
business operations of CCC-QC. The exclusive management
contract insured that CCC-QC would be managed and
controlled by CCC and would not deviate from the commands
of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee,
petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that
he was placed in CCC-QC by a superior authority. In fact,
even after his assignment to the subsidiary corporation,
petitioner continued to receive his salaries, allowances,
and benefits from CCC, which later became respondent
Darla Grey| Corporation Law Digest | 10
General Credit Corporation. Not only that. Petitioner and
the other permanent employees of CCC-QC were qualified
members and participants of the Employees Pension Plan
of CCC.
There are other indications in the record which attest to
the applicability of the identity rule in this case, namely:
the unity of interests, management, and control; the
transfer of funds to suit their individual corporate
conveniences; and the dominance of policy and practice
by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged
in the same principal line of business involving a single
transaction process. Under their discounting arrangements,
CCC financed the operations of CCC-QC. The subsidiary sold,
discounted, or assigned its accounts receivables to CCC.
The challenged decision of the Court of Appeals states that
CCC, now General Credit Corporation, is not a formal party in
the case. The reason for this is that the complaint was filed by
CCC-QC against petitioner. The choice of parties was with
CCC-QC. The judgment award in this case arose from the
counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid
complaint are quite revealing. As narrated above, the
discounting agreements through which CCC controlled the
finances of its subordinates became unlawful when Central
Bank adopted the DOSRI prohibitions. Under this rule the
directors, officers, and stockholders are prohibited from
borrowing from their company. Instead of adhering to the letter
and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the
prohibited practice. CCC organized still another corporation,
the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for
CCC. Key officials of CCC, including the resident managers of
subsidiary corporations, were appointed to positions in CCC-
Equity.
In order to circumvent the Central Banks disapproval of CCC-
QCs mode of reducing its DOSRI lender accounts and its
directive to follow Central Bank requirements, resident
managers, including petitioner, were told to observe a pseudo-
compliance with the phasing out orders. For his unwillingness
to satisfactorily conform to these directives and his reluctance
to resort to illegal practices, petitioner earned the ire of his
employers. Eventually, his services were terminated, and
criminal and civil cases were filed against him.
Faced with the financial obligations which CCC-QC had to
satisfy, the mother firm closed CCC-QC, in obvious fraud of its
creditors. CCC-QC, instead of opposing its closure, cooperated
in its own demise. Conveniently, CCC-QC stated in its
opposition to the motion for alias writ of execution that all its
properties and assets had been transferred and taken over by
CCC.
Under the foregoing circumstances, the contention of
respondent General Credit Corporation, the new name of CCC,
that the corporate fiction should be appreciated in its favor is
without merit.
SIMEON DE LEON V. NLRC
(ETO YUNG SA FORTUNE NA YOSI, TNERMINATE YUNG
AGENCY, ULP,)
Facts: Fortune Tobacco Corporation (FTC) and Fortune
Integrated Services, Inc. (FISI) entered into a contract for
security services where the latter undertook to provide security
guards for the protection and security of the former. The
petitioners were among those engaged as security guards
pursuant to the contract.
The incorporators and stockholders of FISI sold out lock, stock
and barrel to a group of new stockholders by executing for the
purpose a "Deed of Sale of Shares of Stock". On the same
date, the Articles of Incorporation of FISI was amended
changing its corporate name to Magnum Integrated Services,
Inc. (MISI). A new by-laws was likewise adopted and approved
by the Securities and Exchange Commission on June 4, 1993.
Wherefore, as a result of such actions of the respondent
corporation , morethan a hundred security guards were
terminated and no longer renewed as represented by two
different agencies.
Petitioners alleged that they were regular employees of FTC
which was also using the corporate names Fortune Integrated
Services, Inc. and Magnum Integrated Services, Inc. They
were assigned to work as security guards at the company's
main factory plant, its tobacco redrying plant and warehouse.
They averred that they performed their duties under the control
and supervision of FTC's security supervisors. Thus, a case for
illegal dismissal ensued.
Respondent FTC, on the other hand, maintained that there
was no employer-employee relationship between FTC and
petitioners. It said that at the time of the termination of their
services, petitioners were the employees of MISI which was a
separate and distinct corporation from FTC. Hence, petitioners
had no cause of action against FTC.
Respondent FISI, meanwhile, denied the charge of illegal
dismissal and unfair labor practice. It argued that petitioners
were not dismissed from service but were merely placed on
floating status pending re-assignment to other posts. It alleged
that the temporary displacement of petitioners was not due to
its fault but was the result of the pretermination by FTC of the
contract for security services
Darla Grey| Corporation Law Digest | 11
The Labor arbiter denied the defense of no-employer-
employee relationship, ruling the “single employer principle”
On appeal, the NLRC reversed and set aside the decision of
the Labor Arbiter. First, it held that the Labor Arbiter erred in
applying the "single employer" principle and concluding that
there was an employer-employee relationship between FTC
and FISI on one hand, and petitioners on the other hand. It
found that at the time of the termination of the contract of
security services on October 15, 1991, FISI which, at that time,
had been renamed Magnum Integrated Services, Inc. had a
different set of stockholders and officers from that of FTC.
They also had separate offices. The NLRC held that the
principle of "single employer" and the doctrine of piercing the
corporate veil could not apply under the circumstances. It
further ruled that the proximate cause for the displacement of
petitioners was the termination of the contract for security
services by FTC on October 15, 1991. FISI could not be
faulted for the severance of petitioners' assignment at the
premises of FTC. Consequently, the NLRC held that the
charge of illegal dismissal had no basis. As regards the charge
of unfair labor practice, the NLRC found that petitioners who
had the burden of proof failed to adduce any evidence to
support their charge of unfair labor practice against
respondents. Hence, it ordered the dismissal of petitioners'
complaint.
The petitioners filed a motion for reconsideration of the
resolution of the NLRC but the same was denied. Hence, this
petition.
Issue: Whether or not the principle of single employer and
piercing the corporate veil doctrine was properly applied in this
case.
Held: Yes, Petitioners have been employed with FISI since the
1980s and have since been posted at the premises of FTC --
its main factory plant, its tobacco redrying plant and
warehouse. It appears from the records that FISI, while having
its own corporate identity, was a mere instrumentality of FTC,
tasked to provide protection and security in the company
premises. The records show that the two corporations had
identical stockholders and the same business address. FISI
also had no other clients except FTC and other companies
belonging to the Lucio Tan group of companies. Moreover, the
early payslips of petitioners show that their salaries were
initially paid by FTC.
To enforce their rightful benefits under the laws on Labor
Standards, petitioners formed a union which was later certified
as bargaining agent of all the security guards. On February 1,
1991, the stockholders of FISI sold all their participations in the
corporation to a new set of stockholders which renamed the
corporation Magnum Integrated Services, Inc. On October 15,
1991, FTC, without any reason, preterminated its contract of
security services with MISI and contracted two other agencies
to provide security services for its premises. This resulted in
the displacement of petitioners. As MISI had no other clients, it
failed to give new assignments to petitioners. Petitioners have
remained unemployed since then. All these facts indicate a
concerted effort on the part of respondents to remove
petitioners from the company and thus abate the growth of the
union and block its actions to enforce their demands in
accordance with the Labor Standards laws
We find that the Labor Arbiter correctly applied the
doctrine of piercing the corporate veil to hold all
respondents liable for unfair labor practice and illegal
termination of petitioners' employment. It is a fundamental
principle in corporation law that a corporation is an entity
separate and distinct from its stockholders and from other
corporations to which it is connected. However, when the
concept of separate legal entity is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
the law will regard the corporation as an association of
persons, or in case of two corporations, merge them into
one. The separate juridical personality of a corporation
may also be disregarded when such corporation is a mere
alter ego or business conduit of another person. In the
case at bar, it was shown that FISI was a mere adjunct of
FTC. FISI, by virtue of a contract for security services,
provided FTC with security guards to safeguard its
premises. However, records show that FISI and FTC have
the same owners and business address, and FISI provided
security services only to FTC and other companies
belonging to the Lucio Tan group of companies. The
purported sale of the shares of the former stockholders to
a new set of stockholders who changed the name of the
corporation to Magnum Integrated Services, Inc. appears
to be part of a scheme to terminate the services of FISI's
security guards posted at the premises of FTC and bust
their newly-organized union which was then beginning to
become active in demanding the company's compliance
with Labor Standards laws. Under these circumstances,
the Court cannot allow FTC to use its separate corporate
personality to shield itself from liability for illegal acts
committed against its employees.
[G.R. No. 142936. April 17, 2002]
PHILIPPINE NATIONAL BANK & NATIONAL
SUGAR DEVELOPMENT
CORPORATION, petitioners, vs. ANDRADA
ELECTRIC & ENGINEERING
COMPANY, respondent.
(ETO YUNG TNAKE OVER NG PNB YUNG ASUKALAN
TAPOS NAG CONSTRUCT YUNG DATING MAY ARI)
Facts: Respondent’s services was engaged by petitioners for
electrical repairs and rewinding
Darla Grey| Corporation Law Digest | 12
Leaving several unpaid accounts by PASUMIL. Now
NASUDECO in order to nationalize and consolidate its interest
on the sugar milling of PNB, was organized by PnB.
NASUDECO in taking over of PASUMIL’s business, was
sought after by the respondent construction firm alleging that it
benefited from the previous repairs made by them in favor of
PASUMIL, hence they shall be be held liable for the corporate
debts of PASUMIL.
The defendants PNB and NASUDECO filed a joint motion to
dismiss the complaint chiefly on the ground that the complaint
failed to state sufficient allegations to establish a cause of
action against both defendants, inasmuch as there is lack or
want of privity of contract between the plaintiff and the two
defendant.
Both the trial court and the CA ruled in favor of the respondent,
stating that; , the CA held that it was offensive to the basic
tenets of justice and equity for a corporation to take over and
operate the business of another corporation, while disavowing
or repudiating any responsibility, obligation or liability arising
therefrom, hence this petition.
Issue: WON NASUDECO and PNB shall be held liable for
unpaid obligations by PASUMIL, whose existence was not
actually terminated or legally extinguished, simply because it
was merely a take over by virtue of mandates by LOI 189-A as
amended by LOI 311
Held: Yes, A corporation is an artificial being created by
operation of law. It possesses the right of succession and such
powers, attributes, and properties expressly authorized by law
or incident to its existence. It has a personality separate and
distinct from the persons composing it, as well as from any
other legal entity to which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask
may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed
against third persons.
This Court has pierced the corporate veil to ward off a
judgment credit, to avoid inclusion of corporate assets as part
of the estate of the decedent, to escape liability arising from a
debt, or to perpetuate fraud and/or confuse legitimate issues
either to promote or to shield unfair objectives or to cover up
an otherwise blatant violation of the prohibition against forum-
shopping. Only in these and similar instances may the veil be
pierced and disregarded.
The question of whether a corporation is a mere alter ego is
one of fact. Piercing the veil of corporate fiction may be
allowed only if the following elements concur: (1) control -
- not mere stock control, but complete domination -- not
only of finances, but of policy and business practice in
respect to the transaction attacked, must have been such
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; (2)
such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and
an unjust act in contravention of plaintiffs legal right; and
(3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained
of.
We believe that the absence of the foregoing elements in the
present case precludes the piercing of the corporate veil. First,
other than the fact that petitioners acquired the assets of
PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities. Second,
there is no evidence that their juridical personality was
used to commit a fraud or to do a wrong; or that the
separate corporate entity was farcically used as a mere
alter ego, business conduit or instrumentality of another
entity or person. Third, respondent was not defrauded or
injured when petitioners acquired the assets of PASUMIL.
Being the party that asked for the piercing of the corporate veil,
respondent had the burden of presenting clear and convincing
evidence to justify the setting aside of the separate corporate
personality rule. However, it utterly failed to discharge this
burden; it failed to establish by competent evidence that
petitioners separate corporate veil had been used to conceal
fraud, illegality or inequity.
While we agree with respondents claim that the assets of
the National Sugar Development Corporation
(NASUDECO) can be easily traced to PASUMIL, we are not
convinced that the transfer of the latters assets to
petitioners was fraudulently entered into in order to
escape liability for its debt to respondent.
A careful review of the records reveals that DBP foreclosed the
mortgage executed by PASUMIL and acquired the assets as
the highest bidder at the public auction conducted.The bank
was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20
percent of the total outstanding obligation. Thus, DBP had not
only a right, but also a duty under the law to foreclose the
subject properties.
Pursuant to LOI No. 189-A as amended by LOI No. 311, PNB
acquired PASUMILs assets that DBP had foreclosed and
purchased in the normal course. Petitioner bank was likewise
tasked to manage temporarily the operation of such assets
either by itself or through a subsidiary corporation.
PNB, as the second mortgagee, redeemed from DBP the
foreclosed PASUMIL assets pursuant to Section 6 of Act No.
Darla Grey| Corporation Law Digest | 13
3135. These assets were later conveyed to PNB for a
consideration, the terms of which were embodied in the
Redemption Agreement. PNB, as successor-in-interest,
stepped into the shoes of DBP as PASUMILs creditor. By way
of a Deed of Assignment, PNB then transferred to NASUDECO
all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,
we had the occasion to resolve a similar issue. We ruled that
PNB, DBP and their transferees were not liable for Marinduque
Minings unpaid obligations to Remington Industrial Sales
Corporation (Remington) after the two banks had foreclosed
the assets of Marinduque Mining. We likewise held that
Remington failed to discharge its burden of proving bad faith
on the part of Marinduque Mining to justify the piercing of the
corporate veil.
In the instant case, the CA erred in affirming the trial courts
lifting of the corporate mask. The CA did not point to any fact
evidencing bad faith on the part of PNB and its transferee. The
corporate fiction was not used to defeat public convenience,
justify a wrong, protect fraud or defend crime. None of the
foregoing exceptions was shown to exist in the present case.
On the contrary, the lifting of the corporate veil would result in
manifest injustice. This we cannot allow.
[G.R. No. 142435. April 30, 2003]
ESTELITA BURGOS LIPAT and ALFREDO
LIPAT, petitioners, vs. PACIFIC BANKING
CORPORATION, REGISTER OF DEEDS, RTC
EX-OFFICIO SHERIFF OF QUEZON CITY and the
Heirs of EUGENIO D. TRINIDAD, respondents.
(TINDERA NG DAMIT NA INAUTHORIZE ANAK NILA)
Facts: Petitioners owned BELAS EXPORT TRADING (BET)
which is engaged in manufacture of garments for domestic and
foreign consumption, the lipats also owns Mystical Fashions in
the United States, which sells the imported goods from BET.
The owner spouses designated their daughter TERESITA
LIPAT to manage BET while she manage Mystical Fashion.
In the view of the foregoing, Estelita executed a special-
powers-of-attorney to authorize their daughter to execute
mortgage contracts on properties owned or co-owned by her
as security for the obligations to be extended by Pacific Bank
including any extension or renewal thereof.
Teresita by virtue of the SPA, obtained a loan from PACIFIC
banking corporation and other credit transaction.
Thereafter BET was incorporated into a family corporation
named Belas Export Corporation (BEC) which undertakes the
same kind of business and uses the same machineries.
The loan obtained by Teresita became due, thus the REM
constituted previously was foreclosed.
Petitioner now assails the validity of foreclosure, attacking the
authority of her daughter alleging that these acts that caused
the case was ultra vires acts of Teresita and never authorized
by them through the requisite board resolution and secretary
certificate.
Issue: WON the doctrine of piercing the corporate veil is
applicable in this case.
Held: Yes, Petitioners contentions fail to persuade this Court. A
careful reading of the judgment of the RTC and the resolution
of the appellate court show that in finding petitioners
mortgaged property liable for the obligations of BEC, both
courts below relied upon the alter ego doctrine or
instrumentality rule, rather than fraud in piercing the veil of
corporate fiction. When the corporation is the mere alter ego or
business conduit of a person, the separate personality of the
corporation may be disregarded.This is commonly referred
to as the instrumentality rule or the alter ego doctrine,
which the courts have applied in disregarding the separate
juridical personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its
affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even
complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but
a conduit for its principal.
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.[16] Incidentally, Teresita was
designated as executive-vice president and general
manager of both BET and BEC, respectively. We note
further that: (1) Estelita and Alfredo Lipat are the owners
and majority shareholders of BET and BEC, respectively;
(2) both firms were managed by their daughter, Teresita;
(3) both firms were engaged in the garment business,
supplying products to Mystical Fashion, a U.S. firm
established by Estelita Lipat; (4) both firms held office in
the same building owned by the Lipats; (5) BEC is a family
Darla Grey| Corporation Law Digest | 14
corporation with the Lipats as its majority stockholders;
(6) the business operations of the BEC were so merged
with those of Mrs. Lipat such that they were practically
indistinguishable; (7) the corporate funds were held by
Estelita Lipat and the corporation itself had no visible
assets; (8) the board of directors of BEC was composed of
the Burgos and Lipat family members; (9) Estelita had full
control over the activities of and decided business matters
of the corporation; and that (10) Estelita Lipat had
benefited from the loans secured from Pacific Bank to
finance her business abroad and from the export bills
secured by BEC for the account of Mystical Fashion. 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.
Petitioners contend further that the mortgaged property
should not bind the loans and credit lines obtained by
BEC as they were secured without any proper
authorization or board resolution. They also blame the
bank for its laxity and complacency in not requiring a
board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release
a board resolution since per admissions by both petitioner
Estelita Lipat and Alice Burgos, petitioners rebuttal
witness, no business or stockholders meetings were
conducted nor were there election of officers held since
its incorporation. In fact, not a single board resolution was
passed by the corporate board and it was Estelita Lipat
and/or Teresita Lipat who decided business matters.
Secondly, the principle of estoppel precludes petitioners from
denying the validity of the transactions entered into by Teresita
G.R. No. 119002 October 19, 2000
INTERNATIONAL EXPRESS TRAVEL & TOUR
SERVICES, INC., petitioner,
vs.
Lipat with Pacific Bank, who in good faith, relied on the
authority of the former as manager to act on behalf of petitioner
Estelita Lipat and both BET and BEC. While the power and
responsibility to decide whether the corporation should enter
into a contract that will bind the corporation is lodged in its
board of directors, subject to the articles of incorporation, by-
laws, or relevant provisions of law, yet, just as a natural person
may authorize another to do certain acts for and on his behalf,
the board of directors may validly delegate some of its
functions and powers to officers, committees, or agents. The
authority of such individuals to bind the corporation is generally
derived from law, corporate by-laws, or authorization from the
board, either expressly or impliedly by habit, custom, or
acquiescence in the general course of business.[31] 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.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the
mortgage contract by virtue of a special power of attorney
executed by Estelita Lipat. Recall that Teresita Lipat acted as
the manager of both BEC and BET and had been deciding
business matters in the absence of Estelita Lipat. Further, the
export bills secured by BEC were for the benefit of Mystical
Fashion owned by Estelita Lipat.[33] Hence, Pacific Bank
cannot be faulted for relying on the same authority granted to
Teresita Lipat by Estelita Lipat by virtue of a special power of
attorney. It is a 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; thus, the corporation
will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agents
authority.[34]
We find no necessity to extensively deal with the liability of
Alfredo Lipat for the subsequent credit lines of BEC. Suffice it
to state that Alfredo Lipat never disputed the validity of the real
estate mortgage of the original loan; hence, he cannot now
dispute the subsequent loans obtained using the same
mortgage contract since it is, by its very terms, a continuing
mortgage contract.
Week 2
HON. COURT OF APPEALS, HENRI KAHN,
PHILIPPINE FOOTBALL
FEDERATION, respondents.
KAPUNAN, J.:
Darla Grey| Corporation Law Digest | 15
Facts:
On June 30 1989, petitioner International Express Travel and
Tour Services, Inc., through its managing director, wrote a
letter to the Philippine Football Federation (Federation),
through its president private respondent Henri Kahn, wherein
the former offered its services as a travel agency to the
latter.1 The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes
and officials of the Federation to the South East Asian Games
in Kuala Lumpur as well as various other trips to the People's
Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. For the tickets received, the
Federation made two partial payments, both in September of
1989, in the total amount of P176,467.50.2
On 4 October 1989, petitioner wrote the Federation, through
the private respondent a demand letter requesting for the
amount of P265,894.33.3 On 30 October 1989, the Federation,
through the Project Gintong Alay, paid the amount of
P31,603.00.4
On 27 December 1989, Henri Kahn issued a personal check in
the amount of P50,000 as partial payment for the outstanding
balance of the Federation.5 Thereafter, no further payments
were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional
Trial Court of Manila. Petitioner sued Henri Kahn in his
personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant.
Petitioner sought to hold Henri Kahn liable for the unpaid
balance for the tickets purchased by the Federation on the
ground that Henri Kahn allegedly guaranteed the said
obligation.6
Henri Kahn filed his answer with counterclaim. While not
denying the allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance for the plane
tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official
capacity as president of the Federation. He maintained that he
did not guarantee payment but merely acted as an agent of the
Federation which has a separate and distinct juridical
personality. On the other hand, the Federation failed to file its
answer, hence, was declared in default by the trial court.
Trial Court: in favor of petitioner, Henri Kahn, personally liable
for the unpaid obligation of the Federation, failed to adduce
evidence proving the corporate existence
CA: reversed Trial Court decision, petitioner failed to prove
that Henri Kahn guaranteed the obligation of the Federation as
said entity has a separate and distinct personality from its
officers.
Petitioner filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held liable for
the unpaid obligation.
Appellate court: denied the motion, “it should be remembered
that the trial court dismissed the complaint against the
Philippine Football Federation, and the plaintiff did not appeal
from this decision. Hence, the Philippine Football Federation is
not a party to this appeal and consequently, no judgment may
be pronounced by this Court against the PFF without violating
the due process clause, let alone the fact that the judgment
dismissing the complaint against it, had already become final
by virtue of the plaintiff's failure to appeal therefrom.”
Issue:
WON CA erred in holding that petitioner dealt with PFF as a
corporate entity and in holding that private respondent Henri
Kahn not liable (WON there is a corporation by estoppel)
Held:
Nowhere can it be found in R.A. 3135 or P.D. 604 any
provision creating the Philippine Football Federation. These
laws merely recognized the existence of national sports
associations and provided the manner by which these entities
may acquire juridical personality. The powers and functions
granted to national sports associations clearly indicate that
these entities may acquire a juridical personality. The power to
purchase, sell, lease and encumber property are acts which
may only be done by persons, whether natural or artificial, with
juridical capacity. However, while we agree with the appellate
court that national sports associations may be accorded
corporate status, such does not automatically take place by the
mere passage of these laws. It is a basic postulate that before
a corporation may acquire juridical personality, the State must
give its consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the appellate
court and the private respondent that the Philippine Football
Federation came into existence upon the passage of these
laws.
Clearly the provisions require that before an entity may be
considered as a national sports association, such entity must
be recognized by the accrediting organization, the Philippine
Amateur Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under P.D. 604.
This fact of recognition, however, Henri Kahn failed to
substantiate. In attempting to prove the juridical existence of
the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution
and by-laws of the Philippine Football Federation.
Unfortunately, the same does not prove that said Federation
has indeed been recognized and accredited by either the
Philippine Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports
Darla Grey| Corporation Law Digest | 16
association within the purview of the aforementioned laws and
does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn
should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting
to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such
agent.14 As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or
non-existence of the Federation. We cannot subscribe to the
position taken by the appellate court that even assuming that
the Federation was defectively incorporated, the petitioner
cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in
such a manner as to recognize and in effect admit its
existence.15 The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner.
The application of the doctrine applies to a third party only
when he tries to escape liability on a contract from which he
has benefited on the irrelevant ground of defective
incorporation.16 In the case at bar, the petitioner is not trying to
escape liability from the contract but rather is the one claiming
from the contract.
G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES,
INC., respondent.
PANGANIBAN, J.:
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract dated February 7, 1990,
for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a business venture
with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to
P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the
floats; hence, private respondents filed a collection suit against
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ
of preliminary attachment. The suit was brought against the
three in their capacities as general partners, on the allegation
that "Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the Securities and
Exchange Commission. 5 On September 20, 1990, the lower
court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro
Manila.
Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have
waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed
an Answer with Counterclaim and Crossclaim and moved for
the lifting of the Writ of Attachment.
The trial court maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000.
Trial Court: ruled that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim,
as general partners, were jointly liable to pay respondent. A
partnership among Lim, Chua and Yao existed. The trial court
noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss.
CA: held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as such for the
fishing nets and floats purchased by and for the use of the
partnership. “The ultimate undertaking of the defendants was
to divide the profits among themselves which is what a
partnership essentially is.”
Issue:
Whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership
Whether or not under the doctrine of corporation by estoppel,
liability can only be imputed only to Chua and Yao and not to
Lim.
Held:
1. Yes. The Court is not persuaded by the arguments of
petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767
of the Civil Code.
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among
Darla Grey| Corporation Law Digest | 17
them the excess or loss. These boats, the purchase and the G.R. No. 125221 June 19, 1997
repair of which were financed with borrowed money, fell under
the term "common fund" under Article 1767. The contribution to
REYNALDO M. LOZANO, petitioner,
such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that
vs.
any loss or profit from the sale and operation of the boats HON. ELIEZER R. DE LOS SANTOS, Presiding
would be divided equally among them also shows that they Judge, RTC, Br. 58, Angeles City; and ANTONIO
had indeed formed a partnership. ANDA, respondents.
Moreover, it is clear that the partnership extended not only to
PUNO, J.:
the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing,
Facts:
were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so
On December 19, 1995, petitioner Reynaldo M. Lozano filed
much in buying the boat but not in the acquisition of the
Civil Case No. 1214 for damages against respondent Antonio
aforesaid equipment, without which the business could not
Anda before the Municipal Circuit Trial Court (MCTC),
have proceeded.
Mabalacat and Magalang, Pampanga. Petitioner alleged that
he was the president of the Kapatirang Mabalacat-Angeles
Given the preceding facts, it is clear that there was, among
Jeepney Drivers' Association, Inc. (KAMAJDA) while
petitioner, Chua and Yao, a partnership engaged in the fishing
respondent Anda was the president of the Samahang Angeles-
business. They purchased the boats, which constituted the
Mabalacat Jeepney Operators' and Drivers' Association, Inc.
main assets of the partnership, and they agreed that the
(SAMAJODA); in August 1995, upon the request of the
proceeds from the sales and operations thereof would be
Sangguniang Bayan of Mabalacat, Pampanga, petitioner and
divided among them.
private respondent agreed to consolidate their respective
associations and form the Unified Mabalacat-Angeles Jeepney
2. No. There is no dispute that the respondent,
Operators' and Drivers Association, Inc. (UMAJODA);
Philippine Fishing Gear Industries, is entitled to be
petitioner and private respondent also agreed to elect one set
paid for the nets it sold. The only question here is
of officers who shall be given the sole authority to collect the
whether petitioner should be held jointly 18 liable with
daily dues from the members of the consolidated association;
Chua and Yao. Petitioner contests such liability,
elections were held on October 29, 1995 and both petitioner
insisting that only those who dealt in the name of the
and private respondent ran for president; petitioner won;
ostensible corporation should be held liable. Since his
private respondent protested and, alleging fraud, refused to
name does not appear on any of the contracts and
recognize the results of the election; private respondent also
since he never directly transacted with the respondent
refused to abide by their agreement and continued collecting
corporation, ergo, he cannot be held liable.
the dues from the members of his association despite several
demands to desist. Petitioner was thus constrained to file the
Unquestionably, petitioner benefited from the use of the nets
complaint to restrain private respondent from collecting the
found inside F/B Lourdes, the boat which has earlier been
dues and to order him to pay damages in the amount of
proven to be an asset of the partnership. He in fact questions
P25,000.00 and attorney's fees of P500.00. 1
the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
Private respondent moved to dismiss the complaint for lack of
jurisdiction, claiming that jurisdiction was lodged with the
It is difficult to disagree with the RTC and the CA that Lim,
Securities and Exchange Commission (SEC).
Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does
MCTC: The MCTC denied the motion to dismiss on February
not preclude the liabilities of the three as contracting parties in
9, 1996. 2 It denied reconsideration on March 8, 1996.
representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
RTC: certiorari; found the dispute to be intracorporate, hence,
knowing it to be without valid existence, are held liable as
subject to the jurisdiction of the SEC, and ordered the MCTC to
general partners.
dismiss Civil Case No. 1214 accordingly.
Technically, it is true that petitioner did not directly act on
Issue:
behalf of the corporation. However, having reaped the benefits
of the contract entered into by persons with whom he
WON the SEC has jurisdiction over associations not yet
previously had an existing relationship, he is deemed to be part
approved and registered with the SEC
of said association and is covered by the scope of the doctrine
of corporation by estoppel.
Held:

Darla Grey| Corporation Law Digest | 18

There is no intracorporate nor partnership relation between
petitioner and private respondent. The controversy between
them arose out of their plan to consolidate their respective
jeepney drivers' and operators' associations into a single
common association. This unified association was, however,
still a proposal. It had not been approved by the SEC, neither
had its officers and members submitted their articles of
consolidation is accordance with Sections 78 and 79 of the
Corporation Code. Consolidation becomes effective not upon
mere agreement of the members but only upon issuance of the
certificate of consolidation by the SEC. 13 When the SEC, upon
processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which
makes the reorganization official. 14 The new consolidated
corporation comes into existence and the constituent
corporations dissolve and cease to exist.
The grant of jurisdiction to the SEC must be viewed in the light
of its nature and function under the law. 8 This jurisdiction is
determined by a concurrence of two elements: (1) the status or
relationship of the parties; and (2) the nature of the question
that is the subject of their controversy.
The first element requires that the controversy must arise out
of intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of
them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and
the State in so far as it concerns their individual
franchises. 10 The second element requires that the dispute
among the parties be intrinsically connected with the regulation
of the corporation, partnership or association or deal with the
internal affairs of the corporation, partnership or
association. 11 After all, the principal function of the SEC is the
supervision and control of corporations, partnership and
associations with the end in view that investments in these
entities may be encouraged and protected, and their entities
may be encouraged and protected, and their activities pursued
for the promotion of economic development.
The KAMAJDA and SAMAJODA to which petitioner and
private respondent belong are duly registered with the SEC,
but these associations are two separate entities. The dispute
between petitioner and private respondent is not within the
KAMAJDA nor the SAMAJODA. It is between members of
separate and distinct associations. Petitioner and private
respondent have no intracorporate relation much less do they
have an intracorporate dispute. The SEC therefore has no
jurisdiction over the complaint.
The doctrine of corporation by estoppel 16 advanced by private
respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement
of the parties. 17 It cannot be acquired through or waived,
enlarged or diminished by, any act or omission of the parties,
neither can it be conferred by the acquiescence of the court. 18
Corporation by estoppel is founded on principles of equity and
is designed to prevent injustice and unfairness. 19 It applies
when persons assume to form a corporation and exercise
corporate functions and enter into business relations with third
person. Where there is no third person involved and the
conflict arises only among those assuming the form of a
corporation, who therefore know that it has not been
registered, there is no corporation by estoppel.
G.R. No. 101897. March 5, 1993.
LYCEUM OF THE PHILIPPINES, INC., petitioner,
vs. COURT OF APPEALS, LYCEUM OF APARRI,
LYCEUM OF CABAGAN, LYCEUM OF
CAMALANIUGAN, INC., LYCEUM OF LALLO,
INC., LYCEUM OF TUAO, INC., BUHI LYCEUM,
CENTRAL LYCEUM OF CATANDUANES,
LYCEUM OF SOUTHERN PHILIPPINES,
LYCEUM OF EASTERN MINDANAO, INC. and
WESTERN PANGASINAN LYCEUM, INC.,
respondents.
FELICIANO, J:
Facts:
Petitioner is an educational institution duly registered with the
Securities and Exchange Commission ("SEC"). When it first
registered with the SEC on 21 September 1950, it used the
corporate name Lyceum of the Philippines, Inc. and has used
that name ever since.
On 24 February 1984, petitioner instituted proceedings before
the SEC to compel the private respondents, which are also
educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using
"Lyceum" as part of their respective names. Some of the
private respondents actively participated in the proceedings
before the SEC. These are the following, the dates of their
original SEC registration being set out below opposite their
respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962
Lyceum of Lallo, Inc. — 26 March 1972
Lyceum of Aparri — 28 March 1972
Lyceum of Tuao, Inc. — 28 March 1972
Darla Grey| Corporation Law Digest | 19
Lyceum of Camalaniugan — 28 March 1972
The following private respondents were declared in default for
failure to file an answer despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
The background of the case at bar needs some recounting.
Petitioner had sometime before commenced in the SEC a
proceeding (SEC-Case No. 1241) against the Lyceum of
Baguio, Inc. to require it to change its corporate name and to
adopt another name not "similar [to] or identical" with that of
petitioner. In an Order dated 20 April 1977, Associate
Commissioner Julio Sulit held that the corporate name of
petitioner and that of the Lyceum of Baguio, Inc. were
substantially identical because of the presence of a "dominant"
word, i.e., "Lyceum," the name of the geographical location of
the campus being the only word which distinguished one from
the other corporate name. The SEC also noted that petitioner
had registered as a corporation ahead of the Lyceum of
Baguio, Inc. in point of time, 1 and ordered the latter to change
its name to another name "not similar or identical [with]" the
names of previously registered entities.
Armed with the Resolution of this Court in G.R. No. L-46595,
petitioner then wrote all the educational institutions it could find
using the word "Lyceum" as part of their corporate name, and
advised them to discontinue such use of "Lyceum." When, with
the passage of time, it became clear that this recourse had
failed, petitioner instituted before the SEC SEC-Case No. 2579
to enforce what petitioner claims as its proprietary right to the
word "Lyceum." The SEC hearing officer rendered a decision
sustaining petitioner's claim to an exclusive right to use the
word "Lyceum." The hearing officer relied upon the SEC ruling
in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and
held that the word "Lyceum" was capable of appropriation and
that petitioner had acquired an enforceable exclusive right to
the use of that word.
SEC En Banc: (private respondents) appeal; reversed the
decision of hearing officer, did not consider the word "Lyceum"
to have become so identified with petitioner as to render use
thereof by other institutions as productive of confusion about
the identity, held that the attaching of geographical names to
the word "Lyceum" served sufficiently to distinguish the
schools from one another.
Court of Appeals: (petitioner) appeal; affirmed SEC En Banc;
reconsideration, same same.
Issue:
Whether or not the use by petitioner of "Lyceum" in its
corporate name has been for such length of time and with such
exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public
Held:
The doctrine of secondary meaning originated in the field of
trademark law. Its application has, however, been extended to
corporate names sine the right to use a corporate name to the
exclusion of others is based upon the same principle which
underlies the right to use a particular trademark or tradename.
10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11
the doctrine of secondary meaning was elaborated in the
following terms:
" . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively by
one producer with reference to his article that, in that trade and
to that branch of the purchasing public, the word or phrase has
come to mean that the article was his product."
With the foregoing as a yardstick, [we] believe the appellant
failed to satisfy the aforementioned requisites. No evidence
was ever presented in the hearing before the Commission
which sufficiently proved that the word 'Lyceum' has indeed
acquired secondary meaning in favor of the appellant. If there
was any of this kind, the same tend to prove only that the
appellant had been using the disputed word for a long period of
time. Nevertheless, its (appellant) exclusive use of the word
(Lyceum) was never established or proven as in fact the
evidence tend to convey that the cross-claimant was already
using the word 'Lyceum' seventeen (17) years prior to the date
the appellant started using the same word in its corporate
name. Furthermore, educational institutions of the Roman
Catholic Church had been using the same or similar word like
'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, Masbate),
'Liceo de Masbate,' 'Liceo de Albay' long before appellant
started using the word 'Lyceum'. The appellant also failed to
prove that the word 'Lyceum' has become so identified with its
educational institution that confusion will surely arise in the
minds of the public if the same word were to be used by other
educational institutions.
In other words, while the appellant may have proved that it had
been using the word 'Lyceum' for a long period of time, this fact
alone did not amount to mean that the said word had acquired
secondary meaning in its favor because the appellant failed to
prove that it had been using the same word all by itself to the
exclusion of others. More so, there was no evidence presented
to prove that confusion will surely arise if the same word were
to be used by other educational institutions. Consequently, the
allegations of the appellant in its first two assigned errors must
necessarily fail."
Darla Grey| Corporation Law Digest | 20
The number alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word "Lyceum"
has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may be
noted also that at least one of the private respondents, i.e., the
Western Pangasinan Lyceum, Inc., used the term "Lyceum"
seventeen (17) years before the petitioner registered its own
corporate name with the SEC and began using the word
"Lyceum." It follows that if any institution had acquired an
exclusive right to the word "Lyceum," that institution would
have been the Western Pangasinan Lyceum, Inc. rather than
the petitioner institution.
G.R. No. 122174 October 3, 2002
INDUSTRIAL REFRACTORIES CORPORATION
OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE
PHILIPPINES, respondents.
AUSTRIA-MARTINEZ, J.:
Respondent Refractories Corporation of the Philippines (RCP)
is a corporation duly organized on October 13, 1976 for the
purpose of engaging in the business of manufacturing,
producing, selling, exporting and otherwise dealing in any and
all refractory bricks, its by-products and derivatives. On June
22, 1977, it registered its corporate and business name with
the Bureau of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August
23, 1979 originally under the name "Synclaire Manufacturing
Corporation". It amended its Articles of Incorporation on August
23, 1985 to change its corporate name to "Industrial
Refractories Corp. of the Philippines". It is engaged in the
business of manufacturing all kinds of ceramics and other
products, except paints and zincs.
Both companies are the only local suppliers of monolithic
gunning mix.1
Discovering that petitioner was using such corporate name,
respondent RCP filed on April 14, 1988 with the Securities and
Exchange Commission (SEC) a petition to compel petitioner to
change its corporate name on the ground that its corporate
name is confusingly similar with that of petitioner’s such that
the public may be confused or deceived into believing that they
are one and the same corporation.
SEC: decided in favor of RCP, IRCP, deceptively and
confusingly similar to that of respondent’s corporate name
SEC En Banc: (Petitioner) appeal; petitioner was ordered to
delete or drop from its corporate name only the word
"Refractories".5
CA: (Petitioner) certiorari; the corporate names of petitioner
IRCP and respondent RCP are confusingly or deceptively
similar, and that respondent RCP has established its prior right
to use the word "Refractories" as its corporate name.
Issue:
WON the corporate names of both parties are not confusingly
similar
Held:
No. Section 18 of the Corporation Code expressly prohibits
the use of a corporate name which is "identical or deceptively
or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws". The policy
behind the foregoing prohibition is to avoid fraud upon the
public that will have occasion to deal with the entity concerned,
the evasion of legal obligations and duties, and the reduction of
difficulties of administration and supervision over corporation.24
As held in Philips Export B.V. vs. Court of Appeals,28 to fall
within the prohibition of the law, two requisites must be proven,
to wit:
(1) that the complainant corporation acquired a prior right over
the use of such corporate name;
and
(2) the proposed name is either: (a) identical, or (b) deceptively
or confusingly similar to that of any existing corporation or to
any other name already protected by law; or (c) patently
deceptive, confusing or contrary to existing law.
As regards the first requisite, it has been held that the right to
the exclusive use of a corporate name with freedom from
infringement by similarity is determined by priority of
adoption.29 In this case, respondent RCP was incorporated on
October 13, 1976 and since then has been using the corporate
name "Refractories Corp. of the Philippines". Meanwhile,
petitioner was incorporated on August 23, 1979 originally
under the name "Synclaire Manufacturing Corporation". It only
started using the name "Industrial Refractories Corp. of the
Philippines" when it amended its Articles of Incorporation on
August 23, 1985, or nine (9) years after respondent RCP
started using its name. Thus, being the prior registrant,
respondent RCP has acquired the right to use the word
"Refractories" as part of its corporate name.
Anent the second requisite, in determining the existence of
confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary care
Darla Grey| Corporation Law Digest | 21
and discrimination and the Court must look to the record as
well as the names themselves.30 Petitioner’s corporate name is
"Industrial Refractories Corp. of the Phils.", while respondent’s
is "Refractories Corp. of the Phils." Obviously, both names
contain the identical words "Refractories", "Corporation" and
"Philippines". The only word that distinguishes petitioner from
respondent RCP is the word "Industrial" which merely identifies
a corporation’s general field of activities or operations. We
need not linger on these two corporate names to conclude that
they are patently similar that even with reasonable care and
observation, confusion might arise.31 It must be noted that both
cater to the same clientele, i.e.¸ the steel industry. In fact, the
SEC found that there were instances when different steel
companies were actually confused between the two, especially
since they also have similar product packaging. 32 Such findings
are accorded not only great respect but even finality, and are
binding upon this Court, unless it is shown that it had arbitrarily
disregarded or misapprehended evidence before it to such an
extent as to compel a contrary conclusion had such evidence
been properly appreciated. 33 And even without such proof of
actual confusion between the two corporate names, it suffices
that confusion is probable or likely to occur.
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P.
HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of
First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his
capacity as receiver of the Far Eastern Lumber
and Commercial Co., Inc., respondents.
BENGZON, J.:
Facts:
On May 28, 1947, the petitioners C. Arnold Hall and Bradley P.
Hall, and the respondents Fred Brown, Emma Brown, Hipolita
D. Chapman and Ceferino S. Abella, signed and
acknowledged in Leyte, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc., organized to
engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the
article was an affidavit of the treasurer stating that 23,428
shares of stock had been subscribed and fully paid with certain
properties transferred to the corporation described in a list
appended thereto.
Immediately after the execution of said articles of
incorporation, the corporation proceeded to do business with
the adoption of by-laws and the election of its officers. On
December 2, 1947, the said articles of incorporation were filed
in the office of the Securities and Exchange Commissioner, for
the issuance of the corresponding certificate of incorporation.
On March 22, 1948, pending action on the articles of
incorporation by the aforesaid governmental office, the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman
and Ceferino S. Abella filed before the Court of First Instance
of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that
the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved
because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy
financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley
P. Hall, filed a motion to dismiss, contesting the court's
jurisdiction and the sufficiently of the cause of action.
After hearing the parties, the Hon. Edmund S. Piccio ordered
the dissolution of the company; and at the request of plaintiffs,
appointed of the properties thereof, upon the filing of a
P20,000 bond.
The defendants therein (petitioners herein) offered to file a
counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge
the receiver.
Issue:
WON the court had no jurisdiction to decree the dissolution of
the company, it being a de facto corporation in accordance
with sec. 19 of the Corp. Code
Held:
No. There are least two reasons why this section does not
govern the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co. —
even its stockholders — may not probably claim "in good faith"
to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11)
that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry which calls a
corporation into being. The immunity if collateral attack is
granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an
evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith."
(Fisher on the Philippine Law of Stock Corporations, p. 75. See
also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party.
This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even
the existence of a de jure corporation may be terminated in a
Darla Grey| Corporation Law Digest | 22
private suit for its dissolution between stockholders, without the
intervention of the state.
G.R. No. 150416 July 21, 2006
SEVENTH DAY ADVENTIST CONFERENCE
CHURCH OF SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH C.
ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO
M. LUCENARA, DIONICES O. TIPGOS,
LORESTO C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE T. ORBISO,
LORETO PAEL and JOEL
BACUBAS, petitioners,
vs.
NORTHEASTERN MINDANAO MISSION OF
SEVENTH DAY ADVENTIST, INC., and/or
represented by JOSUE A. LAYON, WENDELL M.
SERRANO, FLORANTE P. TY and JETHRO
CALAHAT and/or SEVENTH DAY ADVENTIST
CHURCH [OF] NORTHEASTERN MINDANAO
MISSION,* Respondents.
CORONA, J.:
Facts:
SPUM-SDA: petitioner
SDA-NEMM: respondent
This case involves a 1,069 sq. m. lot covered by Transfer
Certificate of Title (TCT) No. 4468 in Bayugan, Agusan del Sur
originally owned by Felix Cosio and his wife, Felisa Cuysona.
On April 21, 1959, the spouses Cosio donated the land to the
South Philippine Union Mission of Seventh Day Adventist
Church of Bayugan Esperanza, Agusan (SPUM-SDA
Bayugan). The donation was allegedly accepted by one
Liberato Rayos, an elder of the Seventh Day Adventist Church,
on behalf of the donee.
Twenty-one years later, however, on February 28, 1980, the
same parcel of land was sold by the spouses Cosio to the
Seventh Day Adventist Church of Northeastern Mindanao
Mission (SDA-NEMM).5 TCT No. 4468 was thereafter issued in
the name of SDA-NEMM.6
Claiming to be the alleged donee’s successors-in-interest,
petitioners asserted ownership over the property. This was
opposed by respondents who argued that at the time of the
donation, SPUM-SDA Bayugan could not legally be a donee
because, not having been incorporated yet, it had no juridical
personality. Neither were petitioners members of the local
church then, hence, the donation could not have been made
particularly to them.
On September 28, 1987, petitioners filed a case, docketed as
Civil Case No. 63 (a suit for cancellation of title, quieting of
ownership and possession, declaratory relief and
reconveyance with prayer for preliminary injunction and
damages), in the RTC of Bayugan, Agusan del Sur.
Trial Court: favor of respondents
CA: affirmed decision of RTC; Motion for recon: denied
Issue:
WON respondents (SDA-NEMM) own the land
Held:
Yes. The controversy between petitioners and respondents
involves two supposed transfers of the lot previously owned by
the spouses Cosio: (1) a donation to petitioners’ alleged
predecessors-in-interest in 1959 and (2) a sale to respondents
in 1980. Donation is undeniably one of the modes of acquiring
ownership of real property. Likewise, ownership of a property
may be transferred by tradition as a consequence of a sale.
We agree with the appellate court that the alleged donation to
petitioners was void. Donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in favor
of another person who accepts it. The donation could not have
been made in favor of an entity yet inexistent at the time it was
made. Nor could it have been accepted as there was yet no
one to accept it.
The deed of donation was not in favor of any informal group of
SDA members but a supposed SPUM-SDA Bayugan (the local
church) which, at the time, had neither juridical personality nor
capacity to accept such gift. Declaring themselves a de
facto corporation, petitioners allege that they should benefit
from the donation.
But there are stringent requirements before one can qualify as
a de facto corporation:
(a) the existence of a valid law under which it may be
incorporated;
(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.10
While there existed the old Corporation Law (Act 1459),11 a law
under which SPUM-SDA Bayugan could have been organized,
there is no proof that there was an attempt to incorporate at
that time.
Darla Grey| Corporation Law Digest | 23
The filing of articles of incorporation and the issuance of the
certificate of incorporation are essential for the existence of
a de facto corporation.12 We have held that an organization not
registered with the Securities and Exchange Commission
(SEC) cannot be considered a corporation in any concept, not
even as a corporation de facto.13 Petitioners themselves
admitted that at the time of the donation, they were not
registered with the SEC, nor did they even attempt to
organize14 to comply with legal requirements.
Corporate existence begins only from the moment a certificate
of incorporation is issued. No such certificate was ever issued
to petitioners or their supposed predecessor-in-interest at the
time of the donation. Petitioners obviously could not have
claimed succession to an entity that never came to exist.
Neither could the principle of separate juridical personality
apply since there was never any corporation 15 to speak of.
And, as already stated, some of the representatives of
petitioner Seventh Day Adventist Conference Church of
Southern Philippines, Inc. were not even members of the local
church then, thus, they could not even claim that the donation
was particularly for them.
"The de facto doctrine thus effects a compromise between two
conflicting public interest[s]—the one opposed to an
unauthorized assumption of corporate privileges; the other in
favor of doing justice to the parties and of establishing a
general assurance of security in business dealing with
corporations." Generally, the doctrine exists to protect the
public dealing with supposed corporate entities, not to favor the
defective or non-existent corporation.
WEEK 3
G.R. No. 108905 October 23, 1997
GRACE CHRISTIAN HIGH SCHOOL, petitioner,
vs.
THE COURT OF APPEALS, GRACE VILLAGE
ASSOCIATION, INC., ALEJANDRO G.
BELTRAN, and ERNESTO L. GO, respondents.
MENDOZA, J.:
Facts:
Petitioner Grace Christian High School is an educational
institution offering preparatory, kindergarten and secondary
courses at the Grace Village in Quezon City. Private
respondent Grace Village Association, Inc., on the other hand,
is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents 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 as
follows: “The annual meeting of the members of the
Association shall be held on the first Sunday of
January…where they shall elect by plurality vote and by secret
balloting, the Board of Directors…”
It appears, that on December 20, 1975, a committee of the
board of directors prepared a draft of an amendment to the
by-laws, amending the annual meeting and the election of
the board of directors, with the provision that, 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, petitioner was given a permanent seat
in the board of directors of the association.
For fifteen years — from 1975 until 1989 — petitioner's
representative had been recognized as a "permanent director"
of the association. But on February 13, 1990, petitioner
received notice from the association's committee on election
that the latter was "reexamining" (actually, reconsidering) the
right of petitioner's representative to continue as an unelected
member of the board stating 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 fifteen (15)
members of the Board," and "it is undemocratic for a person or
entity to hold office in perpetuity." Petitioner 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." 5
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.
Petitioner based its claim on the abovementioned proposed
amendment which, it contended, had become part of the by-
laws of the association.
SEC: opinion; 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 (B.P. Blg. 68).
The association contended that the basis of the petition
for mandamus was merely "a proposed by-laws which has not
yet been approved by competent authority nor registered with
the SEC or HIGC." It argued that "the by-laws which was
registered with the SEC on January 16, 1969 should be the
prevailing by-laws of the association and not the proposed
amended by-laws." In reply, petitioner maintained that the
"amended by-laws is valid and binding" and that the
association was estopped from questioning the by-laws.
Darla Grey| Corporation Law Digest | 24
HIGC: June 20, 1990; dismissing petitioner's action. The representative and tolerance cannot be considered
hearing officer held that the amended by-laws, upon which ratification.
petitioner based its claim, "[was] merely a proposed by-laws
which, although implemented in the past, had not yet been Nor can petitioner claim a vested right to sit in the board on the
ratified by the members of the association nor approved by basis of "practice." Practice, no matter how long continued,
competent authority""allowing the automatic inclusion of a cannot give rise to any vested right if it is contrary to law. Even
member representative of petitioner as permanent director less tenable is petitioner's claim that its right is "coterminus
[was] contrary to law and the registered by-laws of respondent with the existence of the association."
association." The appeals board of the HIGC affirmed the
decision of the hearing officer in its resolution dated September G.R. No. L-45911 April 11, 1979
13, 1990.
JOHN GOKONGWEI, JR., petitioner,
CA: Feb. 9,1993; affirmed the decision of the HIGC, no valid
amendment of the association's by-laws because of failure to
vs.
comply with the requirement of its existing by-laws, prescribing SECURITIES AND EXCHANGE COMMISSION,
the affirmative vote of the majority of the members of the ANDRES M. SORIANO, JOSE M. SORIANO,
association at a regular or special meeting called for the ENRIQUE ZOBEL, ANTONIO ROXAS,
adoption of amendment to the by-laws
EMETERIO BUNAO, WALTHRODE B. CONDE,
Issue: MIGUEL ORTIGAS, ANTONIO PRIETO, SAN
MIGUEL CORPORATION, EMIGDIO
WON the petitioner’s representative has a right to sit in the TANJUATCO, SR., and EDUARDO R.
board of directors of the respondent as a permanent member
VISAYA, respondents.
thereof

Held:
ANTONIO, J.:

No. The board of directors of corporations must be elected Facts:

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 petitioner 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 petitioner, there is no reason at all for its representative to
be given a seat in the board. Nor does petitioner 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 fifteen 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
petitioner'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 petitioner's representative as an unelected
member of the board of directors. It is more accurate to say
that the members merely tolerated petitioner's
On October 22, 1976, petitioner, as stockholder of respondent
San Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of
amended by-laws, cancellation of certificate of filing of
amended by- laws, injunction and damages with prayer for a
preliminary injunction" against the majority of the members of
the Board of Directors and San Miguel Corporation as an
unwilling petitioner. He has the ff causes of action:
1. That the Board in amending the by-laws, had no
authority to do so because it was based on the a 1961
authorization and the amendment being contested
was in 1976, and the authorization should have been
based on votes made according to the 1976 shares,
not the 1961 shares,
2. The authority granted in 1961 had already been
exercised in 1962 and 1963, after which the authority
of the Board ceased to exist,
3. Membership of the Board changed since 1961, there
are 6 new directors,
4. That prior to the amendment of the by-laws, he had all
the qualifications to be a director (he was a
substantial stockholder) and the amended by-laws
disqualified him and deprived him of a vested right to
be voted,

Darla Grey| Corporation Law Digest | 25

 5. That the corporation has no inherent power to
disqualify a stockholder from being elected and
therefore it is an ultra vires and void act.
On October 28, 1976, in connection with the same case,
petitioner filed with the Securities and Exchange Commission
an "Urgent Motion for Production and Inspection of
Documents", alleging that the Secretary of respondent
corporation refused to allow him to inspect its records despite
request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation
had been attempting to suppress information from its
stockholders despite a negative reply by the SEC to its query
regarding their authority to do so. But the request was denied
because the request was said to have been made in bad faith.
Respondents filed their answer to the petition, denying the
substantial allegations therein and stating, by way of
affirmative defenses that "the action taken by the Board of
Directors on September 18, 1976 resulting in the amendments
is valid and legal because the power to 'amend, modify, repeal
or adopt new By-laws' delegated to said Board on March 13,
1961 and long prior thereto has never been revoked,
withdrawn or otherwise nullified by the stockholders of SMC".
Also said that the power of the Board to amend the by-laws are
broad, subject only to existing laws, that in August 1972, the
Universal Robina Corporation (Robina), a corporation engaged
in business competitive to that of respondent corporation,
began acquiring shares therein until September 1976 when its
total holding amounted to 622,987 shares for URC and
543,959 shares for CFC, "conducted malevolent and malicious
publicity campaign against SMC " to generate support from the
stockholder "in his effort to secure for himself and in
representation of Robina and CFC interests, a seat in the
Board of Directors of SMC", that in the stockholders' meeting
of March 18, 1976, petitioner was rejected by the stockholders
in his bid to secure a seat in the Board of Directors on the
basic issue that petitioner was engaged in a competitive
business and his securing a seat would have subjected
respondent corporation to grave disadvantages;
On May 6, 1977, this Court issued a temporary restraining
order restraining private respondents from disqualifying or
preventing petitioner from running or from being voted as
director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification or
confirmation of the amendment. SEC held that petitioner
should be allowed to run as a director but that he should not sit
as such until SEC has decided on the validity of the by-laws in
dispute.
Respondents reason out that petitioner is engaged in
businesses competitive and antagonistic to that of respondent
SMC and that the Board realized the clear and present danger
in competitors being directors because they would have easy
and direct access to SMC’s business and trade secrets.
Issue:
Whether or not the provisions of the amended by-laws of
respondent corporation, disqualifying a competitor from
nomination or election to the Board of Directors are valid and
reasonable
>Whether or not there is a vested right of a stockholder to be
elected as director
Held:
The validity or reasonableness of a by-law of a corporation in
purely a question of law. 9 Whether the by-law is in conflict with
the law of the land, or with the charter of the corporation, or is
in a legal sense unreasonable and therefore unlawful is a
question of law. This rule is subject, however, to the limitation
that where the reasonableness of a by-law is a mere matter of
judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who
are authorized to make by-laws and who have exercised their
authority.
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."
Pursuant to section 18 of the Corporation Law, any corporation
may amend its articles of incorporation by a vote or written
assent of the stockholders representing at least two-thirds of
the subscribed capital stock of the corporation. If the
amendment changes, diminishes or restricts the rights of the
existing shareholders, then the dissenting minority has only
one right, viz.: "to object thereto in writing and demand
payment for his share." 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.
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, they
should act for the collective benefit of the stockholders.
The doctrine of "corporate opportunity" is precisely a
recognition that fiduciary standards could not be upheld
where the fiduciary was acting for two entities with
competing interests. It is not denied that a member of the
Board of Directors of the San Miguel Corporation has
access to sensitive and highly confidential information.
Darla Grey| Corporation Law Digest | 26
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.
In the absence of any legal prohibition or overriding public
policy, wide latitude may be accorded to the corporation in
adopting measures to protect legitimate corporate interests.
The test must be whether the business does in fact compete,
not whether it is capable of an indirect and highly unsubstantial
duplication of an isolated or non-characteristic activity.
G.R. No. 125778 June 10, 2003
INTER-ASIA INVESTMENTS INDUSTRIES,
INC., Petitioner,
vs.
COURT OF APPEALS and ASIA INDUSTRIES,
INC., Respondents.
CARPIO-MORALES, J.:
Facts:
On September 1, 1978, Inter-Asia Industries, Inc. (petitioner),
by a Stock Purchase Agreement3 (the Agreement), sold to Asia
Industries, Inc. (private respondent) 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).4 The Agreement was signed by Leonides P.
Gonzales and Jesus J. Vergara, presidents of petitioner and
private respondent, respectively.
Under paragraph 7 of the Agreement, petitioner 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 September 30, 1978, which was moved to
October 31, 1978, and to the mode of payment of the purchase
price.
The Agreement, as amended, as providedprivate respondent
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, private respondent 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, petitioner
shall pay the difference within 5 days from date of receipt of
the audited financial statements.
Respondent paid petitioner a total amount of P 12,000,000.00.
From the STATEMENT OF INCOME AND DEFICIT attached
to the financial report11 dated November 28, 1978 submitted by
SGV, it appears that FARMACOR had, for the ten months
ended October 31, 1978, a deficit of P11,244,225.00.12 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. Private respondent having already
paid petitioner P12,000,000.00, it was entitled to a refund of
P5,744,225.00.
Petitioner thereafter proposed, by letter13 of January 24, 1980,
signed by its president, that private respondent’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. Petitioner, however, weiched on its
promise. Petitioner’s total liability thus stood at P4,853,503.00
(P4,093,993.00 plus P759,570.00) exclusive of interest.
On April 5, 1983, private respondent filed a complaint against
petitioner with the Regional Trial Court of Makati, one of two
causes of action of which was for the recovery of above-said
amount of P4,853,503.00 plus interest.
RTC: in favor of private respondent
CA: same same, recon; denied siya bes
SC: Certiorari
Issue:
WON the letter of the president of the petitioner is not binding
on the petitioner being ultra vires.
Held:
The general rule is that, in the absence of authority from
the board of directors, no person, not even its officers,
can validly bind a corporation. A corporation is a juridical
person, separate and distinct from its stockholders and
members, "having x x x powers, attributes and properties
expressly authorized by law or incident to its existence."
Being a juridical entity, a corporation may act through its board
of directors, which exercises almost all corporate powers, lays
down all corporate business policies and is responsible for the
efficiency of management, as provided in Section 23 of the
Corporation Code of the Philippines.
Darla Grey| Corporation Law Digest | 27
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
articles of incorporation, bylaws, or relevant provisions of
law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board
of directors may validly delegate some of its functions and
powers to officers, committees or agents. The authority of
such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from
the board, either expressly or impliedly by habit, custom
or acquiescence in the general course of business:
A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that
[the] authority to do so has been conferred upon him, and this
includes 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 person dealing
with the officer or agent to believe that it has conferred.
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, within or beyond the
scope of his ordinary powers.
It requires presentation of evidence of similar act(s) execu
ted 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 power to bind the corporation.
G.R. No. 144767 March 21, 2002
DILY DANY NACPIL, petitioner,
vs.
INTERNATIONAL BROADCASTING
CORPORATION, respondent.
KAPUNAN, J.:
Facts:
Petitioner states that he 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. Furthermore,
Templo allegedly refused to recognize petitioner's employment,
claiming that petitioner was not the Assistant General
Manager/Comptroller of IBC but merely usurped the powers of
the Comptroller. Hence, in 1997, petitioner filed with the Labor
Arbiter a complaint for illegal dismissal and non-payment of
benefits.
Instead of filing its position paper, IBC filed a motion to dismiss
alleging that the Labor Arbiter had no jurisdiction over the
case. IBC contended 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 Securities and Exchange Commission
(SEC).
LA: Illegally dismissed si petitioner
NLRC: dismissed: unable to give appeal bond. Motion for
recon: denied
CA: certiorari; reversed LA and NLRC decision
Issue:
WON petitioner was appointed by respondent's board of
directors as comptroller. This finding is contrary to the
common, consistent position and admission of both parties.
Further, respondent's by-laws does not include comptroller as
one of its corporate officers.
Held:
Petitioner's argument is untenable. Even assuming that he was
in fact appointed by the General Manager, such appointment
was subsequently approved by the Board of Directors of the
IBC.11 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 12 and
under the corporation's By-Laws to appoint such other officers
as it may deem necessary. The By-Laws of the IBC
categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a President, a
Vice-President, a Secretary-Treasurer, a General
Manager, and such other officers as the Board of
Directors may from time to time does fit to provide for.
Said officers shall be elected by majority vote of the Board
Darla Grey| Corporation Law Digest | 28
of Directors and shall have such powers and duties as shall
hereinafter provide (Emphasis supplied).
The Court has held that in most cases the "by-laws may and
usually do provide for such other officers," 14 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-laws to create
additional officers as may be necessary.15
An "office" has been defined as a creation of the charter of a
corporation, while an "officer" as a person elected by the
directors or stockholders. On the other hand, an "employee"
occupies no office and is generally employed not by action of
the directors and stockholders but by the managing officer of
the corporation who also determines the compensation to be
paid to such employee.16
As petitioner's appointment as comptroller required the
approval and formal action of the IBC's Board of Directors to
become valid,17 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 appointment of corporate directors, trustees, officers, and
managers.18 Had petitioner been an ordinary employee, such
board action would not have been required.
As to petitioner's argument that the nature of his functions is
recommendatory thereby making him a mere managerial
officer, the Court has previously held that the relationship of a
person to a corporation, whether as officer or agent or
employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as
they actually exist.
WEEK 4
G.R. No. 113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC.,
HOMERO L. VILLASIS, DIMAS ENRIQUEZ,
PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS,
SOLEDAD SALAS-TUBILLEJA, ANTONIO S.
SALAS, RICHARD S. SALAS & HON. JUDGE
PORFIRIO PARIAN, respondents.
HERMOSISIMA, JR., J.:
Facts:
Private respondents 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, for short), a stock
corporation engaged in the operation, among others, of an
educational institution. According to petitioners, the minority
stockholders of WIT, sometime on June 1, 1986 in the principal
office of WIT at La Paz, Iloilo City, a Special Board Meeting
was held. In attendance were other members of the Board
including one of the petitioners Reginald Villasis. Prior to
aforesaid Special Board Meeting, copies of notice thereof,
dated May 24, 1986, were distributed to all Board Members.
The notice allegedly indicated that the meeting to be held on
June 1, 1986 included a 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 No.
48, s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1, 1985. on
March 13, 1991, petitioners Homero Villasis et. al, filed an
affidavit-complaint against private respondents before the
Office of the City Prosecutor of Iloilo, as a result of which two
(2) separate criminal informations, one for falsification of a
public document and the other for estafa were filed before the
Regional Trial Court of Iloilo City.
The charge for falsification of public document was anchored
on the private respondents' 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
private respondents based on Resolution No. 4, series of 1986,
making it appear that the same was passed by the board on
March 30, 1986, when in truth, the same was actually passed
on June 1, 1986, a date not covered by the corporation's fiscal
year 1985-1986 (beginning May 1, 1985 and ending April 30,
1986).
RTC: acquitted on both counts dated September 6, 1993
without imposing any civil liability against the accused therein.
Motion for recon of the civil aspect, denied
Issue:
WON the grant of compensation pursuant to Resolution No. 48
to private respondents is proscribed in Sec. 30 of the
Corporation Code
WON the instant case is a derivative suit brought by them as
minority shareholders of WIT for and on behalf of the
corporation
Held:
No. The pertinent section of the Corporation Code provides:
Darla Grey| Corporation Law Digest | 29
Sec. 30. Compensation of directors — In the absence of any
provision in the by-laws fixing their compensation, the directors
shall not receive any compensation, as such directors, except
for reasonable per diems: Provided, however, That any such
compensation (other than per diems) may be granted to
directors by the vote of the stockholders representing at
least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. 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.
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.9 Under the foregoing section, 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.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which
states: ". . . [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. In the case at bench,
Resolution No. 48, s. 1986 granted monthly compensation to
private respondents 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.
A derivative suit is an action brought by minority shareholders
in the name of the corporation to redress wrongs committed
against it, for which the directors refuse to sue. 12 It is a remedy
designed by equity and has been the principal defense of the
minority shareholders against abuses by the majority. 13 Here,
however, the case is not a derivative suit but is merely an
appeal on the civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and falsification of
public document. Among the basic requirements for a
derivative suit to prosper is that the minority shareholder who is
suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all
other shareholders similarly situated who wish to join.14 This is
necessary to vest jurisdiction upon the tribunal in line with the
rule that it is the allegations in the complaint that vests
jurisdiction upon the court or quasi-judicial body concerned
over the subject matter and nature of the action.
In their complaint before the court a quo nor in the instant
petition which, in part, merely states that "this is a petition for
review on certiorari on pure questions of law to set aside a
portion of the RTC decision in Criminal Cases Nos. 37097 and
37098"16 since the trial court's judgment of acquittal failed to
impose any civil liability against the private respondents. By no
amount of equity considerations, if at all deserved, can a mere
appeal on the civil aspect of a criminal case be treated as a
derivative suit.
The acquittal in Criminal Cases Nos. 37097 and 37098 is not
merely based on reasonable doubt but rather on a finding that
the accused-private respondents did not commit the criminal
acts complained of. Thus, pursuant to the ab
laborers and employees. ove rule and settled jurisprudence,
any civil action ex delicto cannot prosper. Acquittal in a criminal
action bars the civil action arising therefrom where the
judgment of acquittal holds that the accused did not commit the
criminal acts imputed to them.
G.R. No. 101699 March 13, 1996
BENJAMIN A. SANTOS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
HON. LABOR ARBITER FRUCTUOSO T.
AURELLANO and MELVIN D.
MILLENA, respondents.
VITUG, J.:
Facts:
Private respondent, on 01 October 1985, was hired to be the
project accountant for MMDC's mining operations in Gatbo,
Bacon, Sorsogon. On 12 August 1986, private respondent sent
to Mr. Gil Abaño, the MMDC corporate treasurer, a
memorandum calling the latter's attention to the failure of the
company to comply with the withholding tax requirements of,
and to make the corresponding monthly remittances to, the
Bureau of Internal Revenue ("BIR") on account of delayed
payments of accrued salaries to the company's
In a letter, dated 08 September 1986, Abaño advised private
respondent is terminated from his employment. Private
respondent expressed "shock" over the termination of his
employment. On 20 October 1986, private respondent filed
with the NLRC Regional Arbitration, Branch No. V, in Legazpi
City, a complaint for illegal dismissal, unpaid salaries, 13th
month pay, overtime pay, separation pay and incentive leave
pay against MMDC and its two top officials, namely, herein
petitioner Benjamin A. Santos (the President) and Rodillano A.
Darla Grey| Corporation Law Digest | 30
Velasquez (the executive vice-president). in his complaint-
affidavit (position paper), submitted on 27 October 1986,
Millena alleged, among other things, that his dismissal was
merely an offshoot of his letter of 12 August 1986 to Abaño
about the company's inability to pay its workers and to remit
withholding taxes to the BIR.
LA: finding no valid cause for terminating complainant's
employment, ruled, that a partial closure of an establishment
due to losses was a retrenchment measure that rendered the
employer liable for unpaid salaries and other monetary claims;
Motion for recon/appeal.
NLRC: affirmed LA decision. The reasons relied upon by
MMDC and its co-respondents in the dismissal of Millena, i.e.,
the rainy season, deteriorating peace and order situation and
little paperwork, were "not causes mentioned under Article 282
of the Labor Code of the Philippines" and that Millena, being a
regular employee, was "shielded by the tenurial clause
mandated under the law.
A writ of execution correspondingly issued; however, it was
returned unsatisfied for the failure of the sheriff to locate the
offices of the corporation in the address indicated. Another writ
of execution and an order of garnishment was thereupon
served on petitioner at his residence.
petitioner filed a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal of the writ of
execution and order of garnishment. He averred that he had
never received any notice, summons or even a copy of the
complaint; hence, he said, the Labor Arbiter at no time had
acquired jurisdiction over him.
On 16 August 1991, the NLRC 11 dismissed the motion for
reconsideration.
Issue:
WON have gravely abused their discretion "in finding petitioner
solidarily liable with MMDC even (in) the absence of bad faith
and malice on his part."
Held:
A corporation is a juridical entity with legal personality separate
and distinct from those acting for and in its behalf and, in
general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or
valid grounds can exist to warrant, albeit done sparingly, the
disregard of its independent being and the lifting of the
corporate veil.25 As a rule, this situation might arise when a
corporation is used to evade a just and due obligation or to
justify a wrong, 26 to shield or perpetrate fraud, 27 to carry out
similar other unjustifable aims or intentions, or as a subterfuge
to commit injustice and so circumvent the law. 28 In Tramat
Mercantile, Inc., vs. Court of Appeals,29 the Court has collated
the settled instances when, without necessarily piercing the
veil of corporate fiction, personal civil liability can also be said
to lawfully attach to a corporate director, trustee or officer; to
wit: 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 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.
The case of petitioner is way off these exceptional instances. It
is not even shown that petitioner has had a direct hand in the
dismissal of private respondent enough to attribute to him
(petitioner) a patently unlawful act while acting for the
corporation. Neither can Article 289 30 of the Labor Code be
applied since this law specifically refers only to the imposition
of penalties under the Code. It is undisputed that the
termination of petitioner's employment has, instead, been due,
collectively, to the need for a further mitigation of losses, the
onset of the rainy season, the insurgency problem in Sorsogon
and the lack of funds to further support the mining operation in
Gatbo.
As held in Sunio vs. NLRC, there appears to be no evidence
on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a
corporate act.
It is basic 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. 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. Petitioner,
therefore, should not have been made personally answerable
for the payment of private respondents' back salaries.
G.R. No. 159795 July 30, 2004
SPOUSES ROBERTO & EVELYN DAVID and
COORDINATED GROUP, INC., petitioners,
vs.
CONSTRUCTION INDUSTRY AND
Darla Grey| Corporation Law Digest | 31
ARBITRATION COMMISSION and SPS.
NARCISO & AIDA QUIAMBAO, respondents.
PUNO, J.:
Facts:
Petitioner COORDINATED GROUP, INC. (CGI) is a
corporation engaged in the construction business, with
petitioner-spouses ROBERTO and EVELYN DAVID as its
President and Treasurer, respectively. The records reveal that
on October 7, 1997, respondent-spouses NARCISO and AIDA
QUIAMBAO engaged the services of petitioner CGI to design
and construct a five-storey concrete office/residential building
on their land in Tondo, Manila.
The completion of the construction was initially scheduled on
or before July 16, 1998 but was extended to November 15,
1998 upon agreement of the parties. It appears, however, that
petitioners failed to follow the specifications and plans as
previously agreed upon. Respondents demanded the
correction of the errors but petitioners failed to act on their
complaint. Consequently, respondents rescinded the contract
on October 31, 1998, after paying 74.84% of the cost of
construction.
Respondents then engaged the services of another contractor,
RRA and Associates, to inspect the project and assess the
actual accomplishment of petitioners in the construction of the
building. It was found that petitioners revised and deviated
from the structural plan of the building without notice to or
approval by the respondents.1
Respondents filed a case for breach of contract against
petitioners before the Regional Trial Court (RTC) of Manila. At
the pre-trial conference, the parties agreed to submit the case
for arbitration to the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION (CIAC). Respondents filed a
request2 for arbitration with the CIAC and nominated Atty.
Custodio O. Parlade as arbitrator. Atty. Parlade was appointed
by the CIAC as sole arbitrator to resolve the dispute. With the
agreement of the parties, Atty. Parlade designated Engr.
Loreto C. Aquino to assist him in assessing the technical
aspect of the case. The RTC of Manila then dismissed the
case and transmitted its records to the CIAC.3
After conducting hearings and two (2) ocular inspections of the
construction site, the arbitrator rendered judgment against
petitioners. Award is hereby made in favor of the Quiambaos
against the Respondents(petitioners herein). Petitioners
appealed to the Court of Appeals which affirmed the
arbitrator’s Decision but deleted the award for lost rentals.
Issue:
Whether or not petitioners can be held jointly and severally
liable with co-petitioner Coordinated Group, Inc.
Whether petitioner-spouses as corporate officers were grossly
negligent in ordering the revisions on the construction plan
without the knowledge and consent of the respondent-spouses
Held:
As a general rule, the officers of a corporation are not
personally liable for their official acts unless it is shown that
they have exceeded their authority. However, the personal
liability of a corporate director, trustee or officer, along
with corporation, may so validly attach when he assents to
a patently unlawful act of the corporation or for bad faith
or gross negligence in directing its affairs.
“When asked whether the Building was underdesigned
considering the poor quality of the soil, Engr. Villasenor
defended his structural design as adequate. He admitted
that the revision of the plans which resulted in the
construction of additional columns was in pursuance of
the request of Engr. David to revise the structural plans to
provide for a significant reduction of the cost of
construction. When Engr. David was asked for the
justification for the revision of the plans, he confirmed that
he wanted to reduce the cost of construction.”
Thus, the petitioner spouses can be held jointly and severally
liable with co-petitioner Coordinated Group, Inc.
G.R. No. 113907 February 28, 2000
MALAYANG SAMAHAN NG MGA
MANGGAGAWA SA M. GREENFIELD (MSMG-
UWP), (SUPER) et. al, petitioners,
vs.
HON. CRESENCIO J. RAMOS, NATIONAL
LABOR RELATIONS COMMISSION, et.
al, respondents.
PURISIMA, J.:
Facts: (disclaimer yung summary, issue, held nakuha ko lang
sa net. Huhu, super haba eh lol)
Summary:
In February 1990, M. Greenfield, Inc. (MGI), through its
officers Saul Tawil, Carlos Javelosa, and Renato Puangco
began terminating employees. The corporation closed
down one of their plants and so they said they have to
retrench the number of employees. Consequently, the
Malayang Samahan ng mga Manggagawa sa M. Greenfield
(MSMG-UWP) filed an illegal dismissal case against MGI.
The National Labor Relations Commission, chaired by
Cresencio Ramos, ruled against the union. But on appeal,
the decision of the NLRC was reversed and the
corporation was ordered, among others, to pay the
Darla Grey| Corporation Law Digest | 32
employees’ backwages. The union further appealed as
they contend that the officers of the corporation should be
held solidarily liable.
The labor union or the “local union” is an affiliate of ULGWP or
the “federation.” The collective bargaining agreement names
its parties as “M. GREENFIELD, INC. (B)” (the company) and
“MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M.
GREENFIELD (B) (THE LABOR UNION)/UNITED LUMBER
AND GENERAL WORKERS OF THE PHILIPPINES
(ULGWP).”
The CBA contained in Article II:
A Union Security clause: “Section 1. Coverage and Scope. All
employees who are covered by this Agreement and presently
members of the UNION shall remain members of the UNION
for the duration of this Agreement as a condition precedent to
continued employment with the COMPANY.”
“Section 4. Dismissal. Any such employee mentioned in
Section 2 hereof, who fails to maintain his membership in the
UNION for non-payment of UNION dues, for resignation and
for violation of UNION’s Constitution and By-Laws and any
new employee as defined in Section 2 of this Article shall upon
written notice of such failure to join or to maintain membership
in the UNION and upon written recommendation to the
COMPANY by the UNION, be dismissed from the employment
by the COMPANY; provided, however, that the UNION shall
hold the COMPANY free and blameless from any and all
liabilities that may arise should the dismissed employee
question, in any manner, his dismissal; provided, further that
the matter of the employee’s dismissal under this Article may
be submitted as a grievance under Article XIII and, provided,
finally, that no such written recommendation shall be made
upon the COMPANY nor shall COMPANY be compelled to act
upon any such recommendation within the period of sixty (60)
days prior to the expiry date of this Agreement conformably to
law."
On September 12, 1986, a local union election was held under
the auspices of the federation wherein petitioner, Beda
Magdalena Villanueva, and the otherunion officers were
proclaimed as winners.
On March 21, 1987, a Petition for Impeachment was filed with
the federation by the defeated candidates in the local union
election.
On June 16, 1987, the federation conducted an audit of the
local union funds. The investigation did not yield any
unfavorable result and the local union officers were cleared of
the charges of anomaly in the custody, handling and
disposition of the union funds.
The 14 defeated candidates filed a Petition for
Impeachment/Expulsion of the local union officers with the
DOLE NCR on November 5, 1987. The same was dismissed
on March 2, 1988, by Med-Arbiter Renato Parungo for failure
to substantiate the charges and to present evidence in support
of the allegations.
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
ito ng 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.”
On June 27, 1988, the local union wrote the 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 disapproved
the resolution of the local union imposing the P50.00 fine. The
local union officers protested such action by the Federation.
On July 11, 1988, the Federation wrote the company a letter
advising the latter not to deduct the fifty-peso fine from the
salaries of the union members requesting that: "x x x any and
all future representations by [the local union] affecting a
number of members be first cleared from the federation before
corresponding action by the Company."
The following day, the company sent a reply to the local
union’s request in a letter, stating that it cannot deduct fines
from the employees’ salary without going against certain laws.
The company suggested that the union refer the matter to the
proper government office for resolution in order to avoid
placing the company in the middle of the issue.
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.
Darla Grey| Corporation Law Digest | 33
In retaliation, the federation asked the 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.
The Med-Arbiter ruled:
1. That the [Federation] through its local union officers shall
administer the [CBA].
2. That [the company] shall remit the P10,000.00 monthly labor
education program fund to the [federation] subject to the
condition that it shall use the said amount for its intended
purpose.
3. That the Treasurer of the [local union] shall be authorized to
collect from the 356 union members the amount of P50.00 as
penalty for their failure to attend the general membership
assembly on April 17, 1988. However, if petitioner-labor union
Officers could present the individual written authorizations of
the 356 union members, then the company is obligedto deduct
from the salaries of the 356 union members the P50.00 fine."
On appeal, Director Pura-Ferrer Calleja modified the Med-
Arbiter’s ruling: “the company should remit the amount of five
thousand pesos (P5,000.00) of the P10,000.00 monthly labor
education program fund to [the Federation] and the other
P5,000.00 to [the local union], both unions to use the same for
its intended purpose."
Meanwhile, on September 2, 1988, several local unions filed a
Petition for Audit and Examination of the federation and
education funds of [the Federation] which was granted by Med-
Arbiter Rasidali Abdullah on December 25, 1988.
On September 30, 1988, the officials of [the Federation] called
a Special National Executive Board Meeting at Nasipit, Agusan
del Norte where a Resolution was passed placing the [local
union] under trusteeship and appointing Cesar Clarete as
administrator.
On October 27, 1988, Clarete as administrator wrote the
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.
Petitioners protested this action by the national federation in a
letter to the 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.
On November 26, 1988, 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 [the federation] 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 [the federation];
(d) Giving [the federation] a period of five (5) days to cease
and desist from further committing acts of coercion,
intimidation and harassment.
However, as early as November 21, 1988, the officers were
expelled from the [federation].
On the same day, the federation advised the company of the
expulsion of the 30 union officers and demanded their
separation from employment pursuant to the Union Security
Clause in their CBA. This demand was reiterated twice,
through letters dated February 21 and March 4, 1989,
respectively, to the 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.
On March 7, 1989, under the pressure of a threatened strike,
the 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.
The Federation, having achieved its objective, withdrew the
Notice of Strike filed with the NCMB.
On March 8, 1989, the petitioners filed a Notice of Strike with
the NCMB, DOLE, Manila, alleging the following grounds for
the strike:
(a) Discrimination
Darla Grey| Corporation Law Digest | 34
(b) Interference in union activities
(c) Mass dismissal of union officers and shop stewards
(d) Threats, coercion and intimidation
(e) Union busting
The following day, March 9, 1989, 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 30 dismissed union officers filed an
urgent petition 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 on April 11, 1989: "At this point in time, it is
clear that the dispute at M. Greenfield is purely an intra-union
matter. No mass lay-off is evident as the terminations have
been limited to those allegedly leading the secessionist group
leaving PETITIONER-LABOR UNION-THE FEDERATION to
form a union under the KMU. xxx"
On March 13 and 14, 1989, a total of 78 union shop stewards
were placed under preventive suspension by the company.
This prompted the local 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 the 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, the 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 dated May 17, 1989.
On August 7, 1989, the petitioners filed a verified complaint
with the Arbitration Branch, National Capital Region, DOLE,
Manila, 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 oppresion.
After the filing of the complaint, the lease contracts on the
company’s office and factory at Merville Subdivision,
Parañaque expired and were not renewed. Upon demand of
the owners of the premises, the company was compelled to
vacate its office and factory. Thereafter, the company
transferred its administration and account/client servicing
department at AFP-RSBS Industrial Park in Taguig, Metro
Manila. For failure to find a suitable place in Metro Manila for
relocation of its factory and manufacturing operations, the
company was constrained to move the said departments to
Tacloban, Leyte. Hence, on April 16, 1990, the company
accordingly notified its employees of a temporary shutdown in
operations. Employees who were interested in relocating to
Tacloban were advised to enlist on or before April 23, 1990.
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 and
denied the MR.
Petitioners contend that
• their dismissal from work was effected in
an arbitrary, hasty, capricious and illegal
manner because it was undertaken by
the company without any prior
administrative investigation;
• had the company conducted prior
independent investigation it would have
found that their expulsion from the union
was unlawful similarly for lack of prior
administrative investigation;
• the federation cannot recommend the
dismissal of the union officers because it
was not a principal party to the collective
bargaining agreement between the
company and the union;
• public respondents acted with grave
abuse of discretion when they declared
petitioners’ dismissals as valid and the
union strike as illegal and in not
declaring that respondents were guilty of
unfair labor practice.
Private respondents, on the other hand, maintain that
• the thirty dismissed employees who
were former officers of the federation
have no cause of action against the
company, the termination of their
employment having been made upon
Darla Grey| Corporation Law Digest | 35
 the demand of the federation pursuant
to the union security clause of the CBA;
• the expelled officers of the local union
were accorded due process of law prior
to their expulsion from their federation;
• the strike conducted by the petitioners
was illegal for noncompliance with the
requirements; that the employees who
participated in the illegal strike and in
the commission of violence thereof were
validly terminated from work;
• petitioners were deemed to have
abandoned their employment when they
did not respond to the three return to
work notices sent to them;
• petitioner labor union has no legal
personality to file and prosecute the
case for and on behalf of the individual
employees as the right to do so is
personal to the latter; and
• the officers of the company cannot be
liable because as mere corporate
officers, they acted within the scope of
their authority.
Issue:
Whether or not the officers of the corporation should be held
solidarily liable.
Held:
No. A corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf
and, in general from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees are its sole liabilities. There
is no question that MGI is guilty of illegal dismissal but the
officers cannot be held solidarily liable.
It’s true that there’s a plethora of illegal dismissal cases where
the SC made corporate officers personally liable but these
cases usually involve corporate officers who acted in bad faith
in illegally dismissing employees. Corporate directors and
officers may be solidarily liable with the corporation for the
termination of employment of corporate employees if the same
is done with malice or in bad faith.
G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT
CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE
COURT and ALEJANDRO TE, respondents.
CAMPOS, JR., J.:
Facts:
On or about the 16th day of July, 1969, plaintiff and defendant
corporation thru its President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealership
agreement whereby said plaintiff was obligated to act as the
exclusive dealer and/or distributor of the said defendant
corporation of its cement products in the entire Mindanao area
for a term of five (5) years.
Right after the plaintiff entered into the aforesaid dealership
agreement, he placed an advertisement in a national,
circulating newspaper the fact of his being the exclusive dealer
of the defendant corporation's white cement products in
Mindanao area, more particularly, in the Manila Chronicle
dated August 16, 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.
Relying heavily on the dealership agreement, plaintiff
sometime in the months of September, October, and
December, 1969, entered into a written agreement with several
hardware stores dealing in buying and selling white cement in
the Cities of Davao and Cagayan de Oro which would thus
enable him to sell his allocation of 20,000 bags regular supply
of the said commodity, by September, 1970. After the plaintiff
was assured by his supposed buyer that his allocation of
20,000 bags of white cement can be disposed of, he informed
the defendant corporation in his letter dated August 18, 1970
that he is making the necessary preparation for the opening of
the requisite letter of credit to cover the price of the due initial
delivery for the month of September, 1970, looking forward to
the defendant corporation's duty to comply with the dealership
agreement. In reply to the aforesaid letter of the plaintiff, the
defendant corporation thru its corporate secretary, replied that
the board of directors of the said defendant decided to impose
conditions.
Several demands to comply with the dealership agreement
were made by the plaintiff to the defendant, however,
defendant refused to comply with the same, and plaintiff by
force of circumstances was constrained to cancel his
agreement for the supply of white cement with third parties,
which were concluded in anticipation of, and pursuant to the
said dealership agreement.
Notwithstanding that the dealership agreement between the
plaintiff and defendant was in force and subsisting, the
defendant corporation, in violation of, and with evident intention
not to be bound by the terms and conditions thereof, entered
Darla Grey| Corporation Law Digest | 36
into an exclusive dealership agreement with a certain
Napoleon Co for the marketing of white cement in Mindanao
hence, this suit.
Trial Court: Corp. liable to Alejandro Te.
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.

WEEK 5
CA: Affirmed

Issue:

Whether or not the "dealership agreement" referred by the [G.R. No. 60502. July 16, 1991.]
President and Chairman of the Board of petitioner corporation
is a valid and enforceable contract. PEDRO LOPEZ DEE , petitioner, vs.
SECURITIES AND EXCHANGE COMMISSION,
Held: HEARING OFFICER EMMANUEL SISON, NAGA
Under the Corporation Law, which was then in force at the time
TELEPHONE CO., INC., COMMUNICATION
this case arose,5 as well as under the present Corporation SERVICES, INC., LUCIANO MAGGAY,
Code, all corporate powers shall be exercised by the Board of AUGUSTO FEDERIS, NILDA RAMOS, FELIPA
Directors, except as otherwise provided by law. 6 Although it JAVALERA, DESIDERIO SAAVEDRA,
cannot completely abdicate its power and responsibility to act
respondents.
for the juridical entity, the Board may expressly delegate
specific powers to its President or any of its officers. In the
PARAS, J:
absence of such express delegation, a contract entered into by
its President, on behalf of the corporation, may still bind the
Facts:
corporation if the board should ratify the same expressly or
impliedly. Implied ratification may take various forms — like
Naga Telephone Company, Inc. was organized in 1954, the
silence or acquiescence; by acts showing approval or adoption
authorized capital was P100,000.00. In 1974 Naga Telephone
of the contract; or by acceptance and retention of benefits
Co., Inc. (Natelco for short) decided to increase its authorized
flowing therefrom.7 Furthermore, even in the absence of
'capital to P3,000,000.00. As required by the Public Service
express or implied authority by ratification, the President as
Act, Natelco filed an application for the approval of the
such may, as a general rule, bind the corporation by a contract
increased authorized capital with the then Board of
in the ordinary course of business, provided the same is
Communications under BOC Case No. 74-84. On January 8,
reasonable under the circumstances.8 These rules are basic,
1975, a decision was rendered in said case, approving the said
but are all general and thus quite flexible. They apply where
application subject to certain conditions (issuance of stocks will
the President or other officer, purportedly acting for the
be for a year from the date of approval, after which, no further
corporation, is dealing with a third person, i. e., a
issues shall be made without authority from BOC).
person outside the corporation.

Pursuant to the approval given by the then Board of

The situation is quite different where a director or officer is
Communications, Natelco filed its Amended Articles of
dealing with his own corporation. In the instant case
Incorporation with the Securities and Exchange Commission
respondent Te was not an ordinary stockholder; he was a
(SEC for short). When the amended articles were filed with the
member of the Board of Directors and Auditor of the
SEC, the original authorized capital of P100,000.00 was
corporation as well. He was what is often referred to as a "self-
already paid. Of the increased capital of P2,900,000.00 the
dealing" director.
subscribers subscribed to P580,000.00 of which P145,000 was
fully paid. The capital stock of Natelco was divided into
A director of a corporation holds a position of trust and as
213,000 common shares and 87,000 preferred shares, both at
such, he owes a duty of loyalty to his corporation. 9 In case his
a par value of P10.00 per share.
interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit. As
Issue:
corporate managers, directors are committed to seek the
maximum amount of profits for the corporation. This trust
1. Whether the issuance of 113,800 shares of Natelco to
relationship "is not a matter of statutory or technical law. It
CSI, made during the pendency of SEC Case 1748 in the
springs from the fact that directors have the control and
Securities and Exchange Commission was valid.
guidance of corporate affairs and property and hence of the
property interests of the stockholders."
2. Whether Natelco stockholders have a right of
preemption to the 113,800 shares in question; else, whether
the Maggay Board, in issuing said shares without notifying
Darla Grey| Corporation Law Digest | 37
Natelco stockholders, violated their right of pre-emption to the
unissued shares .
Held:
1. The issuance of 113,800 shares of Natelco stock to CSI
made during the pendency of SEC Case 1748 in the Securities
and Exchange Commission was valid. The findings of the SEC
En Banc as to the issuance of the 113,800 shares of stock was
stated as follows: "But the issuance of 113,800 shares was
pursuant to a Board Resolution and stockholders' approval
prior to 19 May 1979 when CSI was not yet in control of the
Board or of the voting shares. There is distinction between an
order to issue shares on or before 19 May 1979 and actual
issuance of the shares after 19 May 1979. The actual
issuance, it is true, came during the period when CSI was in
control of voting shares and the Board (if they were in fact in
control) - but only pursuant to the original Board and
stockholders' orders, not on the initiative to the new Board,
elected 19 May 1979, which petitioners are questioning. The
Commission en banc finds it difficult to see how the one who
gave the orders can turn around and impugn the
implementation of the orders he had previously given. The
reformation of the contract is understandable for Natelco
lacked the corporate funds to purchase the CSI equipment....
Appellant had raise the issue whether the issuance of 113,800
shares of stock during the incumbency of the Maggay Board
which was allegedly CSI controlled, and while the case was
sub judice, amounted to unfair and undue advantage. This
does not merit consideration in the absence of additional
evidence to support the proposition." In effect, therefore, the
stockholders of Natelco approved the issuance of stock to CSI.
2. The issuance of the 113,800 stocks is not invalid even
assuming that it was made without notice to the stockholders
as claimed by Dee, et. al.. The power to issue shares of stocks
in a corporation is lodged in the board of directors and no
stockholders meeting is required to consider it because
additional issuance of shares of stocks does not need approval
of the stockholders. Consequently, no pre-emptive right of
Natelco stockholders was violated by the issuance of the
113,800 shares to CSI.
[G.R. No. 146667. January 23, 2007.]
JOHN F. McLEOD, petitioner, vs . NATIONAL
LABOR RELATIONS COMMISSION (First
Division), FILIPINAS SYNTHETIC FIBER
CORPORATION (FILSYN), FAR EASTERN
TEXTILE MILLS, INC., STA. ROSA TEXTILES,
INC., (PEGGY MILLS, INC.), PATRICIO L. LIM,
and ERIC HU, respondents.
CARPIO, J:
Facts:
On February 2, 1995, John F. McLeod filed a complaint for
retirement benefits, vacation and sick leave benefits, non-
payment of unused airline tickets, holiday pay, underpayment
of salary and 13th month pay, moral and exemplary damages,
attorney's fees plus interest against Filipinas Synthetic
Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa
Textiles, Inc., Patricio Lim and Eric Hu. Complainant was the
former VP and Plant Manager of Peggy Mills, Inc.; that he was
hired in June 1980 and Peggy Mills closed operations due to
irreversible losses but its assets were acquired by Sta. Rosa
Textile Corporation complainant was hired by Sta. Rosa Textile
but he resigned and that while complainant was Vice President
and Plant Manager of Peggy Mills, the union staged a strike up
to July 1992 resulting in closure of operations due to
irreversible losses as per Notice .The complainant was relied
upon to settle the labor problem but due to his lack of attention
and absence the strike continued resulting in closure of the
company. Mcleod contends that the corporations are solidarily
liable.
Issue:
WON there is a merger or consolidation
Held:
There was also no merger or consolidation of PMI and SRTI.
Consolidation is the union of two or more existing corporations
to form a new corporation called the consolidated corporation.
It is a combination by agreement between two or more
corporations by which their rights, franchises, and property are
united and become those of a single, new corporation,
composed generally, although not necessarily, of the
stockholders of the original corporations. Merger, on the other
hand, is a union whereby one corporation absorbs one or more
existing corporations, and the absorbing corporation survives
and continues the combined business.
[G.R. No. 117897. May 14, 1997.]
ISLAMIC DIRECTORATE OF THE PHILIPPINES,
MANUEL F. PEREA and SECURITIES &
EXCHANGE COMMISSION, petitioners, vs .
COURT OF APPEALS and IGLESIA NI CRISTO,
respondents.
HERMOSISIMA, JR., J:
Facts:
1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES
("IDP") was incorporated with the primary purpose of
establishing a mosque, school, and other religious
infrastructures in Quezon City. IDP purchased a 49,652-square
meter lot in Tandang Sora, QC.
Darla Grey| Corporation Law Digest | 38
When President Marcos declared martial law in 1972, most of
the members of the 1971 Board of Trustees ("Tamano Group")
flew to the Middle East to escape political persecution.
Thereafter, two contending groups claiming to be the IDP
Board of Trustees sprung: the Carpizo group and Abbas group.
In a suit between the two groups, SEC rendered a decision in
1986 declaring both groups to be null and void. SEC
recommeded that the a new by-laws be approved and a new
election be conducted upon the approval of the by-laws.
However, the SEC recommendation was not heeded.
In 1989, the Carpizo group passed a Board Resolution
authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and
a Deed of Sale was eventually executed.
In 1991, the Tamano Group filed a petition before the SEC
questioning the sale. Meanwhile, INC filed a suit for specific
performance before RTC Branch 81 against the Carpizo group.
INC also moved to compel a certain Leticia Ligon (who is
apparently the mortgagee of the lot) to surrender the title.
The Tamano group sought to intervene, but the intervention
was denied despite being informed of the pending SEC case.
In 1992, the Court subsequently ruled that the INC as the
rightful owner of the land, and ordered Ligon to surrender the
titles for annotation. Ligon appealed to CA and SC, but her
appeals were denied. In 1993, the SEC ruled that the sale was
null and void . On appeal CA reversed the SEC ruling.
Issues:
WON the sale is void
Held:
Since the SEC has declared the Carpizo group as a void Board
of Trustees, the sale it entered into with INC is likewise void.
Without a valid consent of a contracting party, there can be no
valid contract.
In this case, the IDP, never gave its consent, through a
legitimate Board of Trustees, to the disputed Deed of Absolute
Sale executed in favor of INC. Therefore, this is a case not
only of vitiated consent, but one where consent on the part of
one of the supposed contracting parties is totally wanting.
Ineluctably, the subject sale is void and produces no effect
whatsoever.
[G.R. No. 142936. April 17, 2002.]
PHILIPPINE NATIONAL BANK & NATIONAL
SUGAR DEVELOPMENT CORPORATION,
petitioners, vs. ANDRADA ELECTRIC &
ENGINEERING COMPANY, respondent.
PANGANIBAN, J:
Facts:
PASUMIL (Pampanga Sugar Mills) engaged the services of
Andrada Electric for electrical rewinding, repair, the
construction of a power house building,installation of turbines,
transformers, among others. Most of the services werepartially
paid by PASUMIL, leaving several unpaid accounts. On August
1975, PNB, a semi-government corporation, acquired the
assets of PASUMIL—assets that were earlier foreclosed by the
DBP. On September 1975, PNB organized NASUDECO
(National Sugar DevelopmentCorporation), under LOI No. 311
to take ownership and possession of the assetsand ultimately,
to nationalize and consolidate its interest in other PNB
controlledsugar mills. NASUDECO is a semi-government
corporation and the sugar arm of the PNB. Andrada Electric
alleges that PNB and NASUDECO should be liable for
PASUMIL’s unpaid obligation amounting to 500K php,
damages, and attorney’sfees, having owned and possessed
the assets of PASUMIL.
Issue:
WON PNB and NASUDECO may be held liable for PASUMIL’s
liability to AndradaElectric and Engineering Company.
Held:
Basic is the rule that a corporation has a legal personality
distinct and separate from the persons and entities owning it.
The corporate veil may be lifted only if it has been used to
shield fraud, defend crime, justify a wrong, defeat public
convenience, insulate bad faith or perpetuate injustice. Thus,
the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga
Sugar Mill (PASUMIL), which had earlier been foreclosed and
purchased at the resulting public auction by the Development
Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC).
[G.R. No. L-21601. December 28, 1968.]
NIELSON & COMPANY, INC., plaintiff-appellant,
vs. LEPANTO CONSOLIDATED MINING
COMPANY, defendant-appellee.
ZALDIVAR, J:
Facts:
On January 30, 1937, the parties have entered into an
operating agreement wherein Nielson & Co. would operate and
manage the mining properties owned by Lepanto Consolidated
Mining Co. for a period of five years. Before the lapse of the
five year period, the parties have renewed the contract for
another five years with modifications made by Lepanto on the
management fee. On its modified contract Nielson will receive
Darla Grey| Corporation Law Digest | 39
(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 set up, and (3) 10%
of any amount expended during the year out of surplus
earnings for capital account.
In January, 1942 operation of the mining properties was
disrupted on account of the war. 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 of 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. The
restoration lasted for nearly three years and the mines have
resumed its 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 in
question which as renewed expired in 1947.
Issue:
WON Nielson is entitled to his share in the stock dividends.
Held:
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. In
other words, Nielson must still be paid his 10% fee using as
the basis for computation the cash value of the stock dividends
declared.
A “stock dividend” is any dividend payable in shares of stock of
the corporation declaring or authorizing such dividend. 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.
[G.R. No. 160215. November 10, 2004.]
HYDRO RESOURCES CONTRACTORS
CORPORATION, petitioner, vs. NATIONAL
IRRIGATION ADMINISTRATION, respondent.
YNARES-SANTIAGO, J:
Facts:
A contract was entered into between Hydro and NIA for the
project of the latter. The contract price is to be payable partly in
Philippine peso and US dollars. Once the project was being
executed, there was depreciation in value of Peso resulting to
price differential. In order to resolve the issue, the administrator
of NIA, Mr Tek, and Hydro made a joint computation of the
amount corresponding to the foreign currency differential. The
computation showed that NIA owed Hydro for the differential.
When a demand was made by Hydro against NIA, NIA refused
to pay contending that Mr Tek has no authority to participate
into a joint computation of the foreign currency differential and
that Mr Tek has no authority to bind NIA.
Issue:
Whether or not Mr Tek has the authority to bind NIA in the joint
computation of the foreign currency differential.
Held:
The SC found out that in the course of the project, Hydro has
been dealing with NIA represented by Mr. Tek. And applying
the doctrine of apparent authority, if a corporation knowingly
permits one of its officers to act within the scope of an
apparent authority, it holds him out to the public 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 stopped from denying the agent’s authority.
WEEK 6
[G.R. No. 117188. August 7, 1997.]
LOYOLA GRAND VILLAS HOMEOWNERS
(SOUTH) ASSOCIATION, INC., petitioner, vs.
HON. COURT OF APPEALS, HOME INSURANCE
AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO,
respondents.
ROMERO, J:
Facts:
LGVHAI was organized on February 8, 1983 as the association
of homeowners and residents of the Loyola Grand Villas. It
was registered with the Home Financing Corporation, the
predecessor of herein respondent HIGC, as the sole
homeowners' organization in the said subdivision under
Certificate of Registration No. 04-197. It was organized by the
developer of the subdivision and its first president was Victorio
Darla Grey| Corporation Law Digest | 40
V. Soliven, himself the owner of the developer. For unknown
reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register
its by-laws. They failed to do so. 2 'To the officers'
consternation, they discovered that there were two other
organizations within the subdivision — the North Association
and the South Association. According to private respondents, a
non-resident and Soliven himself, respectively headed these
associations. They also discovered that these associations had
five (5) registered homeowners each who were also the
incorporators, directors and officers thereof. None of the
members of the LGVHAI was listed as member of the North
Association while three (3) members of LGVHAI were listed as
members of the South Association. 3 The North Association
was registered with the HIGC on February 13, 1989 under
Certificate of Registration No. 04-1160 covering Phases West
II, East III, West III and East IV. It submitted its by-laws on
December 20, 1988.
In July, 1989, when Soliven inquired about the status of
LGVHAI, Atty. Joaquin A. Bautista, the head of the legal
department of the HIGC, informed him that LGVHAI had been
automatically dissolved for two reasons. First, it did not submit
its by-laws within the period required by the Corporation Code
and, second, there was non-user of corporate charter because
HIGC had not received any report on the association's
activities. Apparently, this information resulted in the
registration of the South Association.
These developments prompted the officers of the LGVHAI to
lodge a complaint with the HIGC. They questioned the
revocation of LGVHAI's certificate of registration without due
notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North and
South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
HIGC: In favor of private respondents. LGVHAI duly registered
and existing, cancelledt si south and north. South, appealed to
HIGC; dismissed for lack of merit.
CA: south appealed: WON failure by LGHVAI to file by laws
resulted to automatic dissolution. WON 2 homeowners assoc.
be allowed by HIGC in one sprawling subdivision. CA affirmed
HIGC resolution.
1. Filing of the by-laws within one month from official
notice of the issuance of the certificate of incorp.
presupposes that it is already incorporated.
Registration of LGHVAI had not been validly revoked.
2. HIGC has the authority to order the holding of a
referendum to determine which of the two contending
assoc should represent the entire community, village
or subdivision.
South filed the instant petition for review on certiorari.
Issue:
WON the LGHVAI’s failure to file its by-laws within the period
prescribed by section 46 of the corporation code had the effect
of automatically dissolving the said corporation
Held:
The exchange of views at the deliberations of BP No. 68
(Corpo. Code) demonstrates clearly that automatic corporate
dissolution for failure to file the by-laws on time was never the
intention of the legislature. Moreover, even without resorting to
the records of deliberations of the Batasang Pambansa, the
law itself provides the answer to the issue propounded by
petitioner.
Taken as a whole and under the principle that the best
interpreter of a statute is the statute itself (optima statuli
interpretatix est ipsum statutum), 14 Section 46 aforequoted
reveals the legislative intent to attach a directory, and not
mandatory, meaning for the word ''must" in the first sentence
thereof. Note should be taken of the second paragraph of the
law which allows the filing of the by-laws even prior to
incorporation.
Although the Corporation Code requires the filing of by-laws, it
does not expressly provide for the consequences of the non-
filing of the same within the period provided for in Section 46.
However, such omission has been rectified by Presidential
Decree No. 902-A: suspend, or revoke, after proper notice on
the ground of the failure to file by-laws.
Even under the foregoing express grant of power and
authority, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the
Corporation Code. There is no outright "demise" of corporate
existence. Proper notice and hearing are cardinal components
of due process in any democratic institution, agency or society.
In other words, the incorporators must be given the chance to
explain their neglect or omission and remedy the same.
That the failure to file by-laws is not provided for by the
Corporation Code but in another law is of no moment. P.D. No.
902-A, which took effect immediately after its promulgation on
March 11, 1976, is very much apposite to the Code.
Accordingly, the provisions abovequoted supply the law
governing the situation in the case at bar, inasmuch as the
Corporation Code and P.D. No. 902-A are statutes in pari
materia. Interpretare et concordare legibus est optimus
interpretandi. Every statute must be so construed and
harmonized with other statutes as to form a uniform system of
jurisprudence.
[G.R. No. 117604. March 26, 1997.]
Darla Grey| Corporation Law Digest | 41
CHINA BANKING CORPORATION , petitioner,
vs . COURT OF APPEALS, and VALLEY GOLF
and COUNTRY CLUB, INC., respondents.
KAPUNAN, J:
Facts:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for
brevity) a stockholder of private respondent Valley Golf &
Country Club, Inc. (VGCCI, for brevity), pledged his Stock
Certificate No. 1219 to petitioner China Banking Corporation
(CBC, for brevity). On 3 August 1983, Calapatia obtained a
loan of P20,000.00 from petitioner, payment of which was
secured by the aforestated pledge agreement still existing
between Calapatia and petitioner.
Due to Calapatia's failure to pay his obligation, petitioner, 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, petitioner informed VGCCI of the above-
mentioned foreclosure proceedings and requested that the
pledged stock be transferred to its (petitioner's) name and the
same be recorded in the corporate books. However, on 15 July
1985, VGCCI wrote petitioner expressing its inability to accede
to petitioner'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 petitioner
emerged as the highest bidder at P20,000.00 for the pledged
stock. Consequently, petitioner 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. 8 Said notice was
followed by a demand letter dated 12 December 1985 for the
same amount 9 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 No. 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, petitioner advised VGCCI that it is the new
owner of Calapatia's Stock Certificate No. 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, petitioner 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.
RTC: dismissed, lack of jurisdiction: intra-corporate dispute.
Motion for Recon (petitioner): denied.
Petitioner filed a complaint with SEC for the nullification of the
sale of Calapatia’s stock by VGCCI.
SEC: in favor of VGCCI; said share is delinquent VGCCI had
valid reason not to transfer the share in the name of the
petitioner in the books of VGCCI until liquidation of
delinquency. MR(petitioner): denied. Appealed to SEC en
banc.
SEC en banc: reversed. Petitioner: has prior right over the
pledged share, may proceed with the foreclosure of the sale.
VGCCI: recon; denied.
CA: nullifying and setting aside SEC decision for lack of
jurisdiction. Not intra-corporate dispute. Recon: denied.
Hence, this petition.
Issue:
1. WON the petitioner is a stockholder of VGCCI
2. WON SEC has jurisdiction over the case
3. WON petitioner is bound by the by laws if VGCCI
Held:
1. There is no question that the purchase of the subject
share or membership certificate at public auction by
petitioner (and the issuance to it of the corresponding
Certificate of Sale) transferred ownership of the same
to the latter and thus entitled petitioner to have the
said share registered in its name as a member of
VGCCI. It is readily observed that VGCCI did not
assail the transfer directly and has in fact, in its letter
of 27 September 1974, expressly recognized the
pledge agreement executed by the original owner,
Calapatia, in favor of petitioner and has even noted
said agreement in its corporate books. 25 In addition,
Calapatia, the original owner of the subject share, has
not contested the said transfer. By virtue of the afore-
mentioned sale, petitioner became a bona fide
stockholder of VGCCI and, therefore, the conflict that
arose between petitioner and VGCCI aptly
exemplifies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of
P.D. 902-A.
It is significant to note that VGCCI began sending
notices of delinquency to Calapatia after it was
informed by petitioner (through its letter dated 14 May
1985) of the foreclosure proceedings initiated against
Darla Grey| Corporation Law Digest | 42
 Calapatia's pledged share, although Calapatia has adopted pursuant to statutory authority, have no
been delinquent in paying his monthly dues to the status as public law. Therefore, it is the generally
club since 1975. Stranger still, petitioner, whom accepted rule that third persons are not bound by
VGCCI had officially recognized as the pledgee of bylaws, except when they have knowledge of the
Calapatia's share, was neither informed nor furnished provisions either actually or constructively.
copiesof these letters of overdue accounts until
VGCCI itself sold the pledged share at anotherpublic [G.R. No. 121791. December 23, 1998.]
auction. By doing so, VGCCI completely disregarded
petitioner's rights as pledgee. It even failed to give
ENRIQUE SALAFRANCA, petitioner, vs .
petitioner notice of said auction sale. Such actuations
of VGCCI thus belie its claim of good faith. PHILAMLIFE (PAMPLONA) VILLAGE
2. The courts cannot or will not determine a controversy HOMEOWNERS ASSOCIATION, INC.,
involving a question which is within the jurisdiction of BONIFACIO DAZO and THE SECOND DIVISION,
an administrative tribunal, where the question NATIONAL LABOR RELATIONS COMMISSION
demands the exercise of sound administrative
(NLRC), respondents.
discretion requiring the special knowledge,
experience, and services of the administrative tribunal
ROMERO, J:
to determine technical and intricate matters of fact,
and a uniformity of ruling is essential to comply with
Facts:
the purposes of the regulatory statute administered."

Petitioner Enrique Salafranca started working with the private

In this case, the need for the SEC's technical
respondent Philamlife Village Homeowners Association on
expertise cannot be over-emphasized involving as it
May 1, 1981 as administrative officer for a period of six
does the meticulous analysis and correct
months. From this date until December 31, 1983, petitioner
interpretation of a corporation's by-laws as well as the
was reappointed to his position three more times. 1 As
applicable provisions of the Corporation Code in order
administrative officer, petitioner was generally responsible for
to determine the validity of VGCCI's claims. The SEC,
the management of the village's day to day activities. 2 After
therefore, took proper cognizance of the instant case.
petitioner's term of employment expired on December 31,
1983, he still continued to work in the same capacity, albeit,
3. In order to be bound, the third party must have
without the benefit of a renewed contract.
acquired knowledge of the pertinent by-laws at the
time the transaction or agreement between said third
Sometime in 1987, private respondent decided to amend its
party and the shareholder was entered into, in this
by-laws. Included therein was a provision regarding officers,
case, at the time the pledge agreement was
specifically, the position of administrative officer under which
executed. VGCCI could have easily informed
said officer shall hold office at the pleasure of the Board of
petitioner of its by-laws when it sent notice formally
Directors. In view of this development, private respondent, on
recognizing petitioner as pledgee of one of its shares
July 3, 1987, informed the petitioner that his term of office shall
registered in Calapatia's name. Petitioner's belated
be coterminus with the Board of Directors which appointed him
notice of said by-laws at the time of foreclosure will
to his position. Furthermore, until he submits a medical
not suffice.
certificate showing his state of health, his employment shall be
on a month-to-month basis. 3 Oddly, notwithstanding the
SEC En Banc provides in its ruling:
failure of herein petitioner to submit his medical certificate, he
continued working until his termination in December 1992. 4
By-laws signifies the rules and regulations or private
Claiming that his services had been unlawfully and
laws enacted by the corporation to regulate, govern
unceremoniously dispensed with, petitioner filed a complaint
and control its own actions, affairs and concerns and
for illegal dismissal with money claims and for damages.
its stockholders or members and directors and
officers with relation thereto and among themselves in
Issue:
their relation to it. In other words, by-laws are the
relatively permanent and continuing rules of action
Whether or not Salafranca was illegally dismissed.
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 Held:
whole or in part, in the management and control of its
affairs and activities. The purpose of a by-law is to Yes. At that time, Salafranca already enjoys security of tenure
regulate the conduct and define the duties of the because he is already a regular employee. It is true that
members towards the corporation and among PVHAI has the right to amend its by-laws but such amendment
themselves. They are self-imposed and, although must not impair existing contracts or rights. In this case, the
provision that Salafranca’s position shall be co-terminus with
Darla Grey| Corporation Law Digest | 43
the appointing Board impairs his right to security of tenure
which has already vested even prior to the amendment of the
by-laws in 1987.
[G.R. Nos. 147062-64. December 14, 2001.]
REPUBLIC OF THE PHILIPPINES, represented
by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), petitioner, vs.
COCOFED et al. and BALLARES et al.,
EDUARDO M. COJUANGCO JR. and the
SANDIGANBAYAN (First Division) respondents.
PANGANIBAN, J:
Facts:
The first Division of the Sandiganbayan in Civil Case Nos.
0033-A, 0033-B and 0033-P allowed respondents COCOFED,
et al., and Ballares, et al., as well as Eduardo Cojuangco, et
al., acknowledged registered stockholders of the United
Coconut Planters Bank (UCPB) and all other registered
stockholders of the bank, to exercise their right to vote their
shares of stock and themselves to be voted upon in the UCPB
at the scheduled Stockholders' Meeting on March 6, 2001 or
on any subsequent continuation or resetting thereof, and to
perform such acts as will normally follow in the exercise of
these rights as registered stockholders. In its petition, the
Republic of the Philippines, represented by the Presidential
Commission on Good Government (PCGG), contended that
respondent Sandiganbayan committed grave abuse of
discretion in enjoining them from voting the sequestered
shares of stock in UCPB despite the fact that the sequestration
share were purchased with coconut levy funds (which were
declared public in character) and the continuing effectivity of
Resolution dated February 16, 1993 in G.R. No. 96073 which
allows the PCGG to vote said sequestered shares.
Issue:
Who may vote the sequestered UCPB shares while the main
case for their reversion to the State is pending in the
Sandiganbayan?
Held:
This Court holds that the government should be allowed to
continue voting those shares inasmuch as they were
purchased with coconut levy funds – funds that are prima facie
public in character or, at the very least, are “clearly affected
with public interest.”
General Rule: Sequestered Shares Are Voted by the
Registered Holder
At the outset, it is necessary to restate the general rule that the
registered owner of the shares of a corporation exercises the
right and the privilege of voting. (Sec. 24, BP 68) This principle
applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator
cannot, as a general rule, exercise acts of dominion. On the
other hand, it is authorized to vote these sequestered shares
registered in the names of private persons and acquired with
allegedly ill-gotten wealth, if it is able to satisfy the two-tiered
test devised by the Court in Cojuangco v. Calpo (G.R. No.
115352, June 10, 1993) and PCGG v. Cojuangco Jr., (133197,
Jan. 27, 1999) as follows:
(1) Is there prima facie evidence showing that the said shares
are ill-gotten and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus
necessitating their continued sequestration and voting by the
PCGG, while the main issue is pending with the
Sandiganbayan?
[G.R. No. 150793. November 19, 2004.]
FRANCIS CHUA, petitioner, vs . HON. COURT OF
APPEALS and LYDIA C. HAO, respondents.
QUISUMBING, J:
Facts:
On February 28, 1996, private respondent Lydia Hao, treasurer
of Siena Realty Corporation, filed a complaint-affidavit with the
City Prosecutor of Manila charging Francis Chua and his wife,
Elsa Chua, of four counts of falsification of public documents.
The said accused prepared, certified, and falsified the Minutes
of the Annual Stockholders meeting of the Board of Directors
of the Siena Realty Corporation, duly notarized before a Notary
Public, Atty. Juanito G. Garcia and entered in his Notarial
Registry as Doc No. 109, Page 22, Book No. IV and Series of
1994, and therefore, a public document, by making or causing
it to appear in said Minutes of the Annual Stockholders
Meeting that one LYDIA HAO CHUA was present and has
participated in said proceedings, when in truth and in fact, as
the said accused fully well knew that said Lydia C. Hao was
never present during the Annual Stockholders Meeting held on
April 30, 1994 and neither has participated in the proceedings
thereof. After Hao's testimony, Chua moved to exclude
complainant's counsels as private prosecutors in the case on
the ground that Hao failed to allege and prove any civil liability
in the case.
Motion to exclude from actively prosecuting: granted. Recon
(Hao): denied. Certiotari.
RTC: reversed. Order MeTC to allow intervention in behalf of
Lydia C. Hao. Recon (Chua): denied. Certiorari; grave abuse of
discretion: not considering material facts, impleading Siena
Realty Corp., amending information against the accused in
violation of his constitutional rights.
Darla Grey| Corporation Law Digest | 44
CA: denied petition. Corp. was a necessary party to the
petition. Recon (Chua): denied.
Hence, this petition.
Issue:
WON a shareholder may lodge a complaint in behalf of the
corp. and other shareholders
Held:
Under Section 36 of the Corporation Code, read in relation to
Section 23, where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees. An
individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stocks in order to
protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued, or
hold the control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the
corporation as the real party in interest. A derivative action is a
suit by a shareholder to enforce a corporate cause of action.
The corporation is a necessary party to the suit. And the relief
which is granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a defense to
an action against it and is not asserting it, a stockholder may
intervene and defend on behalf of the corporation.
In Criminal Case No. 285721, the complaint was instituted by
respondent against petitioner for falsifying corporate
documents whose subject concerns corporate projects of
Siena Realty Corporation. Clearly, Siena Realty Corporation is
an offended party. Hence, Siena Realty Corporation has a
cause of action. And the civil case for the corporate cause of
action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case
did not institute the action against petitioner. Private
respondent was the one who instituted the action. Private
respondent asserts that she filed a derivative suit in behalf of
the corporation. This assertion is inaccurate. Not every suit
filed in behalf of the corporation is a derivative suit. For a
derivative suit to prosper, it is required that the minority
stockholder suing for and on behalf of the corporation must
allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders
similarly situated who may wish to join him in the suit. 20 It is a
condition sine qua non that the corporation be impleaded as a
party because not only is the corporation an indispensable
party, but it is also the present rule that it must be served with
process. The judgment must be made binding upon the
corporation in order that the corporation may get the benefit of
the suit and may not bring subsequent suit against the same
defendants for the same cause of action. In other words, the
corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a
res adjudicata against it.
[G.R. No. 152392. May 26, 2005.]
EXPERTRAVEL & TOURS, INC., petitioner, vs .
COURT OF APPEALS and KOREAN AIRLINES,
respondents.
CALLEJO, SR., J:
Facts:
Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the
Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a
Complaint 2 against ETI with the Regional Trial Court (RTC) of
Manila, for the collection of the principal amount of
P260,150.00, plus attorney's fees and exemplary damages.
The verification and certification against forum shopping was
signed by Atty. Aguinaldo, who indicated therein that he was
the resident agent and legal counsel of KAL and had caused
the preparation of the complaint.
ETI filed a motion to dismiss the complaint on the ground that
Atty. Aguinaldo was not authorized to execute the verification
and certificate of non-forum shopping as required by Section 5,
Rule 7 of the Rules of Court. KAL opposed the motion,
contending that Atty. Aguinaldo was its resident agent and was
registered as such with the Securities and Exchange
Commission (SEC) as required by the Corporation Code of the
Philippines. It was further alleged that Atty. Aguinaldo was also
the corporate secretary of KAL. Appended to the said
opposition was the identification card of Atty. Aguinaldo,
showing that he was the lawyer of KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo
claimed that he had been authorized to file the complaint
through a resolution of the KAL Board of Directors approved
during a special meeting held on June 25, 1999. Upon his
motion, KAL was given a period of 10 days within which to
submit a copy of the said resolution. The trial court granted the
motion. Atty. Aguinaldo subsequently filed other similar
motions, which the trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit 3 of even
date, executed by its general manager Suk Kyoo Kim, alleging
that the board of directors conducted a special teleconference
on June 25, 1999, which he and Atty. Aguinaldo attended. It
was also averred that in that same teleconference, the board of
directors approved a resolution authorizing Atty. Aguinaldo to
execute the certificate of non-forum shopping and to file the
complaint. Suk Kyoo Kim also alleged, however, that the
corporation had no written copy of the aforesaid resolution.
Darla Grey| Corporation Law Digest | 45
On April 12, 2000, the trial court issued an Order 4 denying the
motion to dismiss, giving credence to the claims of Atty.
Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors
indeed conducted a teleconference on June 25, 1999, during
which it approved a resolution as quoted in the submitted
affidavit.
ETI filed a motion for the reconsideration of the Order,
contending that it was inappropriate for the court to take
judicial notice of the said teleconference without any prior
hearing. The trial court denied the motion in its Order 5 dated
August 8, 2000. ETI then filed a petition for certiorari and
mandamus, assailing the orders of the RTC.
On December 18, 2001, the CA rendered judgment dismissing
the petition, ruling that the verification and certificate of non-
forum shopping executed by Atty. Aguinaldo was sufficient
compliance with the Rules of Court. According to the appellate
court, Atty. Aguinaldo had been duly authorized by the board
resolution approved on June 25, 1999, and was the resident
agent of KAL. As such, the RTC could not be faulted for taking
judicial notice of the said teleconference of the KAL Board of
Directors. ETI filed a motion for reconsideration of the said
decision, which the CA denied. Hence, this petition for review
on certiorari.
Issue:
WON teleconferencing may be recognized as a legitimate
means of transacting business for the corporation, or other
related corporate matters
Position of the parties:
Respondent (KAL): “It’s 21st century na guys.” It points out that
even the E-Commerce Law has recognized this modern
technology. The respondent posits that the courts are aware of
this development in technology; hence, may take judicial notice
thereof without need of hearings.
Petitioner (ETI: eto yung jowa mong TH sayo lagi): “Wala pa
ruling tungkol dito mga bes wag kang ano!” It asserts that
safeguards must first be set up to prevent any mischief on the
public or to protect the general public from any possible fraud.
It further proposes possible amendments to the Corporation
Code to give recognition to such manner of board meetings to
transact business for the corporation, or other related
corporate matters; until then, the petitioner asserts,
teleconferencing cannot be the subject of judicial notice. The
petitioner further avers that the supposed holding of a special
meeting on June 25, 1999 through teleconferencing is a farce,
considering that there was no mention of where it was held,
whether in this country or elsewhere. It insists that the
Corporation Code requires board resolutions of corporations to
be submitted to the SEC. Even assuming that there was such
a teleconference, it would be against the provisions of the
Corporation Code not to have any record thereof.
Held:
YES.
In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms,
teleconferencing can bring people together under one roof
even though they are separated by hundreds of miles. 18 This
type of group communication may be used in a number of
ways, and have three basic types: (1) video conferencing —
television-like communication augmented with sound; (2)
computer conferencing — printed communication through
keyboard terminals, and (3) audioconferencing- verbal
communication via the telephone with optional capacity for
telewriting or telecopying. 19
A teleconference represents a unique alternative to face-to-
face (FTF) meetings. It was 􀀻rst introduced in the 1960's with
American Telephone and Telegraph's Picturephone. At that
time, however, no demand existed for the new technology.
Travel costs were reasonable and consumers were unwilling to
pay the monthly service charge for using the picturephone,
which was regarded as more of a novelty than as an actual
means for everyday communication. 20 In time, people found it
advantageous to hold teleconferencing in the course of
business and corporate governance, because of the money
saved. On the other hand, other private corporations opt not to
hold teleconferences because of its disadvantages (Tech. fail,
impersonal etc.).
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a
reality, in light of Republic Act No. 8792. The Securities and
Exchange Commission issued SEC Memorandum Circular No.
15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences. 24 Thus, the Court
agrees with the RTC that persons in the Philippines may have
a teleconference with a group of persons in South Korea
relating to business transactions or corporate governance.
BUT THIS CASE IS DISMISSED. Fake news yung KAL.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo
Kim participated in a teleconference along with the
respondent's Board of Directors, the Court is not convinced
that one was conducted; even if there had been one, the Court
is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the
complaint and execute the required certification against forum
shopping.
The respondent, however, failed to establish its claim that Atty.
Aguinaldo was its resident agent in the Philippines. Even the
identification card 25 of Atty. Aguinaldo which the respondent
Darla Grey| Corporation Law Digest | 46
appended to its pleading merely showed that he is the
company lawyer of the respondent's Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the
holding of the teleconference only during the hearing of
January 28, 2000; Atty. Aguinaldo then prayed for ten days, or
until February 8, 2000, within which to submit the board
resolution purportedly authorizing him to file the complaint and
execute the required certification against forum shopping. The
court granted the motion. 26 The respondent, however, failed
to comply, and instead prayed for 15 more days to submit the
said resolution, contending that it was with its main office in
Korea. The court granted the motion per its Order 27 dated
February 11, 2000. The respondent again prayed for an
extension within which to submit the said resolution, until
March 6, 2000. 28 It was on the said date that the respondent
submitted an affidavit of its general manager Suk Kyoo Kim,
stating, inter alia, that he and Atty. Aguinaldo attended the said
teleconference on June 25, 1999, where the Board of Directors
supposedly approved the resolution. If the resolution had
indeed been approved on June 25, 1999, long before the
complaint was filed, the respondent should have incorporated it
in its complaint, or at least appended a copy thereof.
Jowa doctrine: Pag sinabi ng jowa na fake news ka, fake
news ka. HAHAHAHAHA CHAROT.
WEEK 7
[G.R. No. 144476. February 1, 2002.]
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.
BUENA, J:
Summary: Lubog sa utang sila FLADC (owned by Tiu), ngayon
hinelp sila ni Ong through pre-subscription agreement. Tas
nagkandaloko loko na. Nirescind ni Tiu yung Pre-subscription
agreement, kinonfirm ni SEC then affirmed by everybody.
Keribels lang kay SC sabi niya may correlative obligation si
Ong kay Tiu pursuant sa agreement nila. Ngayon nagparecon
si Ong (2003 decision) nireverse ni SC yung decision nila
(When u nod your head yes but u wanna say no. charot) na
hindi daw rescission yung remedy in this case, may other
remedies pa daw for intra-corporate disputes.
Facts:
Masagana Citimall, a commercial complex owned and
managed by the First Landlink Asia Development Corporation
(FLADC). It was threatened with incompletion when its owner
found it in financial distress in the amount of P190,000,000.00
for being indebted to the Philippine National Bank (PNB).
FLADC was then fully owned by the Tiu Group. In order to
recover from its floundering finances, the Ong Group, were
invited by the Tius to invest in FLADC. Hence, the execution of
a Pre-Subscription Agreement by and between the Tiu and
Ong Groups on August 15, 1994.
By the Pre-Subscription Agreement, both parties agreed to
maintain equal shareholdings in FLADC with the Ongs
investing cash while the Tius contributing property. Specifically,
the Ongs were to subscribe to 1 million shares of FLADC at a
par value of P100.00 per share while the Tius were to
subscribe to 549,800 shares more of FLADC at a par value of
P100.00 per share over and above their previous subscription
of 450,200 shares in order to complete a subscription of 1
million shares. Commensurate to their proposed subscriptions,
the Ongs were to pay P100,000,000.00 in cash, while the Tius
were to contribute properties amounting to P54,980,000.
Also for purposes of equality, the parties agreed that 6
directors of FLADC were to be nominated from the Ong
Group, while 5 directors thereof were to be nominated
from the Tiu Group. It was also agreed that the positions
of President and Secretary of FLADC shall be held by the
Ongs, while the positions of Vice-President and Treasurer
thereof shall be held by the Tius.
In order to comply with the Pre-Subscription Agreement, the
necessary increase in capital stock of FLADC was applied for
and duly approved. The Ongs subscribed to 1 million shares
thereof at a par value of P100.00 per share, or.
P100,000,000.00. FLADC's articles of incorporation were also
duly amended increasing the number of its directors from
seven (7) to eleven (11), six (6) of which were nominated by
the Ong Group, while the rest were nominated by the Tiu
Group. Later, Wilson T. Ong and Juanita Tan Ong were
elected President and Secretary, respectively, while David S.
Tiu and Cely Yao Tiu were elected Vice-President and
Treasurer, respectively.
The P190,000,000.00 loan from the PNB was also settled, but
not quite in accord with the provisions of the Pre-Subscription
Agreement. In lieu of the FLADC funds which were supposed
to be used as partial payment for said loan per Pre-
Subscription Agreement, the Ongs had to pay P70,000,000.00
more aside from their P100,000,000.00 subscription payment,
and the Tius had to advance P20,000,000.00 in cash, which
amount was loaned to them by the former.
The controversy between the two parties arose when the Ongs
refused to credit the number of FLADC shares in the name of
Darla Grey| Corporation Law Digest | 47
Masagana Telamart, Inc. commensurate to its 1,902.30 square
meter property contribution (30M); also when they refused to
credit the number of FLADC shares in favor of the Tius
commensurate to their 151 square meter property
contribution(4.980M); and when David S. Tiu and Cely Y. Tiu
were proscribed from assuming and performing their duties as
Vice-President and Treasurer, respectively of FLADC. These
became the basis of the Tius' unilateral rescission of the Pre-
Subscription Agreement on February 23, 1996.
SEC: confirmation of Recission of the Pre-Subscription
Agreement (tius); Confirmed (May 19, 1997); MR (ong): partial
recon
SEC en banc: appeal (both); CONFIRMING the omnibus Order
dated 24 November 1997 insofar as it confirms the rescission
of the Pre-Subscription Agreement and REVERSING the same
insofar as it held that the seventy million (P70 M) paid by the
Ong Group over and above the par value of the one million
(1,000,000) shares of stocks of FLADC which they had
subscribed as loan and not premium.
CA: (Ongs) appeal; the Order dated September 11, 1998
issued by the Securities and Exchange Commission En Banc,
confirming the rescission of the Pre-Subscription Agreement
dated August 15, 1994 is hereby AFFIRMED with
modifications. FLADC to be liquidated. On August 17, 2000,
the Court of Appeals issued a Resolution which denied the
private parties' motions for reconsideration.
The Ong Group and the Tiu Group both filed their respective
petitions for review subject of these consolidated cases.
Issue:
1. WON the Pre-Subscription Agreement may be
rescinded under Art. 1191 of the NCC
2. WON rescission is not applicable when right over the
subject matter have been acquired by third persons
3. WON Ongs violated the Pre-Subscription Agreement
Held:
1. Yes. In the case at bar, the correlative obligation of
the Tius to let the Ongs have and exercise the
functions of the positions of President and Secretary
is the obligation of the Ongs to let the Tius have and
exercise the functions of Vice-President and
Treasurer. It cannot be denied that the Pre-
Subscription Agreement contains reciprocal
obligations owing to the fact that the parties thereto
agreed to maintain parity not only in their
shareholdings in FLADC but also with regard to their
standing in FLADC.
In fine, each party, has the obligation to remain equal
with the other on every matter pertaining to FLADC.
Herein lies the reciprocity in the Pre-Subscription
Agreement. Moreover, the Ongs are now estopped
from denying the applicability of Art. 1191 to the
present controversy. Petitioners keep on harping for
the Pre-Subscription Agreement's specific
performance yet they also actually failed to give a
legal basis therefor. Why then must they deny that the
Tiu Group has a right to ask for rescission of their
agreement per Article 1191 of the Civil Code when
they themselves invoke the same law as basis for
asking the specific performance of the same
agreement.
2. No. The Ongs argue that the payment on subscription
of P100 million by the Ongs is not to the Tius and the
payment of P54.98 million by the Tius is not to the
Ongs, but to FLADC, the corporation, which is distinct
and separate from the Ongs and the Tius
notwithstanding the fact that they may be the only
stockholders. Pursuant to Arts. 1191 and 1385,
continue the Ongs, the payment made by the two (2)
groups have come to be legally owned and
possessed by FLADC, the corporation, a third person,
who did not act in bad faith. So that any alleged
violation of the Pre-Subscription Agreement would
have no consequence on the respective amounts paid
by the two (2) groups on their subscription to FLADC,
a third party.
We agree with the Tius that the things which are the
object of the Pre-Subscription Agreement — one
million shares of stock subscribed to by the Ong
Group, the additional 549,800 shares subscribed to
by the Tius, and the corporate positions mentioned
above — are not in the possession of third persons,
but are in the possession of the parties to the Pre-
Subscription Agreement. In any case, FLADC is not a
third person in relation to the Pre-Subscription
Agreement though not named as a party. FLADC is
deemed a party to the agreement by virtue of
stipulations pour autrui clearly and deliberately
conferring on it a favor or benefit which it
subsequently accepted. (Art. 1311, Civil Code) 12
Such benefit was in the form of the payments made
by the parties for their subscription to shares of stock
in FLADC, which FLADC accepted.
3. Yes, when they prevented the Tius from assuming the
duties and responsibilities of the Vice President and
Treasurer of FLADC, by not providing adequate
offices and by filing a complaint for theft against David
S. Tiu. The Pre-Subscription Agreement provides that
the position of Vice-President and Treasurer of
FLADC shall be nominated from the Tiu Group.
Despite the provision in the agreement turning over
the management and administration of FLADC to the
Ong Group, there is nothing in the agreement which
states that the elected Vice-President and Treasurer
of FLADC cannot or must not be allowed to assume
the responsibilities of their respective office. From the
tenor of the aforequoted reply to the Tius' letter of
Darla Grey| Corporation Law Digest | 48
 rescission, it is evident that the Ongs have reduced
the positions of Vice-President and Treasurer of
FLADC to mere figure heads."
The Ongs moved for reconsideration of this decision.
[G.R. No. 144476. April 8, 2003.]
In reversing itself, the Court ruled that the Tius could not legally
rescind the Pre-Subscription Agreement. According to the
Court, although the Tius were adversely affected by the Ong's
unwillingness to let them assume the positions of Vice-
President and Treasurer of the Corporation, rescission due to
breach of contract was definitely a wrong remedy for their
personal grievances. The Corporation Code, SEC rules and
even the Rules of Court provide for appropriate adequate intra-
corporate remedies, other than rescission, in situations like
this. Rescission is certainly not one of them, especially if the
party asking for it has no legal personality to do so and the
requirements of the law therefor have not been met. A contrary
doctrine will tread on extremely dangerous ground because it
will allow just any stockholder, for just about any real or
imagined offense, to demand rescission of his subscription and
call for the distribution of some part of the corporate assets to
him without complying with the requirements of the Corporation
Code. Hence, the Court held that the Tius, in their personal
capacities, cannot seek the ultimate and extraordinary remedy
of rescission of the subject agreement based on a less than
substantial breach of the subscription contract. Accordingly,
the Court declared null and void the unilateral rescission by the
Tius of the subject Pre-Subscription Agreement. It denied Tius'
motion for issuance of a writ of execution for being moot.
[G.R. No. L-28120. November 25, 1976.]
RICARDO A. NAVA, petitioner-appellant, vs.
PEERS MARKETING CORPORATION, RENATO
R. CUSI and AMPARO CUSI, respondents-
appellees
AQUINO, J:
Summary: Scammer yung Po, sabi niya kanya yung stocks
when in fact, di pa niya bayad.
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.
RTC: Mandamus, dismissed; appealed, kasi yung decision
dawn g CFI is contrary to law (lol)
Issue:
WON the officers of Peers Marketing Corporation can be
compelled by mandamus to enter in its stock and transfer book
the sale made by Po to Nava of the twenty shares forming part
of Po's subscription
Held:
The Court ruled that the transfer made by Po to Nava is not the
"alienation, sale, or transfer of stock" that is supposed to be
recorded in the stock and transfer book, as contemplated in
section 52 of the Corporation Law. As a rule, the shares which
may be alienated are those which are covered by certificates of
stock, as shown in the provisions of the Corporation Law.
As prescribed in section 35, 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.
A corporation cannot release an original subscriber from
paying for his shares without a valuable consideration or
without the unanimous consent of the stockholders. Under the
Darla Grey| Corporation Law Digest | 49
facts of this case, there is no clear legal duty on the part of the
officers of the corporation to register the twenty shares in
Nava's name. Hence, there is no cause of action for
mandamus.
As already stressed, 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. The delivery of the stock certificate, which
represents the shares to be alienated, is essential for the
protection of both the corporation and its stockholders.
[G.R. No. 126891. August 5, 1998.]
LIM TAY , petitioner, vs . COURT OF APPEALS,
GO FAY AND CO. INC., SY GUIOK, and ESTATE
OF ALFONSO LIM, respondents.
PANGANIBAN, J:
Summary: Wala namang foreclosure nung pledge pero gusto
niya kaniya na yung shares of stock pledge, tapos
minandamus niya si corporate secretary para ilipat sakanya
yung share of stocks.
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 Petitioner 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.
Under said contracts of pledge, Guiok and Sy Lim agreed that
in the event of their failure to pay the amount within the period
agreed upon, the pledgee, Lim Tay, was authorized to
foreclose the pledge upon the said shares of stock. As stated:
“at which sale the PLEDGEE may be the purchaser at his
option; and the PLEDGEE is hereby authorized and
empowered at his option to transfer the said shares of stock on
the books of the corporation to his own name and to hold the
certificate issued in lieu thereof under the terms of this pledge,
and to sell the said shares to issue to him and to apply the
proceeds of the sale to the payment of the said sum and
interest, in the manner hereinabove provided;”
Respondent Guiok and Sy Lim endorsed their respective
shares of stock in blank and delivered the same to the
Petitioner.
However, Respondent Guiok and Sy Lim failed to pay their
respective loans and the accrued interests thereon to the
Petitioner. In October, 1990, the Petitioner filed a 'Petition for
Mandamus' against Respondent Corporation, with the SEC,
praying that an order be issued directing the corporate
secretary of the company to register the stock transfers and
issue new certificates in his favor. Lim Tay alleged in his
petition that the controversy between him as stockholder and
the company was intra-corporate in view of the obstinate
refusal of the corporate secretary of the company to record the
transfer of the shares of stock of Guiok and Sy Lim in favor of
petitioner.
SEC: dismissed, failed to prove legal basis for the secretary of
the Corporation be compelled to register stock transfers in
favor of the petitioner. Appeal, dismissed no jurisdiction and no
cause of action.
CA: SEC does not have jurisdiction as controversy is purely a
civil matter. Mandamus cannot be availed of as he failed to
establish a clear and legal right to the writ.
Hence, the petitioner brought before us this Petition for Review
on Certiorari in accordance with Rule 45 of the Rules of Court.
Issue:
WON SEC has jurisdiction
- The registration of shares in a stockholder's name,
the issuance of stock certificates, and the right to
receive dividends which pertain to the said shares are
all rights that flow from ownership. The determination
of whether or not a shareholder is entitled to exercise
the above-mentioned rights falls within the jurisdiction
of the SEC. However, if ownership of the shares is not
clearly established and is still unresolved at the time
the action for mandamus is filed, then jurisdiction lies
with the regular courts.
Whether the petitioner is entitled to the relief of mandamus as
against the respondent Go Fay & Co., Inc. to compel the
corporate secretary to register the stocks in favor of the
petitioner
Held:
The contractual stipulation, which was part of the Complaint,
shows that plaintiff was merely authorized to foreclose the
pledge upon maturity of the loans, not to own them. Such
foreclosure is not automatic, for it must be done in a public or
Darla Grey| Corporation Law Digest | 50
private sale. Nowhere did the Complaint mention that petitioner
had in fact foreclosed the pledge and purchased the shares
after such foreclosure His status as a mere pledgee does not,
under civil law, entitle him to ownership of the subject shares. It
is also noteworthy that petitioner's Complaint did not aver that
said shares were acquired through extraordinary prescription,
novation or laches. Moreover, petitioner's claim, subsequent to
the filing of the Complaint, that he acquired ownership of the
said shares through these three modes is not indubitable and
still has to be resolved. In fact, as will be shown, such
allegation has no merit. Manifestly, the Complaint by itself did
not contain any prima facie showing that petitioner was the
owner of the shares of stocks. Quite the contrary, it
demonstrated that he was merely a pledgee, not an owner.
Accordingly, it failed to lay down a sufficient basis for the SEC
to exercise jurisdiction over the controversy. In fact, the very
allegations of the Complaint and its annexes negated the
jurisdiction of the SEC.
Petitioner prays for the issuance of a writ of mandamus,
directing the corporate secretary of respondent corporation to
have the shares transferred to his name in the corporate
books, to issue new certificates of stock and to deliver the
corresponding dividends to him. In the present case, petitioner
has failed to establish a clear legal right. Petitioner's contention
that he is the owner of the said shares is completely without
merit. Quite the contrary and as already shown, he does not
have any ownership rights at all. At the time petitioner
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. Mandamus will not issue to establish a legal
right, but only to enforce one that is already clearly established.
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.
[G.R. No. 124535. September 28, 2001.]
THE RURAL BANK OF LIPA CITY, INC., THE
OFFICERS AND DIRECTORS, BERNARDO
BAUTISTA, JAIME CUSTODIO, OCTAVIO
KATIGBAK, FRANCISCO CUSTODIO, and
JUANITA BAUTISTA OF THE RURAL BANK OF
LIPA CITY, INC., petitioners, 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 and ELENA USI,
respondents.
YNARES-SANTIAGO, J:
Summary: Eto yung spouses-stockholders na minean gurls
nang bank na you can’t sit with us kasi wa nalang pag invite sa
stockholders meeting.
Facts:
Private respondent Reynaldo Villanueva, Sr., a stockholder of
the Rural Bank of Lipa City, executed a Deed of Assignment, 1
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. In such an event, should the proceeds of the sale of
said shares fail to satisfy in full the obligation, the unpaid
balance shall be secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to
the Bank on the due date, the Board sent them a letter 3
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. The
Villanuevas ignored the bank's demands, whereupon their
shares of stock were converted into Treasury Stocks.
On January 15, 1994, the stockholders of the Bank met to elect
the new directors and set of officers for the year 1994. The
Villanuevas were not notified of said meeting. In a letter dated
January 19, 1994, Atty. Amado Ignacio, counsel for the
Villanueva spouses, questioned the legality of the said
stockholders' meeting and the validity of all the proceedings
therein. In reply, the new set of officers of the Bank informed
Atty. Ignacio that the Villanuevas were no longer entitled to
notice of the said meeting since they had relinquished their
rights as stockholders in favor of the Bank.
SEC: (annulment of the stockholders meeting) issued TRO,
denied writ of preliminary injunction. MR, granted; villanueva’s
Darla Grey| Corporation Law Digest | 51
have not disposed of their shares whether voluntarily or
involuntarily. TRO for the annual stockholder’s meeting.
SEC en banc: Certiorari and annulment, denied. MR, denied.
CA: Petition for Review, dismissed. MR, denied.
Issue:
WON the execution of the deed of assignment in favor of the
petitioners, transfer of title to such shares is ineffective until
and unless the duly indorsed certificate of stock is delivered to
them
Held:
No. We have uniformly held that for a valid transfer of stocks,
there must be strict compliance with the mode of transfer
prescribed by law. 22 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.
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.
To enable the shareholders of the Rural Bank of Lipa City, Inc.
to meet and elect their directors, the temporary restraining
order issued by the SEC Hearing Officer on January 13, 1995
must be lifted. However, private respondents shall be notified
of the meeting and be allowed to exercise their rights as
stockholders thereat.
[G.R. No. 139802. December 10, 2002.]
VICENTE C. PONCE, petitioner, vs . ALSONS
CEMENT CORPORATION, and FRANCISCO M.
GIRON, JR., respondents.
QUISUMBING, J:
Facts:
On January 25, 1996, plaintiff (now petitioner) Vicente C.
Ponce, filed a complaint with the SEC for mandamus and
damages against defendants (now respondents) Alsons
Cement Corporation and its corporate secretary Francisco M.
Giron, Jr. Petitioner alleged, among others, that:
On February 8, 1968, plaintiff 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 the plaintiff.
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 the plaintiff. Despite repeated demands,
the defendants refused and continue to refuse without any
justifiable reason to issue to plaintiff the certificates of stocks
corresponding to the 239,500 shares of Gaid, in violation of
plaintiff's right to secure the corresponding certificate of stock
in his name.
With this allegations, petitioner prayed that judgment be
rendered ordering respondents (a) to issue in his name
certificates of stocks covering the 239,500 shares of stocks
and its legal increments and (b) to pay him damages.
Respondent moved to dismiss the complaint on the ground,
among others, that it states no cause of action. After
respondents filed their reply, the SEC hearing officer granted
the motion to dismiss.
SEC: the real party in interest is Fausto G. Gaid, or his estate
or his heirs. Gaid was an incorporator and an original
stockholder of the defendant corporation who subscribed and
fully paid for 239,500 shares of stock.
SEC en banc: reversed the dismissal, that a transfer or
assignment of stocks need not be registered first before it can
take cognizance of the case to enforce the petitioner's rights as
a stockholder. MR, denied.
CA: dismissed. The CA held that in the absence of any
allegation that the transfer of the shares between Fausto Gaid
and Vicente C. Ponce was registered in the stock and transfer
book of ALSONS, Ponce failed to state a cause of action.
Issue:
WON Ponce can require the corporate secretary, to register
Gaid’s shares in his name.
Held:
The Court ruled that the instant petition is without merit. The
Court of Appeals did not err in ruling that petitioner had no
cause of action, and that his petition for mandamus was
properly dismissed. There is no question that Fausto Gaid was
an original subscriber of respondent corporation's 239,500
shares.
Pursuant to Section 63 of the Corporation Code, a transfer of
shares of stock not recorded in the stock and transfer book of
Darla Grey| Corporation Law Digest | 52
the corporation is non-existent as far as the corporation is
concerned. 22 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. 23 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 24 of the
Corporation Code. This is the import of Section 63 which states
that "No transfer, however, shall be valid, except between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred."
The situation would be different if the petitioner was himself the
registered owner of the stock which he sought to transfer to a
third party, for then he would be entitled to the remedy of
mandamus.
The deed of undertaking with indorsement presented by
petitioner does not establish, on its face, his right to demand
for the registration of the transfer and the issuance of
certificates of stocks. Absent an allegation that the transfer of
shares is recorded in the stock and transfer book of
respondent ALSONS, there appears no basis for a clear and
indisputable duty or clear legal obligation that can be imposed
upon the respondent corporate secretary, so as to justify the
issuance of the writ of mandamus to compel him to perform the
transfer of the shares to petitioner.
WEEK 7.2
[G.R. No. L-33320. May 30, 1983.]
RAMON A. GONZALES, petitioner, vs. THE
PHILIPPINE NATIONAL BANK, respondent.
VASQUEZ, J:
Summary: Yung petitioner ditto yung friend mong may trust
issues hahaha charot. Pero yung petitioner ditto nagfile ng
case against kay bank tapos naging stockholder siya then
gusto niya mainspect books kasi right daw yun ng stockholders
pero dineny ni bank ngayon file siya case kasi kupal siya.
Facts:
Petitioner Ramon A. Gonzales instituted in the Court of First
Instance of Manila a special civil action for mandamus against
the herein respondent praying that the latter be ordered to
allow him to look into the books and records of the respondent
bank in order to satisfy himself as to the truth of the published
reports that the respondent has guaranteed the obligation of
Southern Negros Development Corporation in the purchase of
a US$23 million sugar-mill to be financed by Japanese
suppliers and financiers; that the respondent is financing the
construction of the P21 million Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc., and the construction of Passi
Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as
to inquire into the validity of said transactions. The petitioner
has alleged had his written request for such examination was
denied by the respondent for being not germane to his interest
as a one share stockholder and for the cloud of doubt as to his
real intention and purpose in acquiring said share.
Previous to the present action, the petitioner instituted several
cases in this Court questioning different transactions entered
into by the Bank with other parties. First among them is Civil
Case No. 69345 filed on April 27, 1967, by petitioner as a
taxpayer versus Sec. Antonio Raquiza of Public Works and
Communications et al. In the course of the hearing of said case
on August 3, 1967, the personality of herein petitioner to sue
the bank and question the letters of credit it has extended for
the importation by the Republic of the Philippines of public
works equipment intended for the massive development
program of the President was raised. In view thereof, he
expressed and made known his intention to acquire one share
of stock from Congressman Justiniano Montano which, on the
following day, August 30, 1967, was transferred in his name in
the books of the Bank.
CFI: denied, Section 51 of the former Corporation Law (Act No.
1459, as amended) is not absolute, but is limited to purposes
reasonably related to the interest of the stockholder, must be
asked for in good faith for a specific and honest purpose and
not gratify curiosity or for speculative or vicious purposes; that
such examination would violate the confidentiality of the
records of the respondent bank as provided in Section 16 of its
charter and that the petitioner has not exhausted his
administrative remedies.
Issue:
WON the right granted to a stockholder to inspect the books
and records is unconditional
Held:
[Naamend kasi yung previous Corporation Law ditto (RA 1459)
naging BP Blg. 68 (yung current)]
The right of inspection granted to a stockholder under Section
51 of Act No. 1459 has been retained, but with some
modifications. Among the changes introduced in the new Code
with respect to the right of inspection granted to a stockholder
Darla Grey| Corporation Law Digest | 53
are the following; (a) the records must be kept at the principal
office of the corporation; (b) the inspection must be made on
business days; (c) the stockholder may demand a copy of the
excerpts of the records or minutes; and (d) the refusal to allow
such inspection shall subject the erring officer or agent of the
corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the
new Code has prescribed limitations to the same. It is now
expressly required as a condition for such examination that (1)
the one requesting it must not have been guilty of using
improperly any information secured through a prior
examination, and (2) that the person asking for such
examination must be "acting in good faith and for a legitimate
purpose in making his demand."
The provision of Section 74 of Batas Pambansa Blg. 68 of the
new Corporation Code with respect to the right of a stockholder
to demand an inspection or examination of the books of the
corporation may not be reconciled with the provisions of the
charter of the respondent bank. It is not correct to claim,
therefore, that the right of inspection under Section 74 of the
new Corporation Code may apply in a supplementary capacity
to the charter of the respondent bank.
The inspection sought to be exercised by the petitioner would
be violative of the provisions of the PNB’s charter. The
Philippine National Bank is not an ordinary corporation. Having
a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines.
[G.R. No. 123793. June 29, 1998.]
ASSOCIATED BANK, petitioner, vs . COURT OF
APPEALS and LORENZO SARMIENTO JR.,
respondents.
PANGANIBAN, J:
Summary: Eto may utang in favor kay Associated bank pero
yun PN kay CBTC nakapangalan ewan ko bakit ganun pero
yun yung nasa case. Tapos si AB yung nagkaso for sum of
money, pero ayaw bayaran si AB kasi nga di naman daw
sakanya nakapangalan yung PN. Valid merger tas after merger
naman naexecute yung PN.
Facts:
On or about September 16, 1975 Associated Banking
Corporation and Citizens Bank and Trust Company merged to
form just one banking corporation known as Associated
Citizens Bank, the surviving bank. The merger agreement
provided that all references to CBTC shall be deemed for all
intents and purposes references to the surviving bank, ABC, as
if such references were direct references to ABC. On or about
March 10, 1981, the Associated Citizens Bank changed its
corporate name to Associated Bank by virtue of the Amended
Articles of Incorporation. On September 7, 1977, the defendant
executed in favor of (Associated Bank) a promissory note
whereby the former undertook to pay the latter the sum of
P2,500,000.00. The defendant, to date, still owes plaintiff bank
the amount of P2,250,000.00 exclusive of interest and other
charges. Despite repeated demands the defendant failed to
pay the amount due, Associated Bank, the surviving
corporation, sued for collection.
The defendant denied all the pertinent allegations in the
complaint and alleged as affirmative and[/]or special defenses
that the complaint states no valid cause of action; that the
plaintiff is not the proper party in interest because the
promissory note was executed in favor of Citizens Bank and
Trust Company not Associated Bank. Private respondent was
declared as in default for failure to appear at the pre-trial
conference and petitioner presented its evidence ex-parte.
Based on the evidence presented by petitioner, the trial court
ordered Respondent Sarmiento to pay the bank his remaining
balance plus interests and attorney's fees. The appellate court
ruled that the earlier merger between the two banks could not
have vested Associated Bank with any interest arising from the
promissory note executed in favor of CBTC after such merger.
Issue:
WON Associated Bank, the surviving corporation, may enforce
the promissory note made by private respondent in favor of
CBTC, the absorbed company, after the merger agreement
had been signed
Held:
Ordinarily, in the merger of two or more existing corporations,
one of the combining corporations survives and continues the
combined business, while the rest are dissolved and all their
rights, properties and liabilities are acquired by the surviving
corporation. Although there is a dissolution of the absorbed
corporations, there is no winding up of their affairs or
liquidation of their assets, because the surviving corporation
automatically acquires all their rights, privileges and powers, as
well as their liabilities.
The merger, however, does not become effective upon the
mere agreement of the constituent corporations. The
procedure to be followed is prescribed under the Corporation
Code. Section 79 of said Code requires the approval by the
Securities and Exchange Commission (SEC) of the articles of
merger which, in turn, must have been duly approved by a
majority of the respective stockholders of the constituent
corporations. The same provision further states that the merger
shall be effective only upon the issuance by the SEC of a
certificate of merger. The effectivity date of the merger is
crucial for determining when the merged or absorbed
corporation ceases to exist; and when its rights, privileges,
properties as well as liabilities pass on to the surviving
corporation.
Darla Grey| Corporation Law Digest | 54
Thus, the fact that the promissory note was executed after the
effectivity date of the merger does not militate against
petitioner. The agreement itself clearly provides that all
contracts — irrespective of the date of execution — entered
into in the name of CBTC shall be understood as pertaining to
the surviving bank, herein petitioner. Since, in contrast to the
earlier aforequoted provision, the latter clause no longer
specifically refers only to contracts existing at the time of the
merger, no distinction should be made. The clause must have
been deliberately included in the agreement in order to protect
the interests of the combining banks; specifically, to avoid
giving the merger agreement a farcical interpretation aimed at
evading fulfillment of a due obligation.
Thus, although the subject promissory note names CBTC as
the payee, the reference to CBTC in the note shall be
construed, under the very provisions of the merger agreement,
as a reference to petitioner bank, "as if such reference [was a]
direct reference to" the latter "for all intents and purposes."
No other construction can be given to the unequivocal
stipulation. Being clear, plain and free of ambiguity, the
provision must be given its literal meaning 17 and applied
without a convoluted interpretation. Verba legis non est
recedendum.
[G.R. No. 178618. October 20, 2010.]
MINDANAO SAVINGS AND LOAN
ASSOCIATION, INC., represented by its
Liquidator, THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION, petitioner, vs .
EDWARD WILLKOM; GILDA GO; REMEDIOS
UY; MALAYO BANTUAS, in his capacity as the
Deputy Sheriff of Regional Trial Court, Branch
3, Iligan City; and the REGISTER OF DEEDS of
Cagayan de Oro City, respondents.
NACHURA, J:
Summary: FISLAI x DSLAI naging MSLAI tapos nilipat ni F kay
D yung properties niya tapos naging fail yung business ni M so
naput into receivership si bank. Basta walang valid merge to
kasi walang certificate from SEC ng merger kulang docs
(KAYA DAPAT IPASA NATIN NG COMPLETE)
Facts:
The First Iligan Savings and Loan Association, Inc. (FISLAI)
and the Davao Savings and Loan Association, Inc. (DSLAI) are
entities duly registered with the Securities and Exchange
Commission (SEC) under Registry Nos. 34869 and 32388,
respectively, primarily engaged in the business of granting
loans and receiving deposits from the general public, and
treated as banks. Sometime in 1985, FISLAI and DSLAI
entered into a merger, with DSLAI as the surviving corporation.
The articles of merger were not registered with the SEC due to
incomplete documentation. On August 12, 1985, DSLAI
changed its corporate name to MSLAI by way of an
amendment to Article 1 of its Articles of Incorporation, but the
amendment was approved by the SEC only on April 3, 1987.
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI
passed and approved Board Resolution, assigning its assets in
favor of DSLAI which in turn assumed the former's liabilities.
The business of MSLAI, however, failed. Hence, the Monetary
Board of the Central Bank of the Philippines ordered its closure
and placed it under receivership per Monetary Board
Resolution dated August 31, 1990. The Monetary Board found
that MSLAI's financial condition was one of insolvency, and for
it to continue in business would involve probable loss to its
depositors and creditors. On May 24, 1991, the Monetary
Board ordered the liquidation of MSLAI, with PDIC as its
liquidator.
It appears that prior to the closure of MSLAI, Uy filed with the
RTC, Branch 3 of Iligan City, an action for collection of sum of
money against FISLAI. On October 19, 1989, the RTC issued
a summary decision in favor of Uy, directing defendants therein
(which included FISLAI) to pay the former the sum of
P136,801.70, plus interest until full payment, 25% as attorney's
fees, and the costs of suit. The decision was modified by the
CA by further ordering the third-party defendant therein to
reimburse the payments that would be made by the
defendants. The decision became final and executory on
February 21, 1992. A writ of execution was thereafter issued.
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of
land owned by FISLAI located in Cagayan de Oro City, and the
notice of sale was subsequently published. During the public
auction on May 17, 1993, Willkom was the highest bidder. A
certificate of sale was issued and eventually registered.
On June 14, 1995, MSLAI, represented by PDIC, filed before
the RTC, a complaint for Annulment of Sheriff's Sale,
Cancellation of Title and Reconveyance of Properties against
respondents. MSLAI alleged that the sale on execution of the
subject properties was conducted without notice to it and
PDIC; that PDIC only came to know about the sale for the first
time in February 1995 while discharging its mandate of
liquidating MSLAI's assets; that the execution of the RTC
decision was illegal and contrary to law and jurisprudence, not
only because PDIC was not notified of the execution sale, but
also because the assets of an institution placed under
receivership or liquidation such as MSLAI should be deemed in
custodia legis and should be exempt from any order of
garnishment, levy, attachment, or execution.
RTC: dismissed for lack of jurisdiction
CA: affirmed RTC resolution, but not for lack of jurisdiction but
that there was no merger between FISLAI and MSLAI, that the
two corporations retained their separate personalities.
Darla Grey| Corporation Law Digest | 55
Issue:
WON there is a valid and effective merger between FISLAI and
MSLAI
Held:
No. Ordinarily, in the merger of two or more existing
corporations, one of the corporations survives and continues
the combined business, while the rest are dissolved and all
their rights, properties, and liabilities are acquired by the
surviving corporation. Although there is a dissolution of the
absorbed or merged corporations, there is no winding up of
their affairs or liquidation of their assets because the surviving
corporation automatically acquires all their rights, privileges,
and powers, as well as their liabilities.
The merger, however, does not become effective upon the
mere agreement of the constituent corporations. Since a
merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law
authorizing them.
Clearly, the merger shall only be effective upon the issuance of
a certificate of merger by the SEC, subject to its prior
determination that the merger is not inconsistent with the
Corporation Code or existing laws. Where a party to the
merger is a special corporation governed by its own charter,
the Code particularly mandates that a favorable
recommendation of the appropriate government agency should
first be obtained.
In this case, it is undisputed that the articles of merger between
FISLAI and DSLAI were not registered with the SEC due to
incomplete documentation. Consequently, the SEC did not
issue the required certificate of merger. Even if it is true that
the Monetary Board of the Central Bank of the Philippines
recognized such merger, the fact remains that no certificate
was issued by the SEC. Such merger is still incomplete without
the certification. The issuance of the certificate of merger is
crucial because not only does it bear out SEC's approval but it
also marks the moment when the consequences of a merger
take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights
and properties, as well as liabilities, shall be taken and deemed
transferred to and vested in the surviving corporation. The
same rule applies to consolidation which becomes effective not
upon mere agreement of the members but only upon issuance
of the certificate of consolidation by the SEC.
[G.R. No. 99398. January 26, 2001.]
CHESTER BABST, petitioner, vs . COURT OF
APPEALS, BANK OF THE PHILIPPINE ISLANDS,
ELIZALDE STEEL CONSOLIDATED, INC., and
PACIFIC MULTI-COMMERCIAL CORPORATION,
respondents.
YNARES-SANTIAGO, J:
Summary: Malabo tong case na to hahaha. Basta ang
nangyari, may utang si ELISCON kay CBTC tapos tinake over
ni DBP yung assets niya kasi naghirap sila, tas kinasuhan sila
ni BPI kasi nagmerge (CBTC x BPI) tapos kung may legal
standing daw ba si BPI, meron sabi ni court.
Facts:
On June 8, 1973, ELISCON obtained from CBTC a loan in the
amount of P8,015,900.84, with interest at the rate of 14% per
annum, evidenced by a promissory note. 2 ELISCON defaulted
in its payments, leaving an outstanding indebtedness in the
amount of P2,795,240.67 as of October 31, 1982. The letters
of credit, on the other hand, were opened for ELISCON by
CBTC using the credit facilities of Pacific Multi-Commercial
Corporation (MULTI) with the said bank, pursuant to the
Resolution of the Board of Directors of MULTI adopted on
August 31, 1977. Subsequently, on September 26, 1978,
Antonio Roxas Chua and Chester G. Babst executed a
Continuing Suretyship, 5 whereby they bound themselves
jointly and severally liable to pay any existing indebtedness of
MULTI to CBTC to the extent of P8,000,000.00 each.
Sometime in October 1978, CBTC opened for ELISCON in
favor of National Steel Corporation three (3) domestic letters of
credit in the amounts of P1,946,805.73, 6 P1,702,869.32 7 and
P200,307.72, 8 respectively, which ELISCON used to
purchase tin black plates from National Steel Corporation.
ELISCON defaulted in its obligation to pay the amounts of the
letters of credit, leaving an outstanding account, as of October
31, 1982, in the total amount of P3,963,372.08.
On December 22, 1980, the Bank of the Philippine Islands
(BPI) and CBTC entered into a merger, wherein BPI, as the
surviving corporation, acquired all the assets and assumed all
the liabilities of CBTC. Meanwhile, ELISCON encountered
financial difficulties and became heavily indebted to the
Development Bank of the Philippines (DBP). In order to settle
its obligations, ELISCON proposed to convey to DBP by way of
dacion en pago all its fixed assets mortgaged with DBP, as
payment for its total indebtedness in the amount of
P201,181,833.16. On December 28, 1978, ELISCON and DBP
executed a Deed of Cession of Property in Payment of Debt. In
June 1981, ELISCON called its creditors to a meeting to
announce the take-over by DBP of its assets. In October 1981,
DBP formally took over the assets of ELISCON, including its
indebtedness to BPI.
Consequently, on January 17, 1983, BPI, as successor-in-
interest of CBTC, instituted with the Regional Trial Court of
Makati, Branch 147, a complaint 13 for sum of money against
ELISCON, MULTI and Babst. ELISCON, in its Answer, 14
Darla Grey| Corporation Law Digest | 56
argued that the complaint was premature since DBP had made
serious efforts to settle its obligations with BPI. Babst also filed
his Answer alleging that he signed the Continuing Suretyship
on the understanding that it covers only obligations which
MULTI incurred solely for its benefit and not for any third party
liability, and he had no knowledge or information of any
transaction between MULTI and ELISCON. MULTI, for its part,
denied knowledge of the merger between BPI and CBTC, and
averred that the guaranty under its board resolution did not
cover purchases made by ELISCON in the form of trust
receipts.
RTC: in favor of BPI; appeal
CA: modified the ruling of the RTC
Issue:
WON BPI is legally entitled to recover from ELISCON, MULTI
and Babst the past due obligations with CBTC prior to the
merger of BPI with CBTC.
Held:
Yes. ELISCON and MULTI assail BPI's legal capacity to
recover their obligation to CBTC. However, there is no
question that there was a valid merger between BPI and
CBTC. It is settled that in the merger of two existing
corporations, one of the corporations survives and continues
the business, while the other is dissolved and all its rights,
properties and liabilities are acquired by the surviving
corporation. Hence, BPI has a right to institute the case a quo.
WEEK 8
[G.R. No. 157479. November 24, 2010.]
PHILIP TURNER and ELNORA TURNER,
petitioners, vs. LORENZO SHIPPING
CORPORATION, respondent.
BERSAMIN, J:
Facts:
Petitioners Philip and Elnora Turner were the owners of
1,010,000 shares of stocks of Respondent Lorenzo Shipping
Corporation. Petitioners voted against the restriction of pre-
emptive right to newly issued stocks, to be effected via the
amendment of the articles of incorporation of the Respondent
Corporation. They alleged that it is prejudicial to their interests
as shareholders.
Thus, through the exercise of their appraisal right, they
demanded the payment of their shares at P2.276/share
(P2,298,760.00). RTC Makati, in finding that the suit was an
intracorporate dispute, ordered the re-raffle of the case
pursuant to the Interim Rules of Intracorporate Dispute. The
case was raffled in RTC Manila, the court which exercise
territorial jurisdiction in the place where the principal office of
Respondent Corporation is found
RTC Manila, in ruling in favor of the Petitioners and ordering
the Respondent to pay, stated that the Corporation Code does
not require that URE must exist at the time of demand. Even if
there is no URE at such time, if there would be URE later, the
FMV of the stocks shall be paid, provided that there must be
sufficient funds to cover creditors after such payment.
Respondents, aggrieved, elevated the case to the Court of
Appeals which reversed the RTC Decision and enjoined the
payment to the petitioners. This prompted the Petitioners to
elevate the same to the Supreme Court, thus, this recourse.
Issue:
WON the Court of Appeals erred in reversing the RTC
Decision
Held:
No. The RTC erred in ordering the Respondent Corporation to
pay, and that the same exceeded in the exercise of its
jurisdiction in rendering judgment in favor of Petitioners and in
the issuance of writ of execution. A stock holder who dissents
certain corporate actions has the right to demand FMV of his
share (appraisal right), provided that the corporation has URE
as provided for under Sec. 81 of the Corporation Code. Such
right may be exercised when there is a change in the AoI
prejudicing the interests of the stockholder. No payment shall
be made unless there are unrestricted retained earnings in its
books to cover such payment. Payment by the corporation to a
dissenting stockholder exercising his appraisal right without the
existence of URE is in violation of the trust fund doctrine which
proscribes the distribution of assets to a stockholder without
first paying corporate debts because the assets of the
corporation are held in trust by the same for the benefit of its
creditors. Payment made under such circumstance is
prejudicial to the corporate creditors and is null and void.
Creditors are always preferred over stockholders.
[G.R. No. 181455-56. December 4, 2009.]
SANTIAGO CUA, JR., SOLOMON S. CUA and
EXEQUIEL D. ROBLES, in their capacity as
Directors of PHILIPPINE RACING CLUB, INC.,
petitioners, vs. MIGUEL OCAMPO TAN, JEMIE
U. TAN and ATTY. BRIGIDO J. DULAY,
respondents.
CHICO-NAZARIO, J:
Facts:
Darla Grey| Corporation Law Digest | 57
PRCI is a corporation organized and established under
Philippine laws to conduct business related to horse track
racing and other business connected thereto including public
betting, raising horses, and breeding the same.
Following the trend in the development of properties in the
same area, 10 PRCI wished to convert its Makati property from
a racetrack to urban residential and commercial use.PRCI
management decided to transfer its racetrack from Makati to
Cavite. PRCI began developing its Cavite property as a
racetrack. (Secondary purpose according to PRCI’s AoI is to
acquire real properties)
PRCI management decided that it was best to spin off the
management and development of the same to a wholly owned
subsidiary, so that PRCI could continue to focus its efforts on
pursuing its core business competence of horse racing.
Instead of organizing and establishing a new corporation for
the said purpose, PRCI management opted to acquire another
domestic corporation, JTH Davies Holdings, Inc. PRCI entered
into a Sale and Purchase Agreement for the acquisition from
JME of 41,928,290 common shares or 95.55% of the
outstanding capital stock of JTH.
On 10 July 2007, respondents Miguel, et al., as minority
stockholders of PRCI,filed before the RTC a Complaint,
denominated as a Derivative Suit with prayer for Issuance of
TRO/Preliminary Injunction, against the rest of the directors of
PRCI and/or JTH.
Issue:
WON the derivative suit is properly constituted
Held:
A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time the
action was filed; (2) He exerted all reasonable efforts, and
alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to
obtain the relief he desires; (3) No appraisal rights are
available for the act or acts complained of; And (4) the suit is
not a nuisance or harassment suit.
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.
The right to information which includes the right to inspect
corporate books and records is a right personal to each
stockholder. The corporation is the real party in interest in a
derivative suit and the suing stockholder is only a nominal
party.
WEEK 9
[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.
PANGANIBAN, J:
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:
WON private respondent corporation is not a close corporation
Held:
The articles of incorporation of Motorich Sales Corporation
does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares
is restricted in favor of any stockholder or of the corporation, or
(3) listing its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles, it is clear
that Respondent Motorich is not a close corporation. Motorich
does not become one either, just because Spouses Reynaldo
Darla Grey| Corporation Law Digest | 58
and Nenita Gruenberg owned 99.866% of its subscribed
capital stock. The "[m]ere 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 personalities." So, too, a narrow
distribution of ownership does not, by itself, make a close
corporation.
[G.R. No. 91889. August 27, 1993.]
MANUEL R. DULAY ENTERPRISES, INC.,
VIRGILIO E. DULAY AND NEPOMUCENO
REDOVAN , petitioners, vs. THE HONORABLE
COURT OF APPEALS, EDGARDO D. PABALAN,
MANUEL A. TORRES, JR., MARIA THERESA V.
VELOSO and CASTRENSE C. VELOSO,
respondents.
NOCON, J:
Facts:
Manuel R. Dulay Enterprises, Inc, a domestic corporation
obtained various loans for the construction of its hotel project,
Dulay Continental Hotel (now Frederick Hotel). Manuel Dulay
by virtue of Board Resolution No 18 sold the subject property
to spouses Maria Theresa and Castrense Veloso.
Maria Veloso (buyer), without the knowledge of Manuel Dulay,
mortgaged the subject property to private respondent Manuel
A. Torres. Upon the failure of Maria Veloso to pay Torres, the
property was sold to Torres in an extrajudicial foreclosure sale.
Torres filed an action against the corporation, Virgilio Dulay
and against the tenants of the apartment. RTC ordered the
corporation and the tenants to vacate the building.
Petitioners: RTC had acted with GAD when it applied
the doctrine of piercing the veil of corporate entity considering
that the sale has no binding effect on corporation as Board
Resolution No. 18 which authorized the sale of the subject
property was resolved without the approval of all the members
of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be
its secretary.
Issue:
Whether the sale of the subject property between spouses
Veloso and Manuel Dulay has no binding effect on the
corporation as Board Resolution 18 which authorized the sale
of the subject property was resolved without the approval of all
the members of the board of directors and said Board
Resolution was prepared by a person not designated by the
corporation to be its secretary.
Held:
The corporation is classified as a close corporation and
consequently a board resolution authorizing the sale or
mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, a
corporate action taken at a board meeting without proper call
or notice in a close corporation is deemed ratified by the
absent director unless the latter promptly files his written
objection with the secretary of the corporation after having
knowledge of the meeting which, in this case, Virgilio Dulay
failed to do. The corporation's claim that the sale of the subject
property by its president, Manuel Dulay, to spouses Veloso is
null and void as the alleged Board Resolution 18 was passed
without the knowledge and consent of the other members of
the board of directors cannot be sustained. Virgilio E. Dulay's
protestations of complete innocence to the effect that he never
participated nor was even aware of any meeting or resolution
authorizing the mortgage or sale of the subject premises is
difficult to believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is an incorporator and
one of the board of directors designated at the time of the
organization of Manuel R. Dulay Enterprises, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family
corporation."
WEEK 10
[G.R. No. 184088. July 6, 2010.]
IGLESIA EVANGELICA METODISTA EN LAS
ISLAS FILIPINAS (IEMELIF) (Corporation Sole),
INC., REV. NESTOR PINEDA, REV. ROBERTO
BACANI, BENJAMIN BORLONGAN, JR.,
DANILO SAUR, RICHARD PONTI, ALFREDO
MATABANG and all the other members of the
IEMELIF TONDO CONGREGATION of the
IEMELIF CORPORATION SOLE , petitioners, vs.
BISHOP NATHANAEL LAZARO, REVERENDS
HONORIO RIVERA, DANIEL MADUCDOC,
FERDINAND MERCADO, ARCADIO CABILDO,
DOMINGO GONZALES, ARTURO LAPUZ,
ADORABLE MANGALINDAN, DANIEL VICTORIA
and DAKILA CRUZ, and LAY LEADER LINGKOD
MADUCDOC and CESAR DOMINGO, acting
individually and as members of the Supreme
Consistory of Elders and those claiming under
the Corporation Aggregate, respondents.
ABAD, J:
Darla Grey| Corporation Law Digest | 59
Summary: Bale may inestablish na IEMELIF as corporate sole.
Kahit nag aappear sila na Corp Sole sa Papel, nag aact silang
Corp. Aggregate (Kasi andami nila) then nung 1973, nagvote
sila to change the structure to their true self (HAHAHA
CHAROT) approved sila ng SEC (Gorabels daw sila na mag
change), pero di nila nabago for some reasons. Nung 2001,
naremember nila na di nila binago. Sabi ni SEC, HOW ABOUT
NO, tas sabi kelangan bago na ng AOI, so sinunod nila.
Ngayon, ETO NA MGA BES, may nagfile sa RTC, super haba
nung title nung complaint hahaha charot, basta gusto nila
ipadissolve yung IEMELIF bago itransform. Yung issue is kung
kelangan pa ba idissolve para magbago? Sabin g SC, No mga
bes, din a need ng transformation, ang need lang is
concurrence ng 2/3 ng members.
Facts:
In 1909, Bishop Nicolas Zamora established the petitioner
Iglesia Evangelica Metodista En Las Islas Filipinas, Inc.
(IEMELIF) as a corporation sole with Bishop Zamora acting as
its "General Superintendent." Thirty-nine years later in 1948,
the IEMELIF enacted and registered a by-laws that established
a Supreme Consistory of Elders (the Consistory), made up of
church ministers, who were to serve for four years. The by-
laws empowered the Consistory to elect a General
Superintendent, a General Secretary, a General Evangelist,
and a Treasurer General who would manage the affairs of the
organization. For all intents and purposes, the Consistory
served as the IEMELIF's board of directors.
Apparently, although the IEMELIF remained a corporation sole
on paper (with all corporate powers theoretically lodged in the
hands of one member, the General Superintendent), it had
always acted like a corporation aggregate. The Consistory
exercised IEMELIF's decision-making powers without ever
being challenged. Subsequently, during its 1973 General
Conference, the general membership voted to put things right
by changing IEMELIF's organizational structure from a
corporation sole to a corporation aggregate. On May 7, 1973
the Securities and Exchange Commission (SEC) approved the
vote. For some reasons, however, the corporate papers of the
IEMELIF remained unaltered as a corporation sole. Only in
2001, about 28 years later, did the issue reemerge.
SEC (2001): Kung g lang kay SEC 1948, sakin no no no
check, conversion was not properly carried out and
documented. The SEC said that the IEMELIF needed to
amend its articles of incorporation for that purpose. The
Consistory resolved to convert the IEMELIF to a corporation
aggregate. Subsequently, the general membership approved
the conversion, prompting the IEMELIF to 􀀻le amended
articles of incorporation with the SEC.
Petitioners Reverend Nestor Pineda, et al., which belonged to
a faction that did not support the conversion, filed a civil case
for "Enforcement of Property Rights of Corporation Sole,
Declaration of Nullity of Amended Articles of Incorporation from
Corporation Sole to Corporation Aggregate with Application for
Preliminary Injunction and/or Temporary Restraining Order" in
IEMELIF's name against respondent members of its Consistory
before the Regional Trial Court (RTC) of Manila. Petitioners
claim that a complete shift from IEMELIF's status as a
corporation sole to a corporation aggregate required, not just
an amendment of the IEMELIF's articles of incorporation, but a
complete dissolution of the existing corporation sole followed
by a reincorporation.
RTC: Dismissed. Section 16 of the Code that governed
amendments of the articles of incorporation of non-stock
corporations applied to corporations sole as well. What
IEMELIF needed to authorize the amendment was merely the
vote or written assent of at least two-thirds of the IEMELIF
membership. Petitioners appealed.
CA: Affirmed RTC. Petitioners moved to recon, denied
Hence, this petition.
Issue:
Whether or not the CA erred in affirming the RTC ruling that a
corporation sole may be converted into a corporation
aggregate by mere amendment of its articles of incorporation
Held:
No. Religious corporations are governed by Sections 109
through 116 of the Corporation Code. the Court said that a
corporation sole is "one formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of a
religious denomination, sect, or church, for the purpose of
administering or managing, as trustee, the affairs, properties
and temporalities of such religious denomination, sect or
church." A corporation aggregate formed for the same
purpose, on the other hand, consists of two or more persons.
True, the Corporation Code provides no specific mechanism
for amending the articles of incorporation of a corporation sole.
But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the
general provisions governing non-stock corporations. For non-
stock corporations, the power to amend its articles of
incorporation lies in its members. The code requires two-thirds
of their votes for the approval of such an amendment.
Although a non-stock corporation has a personality that is
distinct from those of its members who established it, its
articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the
concurrence of at least two-thirds of its membership. If such
approval mechanism is made to operate in a corporation sole,
its one member in whom all the powers of the corporation
technically belongs, needs to get the concurrence of two-thirds
of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of
the Corporation Code, of its membership.
Darla Grey| Corporation Law Digest | 60
There is no point to dissolving the corporation sole of one
member to enable the corporation aggregate to emerge from it.
Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever
be their number. The increase in the number of its corporate
membership does not change the complexion of its corporate
responsibility to third parties. The one member, with the
concurrence of two-thirds of the membership of the
organization for whom he acts as trustee, can self-will the
amendment. He can, with membership concurrence, increase
the technical number of the members of the corporation from
"sole" or one to the greater number authorized by its amended
articles.
[G.R. No. L-8451. December 20, 1957.]
THE ROMAN CATHOLIC APOSTOLIC
ADMINISTRATOR OF DAVAO, INC., petitioner,
vs. THE LAND REGISTRATION COMMISSION
and THE REGISTER OF DEEDS OF DAVAO
CITY, respondents.
FELIX, J:
Summary: May binenta na land kay church sa davao, tapos
yung incumbent dun sa church, Canadian Citizen. Ngayon,
ireregister nila sa RD yung deed, ngayon may impression kay
RD dahil sa previous ruling ng court na kelangan nila ng
affidavit na 60% Filipino Corp sila. So ayun nag express sila ng
willingness pero sinabi nila na di applicable sakanila yung
ruling. So naghearing sa LRC, denied kasi bawal ang foreign
corp from acquiring lands under the consti unless 60% Filipino
owned, MR, denied, mandamus. Ang issue sa case na to is
kung applicable ba sakanila yung 60% Filipino sh*t ngayon
sabi ng court, unique daw ang corporation sole. Na hindi daw
sila aliens kasi wala silang nationality. And ang prohibited sa
consti is ownership, eh hindi naman magiging owned by the
Canadian incumbent yung land but rather he will be considered
administrator lang nung land.
Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and
resident of the City of Davao, executed a deed of sale of a
parcel of land located in the same city covered by Transfer
Certificate of Title No. 2263, in favor of the Roman Catholic
Administrator of Davao, Inc., a corporation sole organized and
existing in accordance with Philippine laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. When the
deed of sale was presented to the Register of Deeds of Davao
for registration, the latter having in mind a previous resolution
of the Fourth Branch of the Court of First Instance of Manila
wherein the Carmelite Nuns of Davao were made to prepare
an affidavit to the effect that 60 per cent of the members of
their corporation were Filipino citizens when they sought to
register in favor of their congregation a deed of donation of a
parcel of land — required said corporation sole to submit a
similar affidavit declaring that 60 per cent of the members
thereof were Filipino citizens.
The vendee in a letter dated June 28, 1954, expressed
willingness to submit an affidavit, but not in the same tenor as
that made by the Prioress of the Carmelite Nuns because the
two cases were not similar, for whereas the congregation of
the Carmelite Nuns had five incorporators, the corporation sole
has only one; that according to their articles of incorporation,
the organization of the Carmelite Nuns became the owner of
properties donated to it, whereas the case at bar, the totality of
the Catholic population of Davao would become the owner of
the property sought to be registered.
As the Register of Deeds entertained some doubts as to the
registerability of the document, the matter was referred to the
Land Registration Commissioner en consulta for resolution in
accordance with R.A. No. 1151. Proper hearing on the matter
was conducted by the Commissioner and after the petitioner
corporation had filed its memorandum, a resolution was
rendered the vendee was not qualified to acquire private lands
in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of the Roman
Catholic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the
present incumbent of the corporation sole was a Canadian
citizen.
Motion for recon: denied. Petition for mandamus; alleging that
under the Corporation Law, the Canon Law as well as the
settled jurisprudence on the matter, the deed of sale executed
by Mateo L. Rodis in favor of petitioner is actually a deed of
sale in favor of the Catholic Church which is qualified to
acquire private agricultural lands for the establishment and
maintenance of places of worship.
Issue:
1. WON a religious corporation recognized by our
Corporation Law and registered as a corporation sole,
may possess, acquire and register real estates in its
name when the Head, Manager, Administrator or
actual incumbent is an alien
2. Who are the owners of church properties?
Held:
They cannot be considered as aliens because they have no
nationality at all. In determining, therefore, whether the
constitutional provision requiring 60 per centum Filipino capital
is applicable to corporations sole, the nationality of the
constituents of the diocese, and not the nationality of the actual
incumbent of the parish, must be taken into consideration. In
the present case, even if the question of nationality be
considered, the aforesaid constitutional requirement is fully met
and satisfied, considering that the corporation sole in question
is composed of an overwhelming majority of Filipinos.
Darla Grey| Corporation Law Digest | 61
That leaves no room for doubt that the bishops or archbishops,
as the case may be, as corporation's sole are merely
administrators of the church properties that come to their
possession, and which they hold in trust for the church. It can
also be said that while it is true that church properties could be
administered by a natural person, problems regarding
succession to said properties can not be avoided to rise upon
his death. Through this legal fiction, however, church
properties acquired by the incumbent of a corporation sole
pass, by operation of law, upon his death not to his personal
heirs but to his successor in office. It could be seen, therefore,
that a corporation sole is created not only to administer the
temporalities of the church or religious society where he
belongs but also to hold and transmit the same to his
successor in said office.
A corporation sole is a special form of corporation usually
associated with the clergy. Conceived and introduced into the
common law by sheer necessity, this legal creation which was
referred to as "that unhappy freak of English law" was
designed to facilitate the exercise of the functions of ownership
carried on by the clerics for and on behalf of the church which
was regarded as the property owner (See I Bouvier's Law
Dictionary, p. 682-683).
A corporation sole consists of one person only, and his
successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give
them some legal capacities and advantages, particularly that of
perpetuity, which in their natural persons they could not have
had. In this sense, the king is a sole corporation; so is a
bishop, or deans, distinct from their several chapters (Reid vs.
Barry, 93 Fla. 849, 112 So. 846).
Although a branch of the Universal Roman Catholic Apostolic
Church, every Roman Catholic Church in different countries, if
it exercises its mission and is lawfully incorporated in
accordance with laws of the country where it is located, is
considered an entity or person with all the rights and privileges
granted to such artificial being under laws of that country,
separate and distinct from the personality of the Roman Pontiff
or the Holy See, without prejudice to its religious relations with
the latter which are governed by the Common Law or their
rules and regulations.
Under the circumstances of the present case, it is safe to state
that even before the establishment of the Philippine
Commonwealth and of the Republic of the Philippines every
corporation sole then organized and registered had by express
provision of law (Corporation Law, Public Act. 1459) the
necessary power and qualification to purchase in its name
private lands located in the territory in which it exercised its
functions or ministry and for which it was created,
independently of the nationality of its incumbent unique and
single number and head, the bishop of the diocese. It can be
also maintained without fear of being gainsaid that the Roman
Catholic Apostolic Church in the Philippines has no nationality
and that the frames of the Constitution did not have in mind the
religious corporation sole when they provided that 60 per
centum of the capital thereof be owned by Filipino citizens.
Thus, if this constitutional provision were not intended for
corporation sole, it is obvious that this could not be regulated
or restricted by said provision.
Considering that nowhere can we find any provision conferring
ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his
flock, nor on the corporations sole or heads of dioceses as
they are admittedly mere administrators of said properties,
ownership of these temporalities logically fall and devolve upon
the church, diocese or congregation acquiring the same.
Although this question of ownership of ecclesiastical properties
has off and on been mentioned in several decisions of this
Court yet in no instance was the subject of citizenship of this
religious society been passed upon.
A corporation sole or "ordinary" is not the owner of the
properties that he may acquire but merely the administrator
thereof and holds the same in trust for the church to which the
corporation is an organized and constituents part. Being mere
administrator of the temporalities or properties titled in his
name, the constitutional provision requiring 60 per centum
Filipino ownership is not applicable. The said constitutional
provision is limited by it terms to ownership alone and does not
extend to control unless the control over the property affected
has been devised to circumvent the real purpose of the
constitution.
WEEK 11
[G.R. No. L-15778. April 23, 1962.]
TAN TIONG BIO, ET AL., petitioners, vs.
COMMISSIONER OF INTERNAL REVENUE,
respondent.
BAUTISTA ANGELO, J:
Facts:
On or about 21 October 1946, the Central Syndicate, a
corporation organized for the limited period of two years,
addressed a letter to the Collector of Internal Revenue advising
the latter of a sale of said corporation by one Dee Hong Lue of
surplus properties purchased by the vendor from the Foreign
Liquidation Commission, with the condition that the vendee
corporation would pay the 3 1/2% sales tax on such surplus
properties in the name and in behalf of the vendor Dee Hong
Lue. In the same letter, the Syndicate deposited with the
Collector the amount of P43,750.00 to answer for the sales tax
collectible on the purchase, but representing that Dee Hong
Darla Grey| Corporation Law Digest | 62
Lue expected a refund from the U.S. Government on the
original purchase price because of non-delivery of various
items included in the contract, and that therefore, the original
sales tax due on the sales price was subject to readjustment
and reduction. Subsequently, on 31 January 1948, Dee Hong
Lue, through counsel, wrote the Collector advising him that the
Foreign Liquidation Commission had given him a refund of
P31,522.18 on the purchase price of the aforesaid surplus
properties, and requesting for the refund of an alleged
overpayment of sales tax in the amount of P1,103.28. The
Collector ordered the case investigated.
Issue:
Whether the government can insist on making a tax
assessment against a corporation that no longer exists and at
the same time oppose the appeal questioning the legality of
the assessment precisely on the ground that the corporation is
non-existent, and has no longer capacity to sue.
Held:
It is true that sections 77 and 78 of our Corporation Law
contemplate that corporate existence can be prolonged only for
three years from and after the termination of the corporate
term, for the purpose of winding up its affairs; and in the case
of the Central Syndicate, the three years expired in 1951. On
this basis, if it be true that the Syndicate thereafter had no
personality to dispute the assessment, it would be equally true
that no valid assessment could be imposed on a corporation
that no longer had juridical personality. In any event, the
government cannot insist on making a tax assessment against
a corporation that no longer exists and then turn around and
oppose the appeal questioning the legality of the assessment
precisely on the ground that the corporation is non- existent,
and has no longer capacity to sue. The government can not
adopt inconsistent stands and thereby deprive the officers and
directors of the defunct corporation of the remedy to question
the validity and correctness of the assessment for which, if
sustained, they would be held personally liable as successors-
in-interest to the corporate property.
[G.R. No. L-39050. February 24, 1981.]
CARLOS GELANO and GUILLERMINA
MENDOZA DE GELANO, petitioners, vs. THE
HONORABLE COURT OF APPEALS and
INSULAR SAWMILL, INC., respondents.
DE CASTRO, J:
Facts:
Insular Sawmill, Inc. (ISI) is a corporation organized on 17
September 1945 with a corporate life of 50 years, or up to 17
September 1995, with the primary purpose of carrying on a
general lumber and sawmill business. To carry on this
business, ISI leased the paraphernal property of Carlos
Gelano's wife Guillermina Mendoza-Gelano at the corner of
Canonigo and Otis, Paco, Manila for P1,200.00 a month. It was
while ISI was leasing the aforesaid property that its officers and
directors had come to know Carlos Gelano who received from
the corporation cash advances on account of rentals to be paid
by the corporation on the land. Between 19 November 1947 to
26 December 1950 Carlos Gelano obtained from ISI cash
advances of P25,950.00. The said sum was taken and
received by Carlos Gelano on the agreement that ISI could
deduct the same from the monthly rentals of the leased
premises until said cash advances are fully paid. Out of the
aforementioned cash advances in the total sum of P25,950.00,
Carlos Gelano was able to pay only P5,950.00 thereby leaving
an unpaid balance of P20,000.00 which he refused to pay
despite repeated demands by ISI. Guillermina M. Gelano
refused to pay on the ground that said amount was for the
personal account of her husband asked for by, and given to
him, without her knowledge and consent and did not benefit
the family.
Issue:
Whether a corporation, whose corporate life had ceased by the
expiration of its terms of existence, could still continue
prosecuting and defending suits after its dissolution and
beyond the period of 3 years provided for under Act 1459,
otherwise known as the Corporation Law, to wind up its affairs,
without having undertaken any step to transfer its assets to a
trustee or assignee.
Held:
When ISI was dissolved on 31 December 1960, under Section
77 of the Corporation Law, it still has the right until 31
December 1963 to prosecute in its name the present case.
After the expiration of said period, the corporation ceased to
exist for all purposes and it can no longer sue or be sued.
However, a corporation that has a pending action and which
cannot be terminated within the 3-year period after its
dissolution is authorized under Section 78 to convey all its
property to trustees to enable it to prosecute and defend suits
by or against the corporation beyond the 3-year period.
Although ISI did not appoint any trustee, yet the counsel who
prosecuted and defended the interest of the corporation in the
present case and who in fact appeared in behalf of the
corporation may be considered a trustee of the corporation at
least with respect to the matter in litigation only. Said counsel
had been handling the case when the same was pending
before the trial court until it was appealed before the Court of
Appeals and finally to the Supreme Court. Therefore, there
was a substantial compliance with Section 78 of the
Corporation Law and as such, ISI could still continue
prosecuting the present case even beyond the period of 3
years from the time of its dissolution. Further, the case was
instituted on 29 May 1959, during the time when the
corporation was still very much alive.
Darla Grey| Corporation Law Digest | 63
[G.R. No. 81123. February 28, 1989.]
CRISOSTOMO REBOLLIDO, FERNANDO
VALENCIA and EDWIN REBOLLIDO, petitioners,
vs. HONORABLE COURT OF APPEALS and
PEPSICO, INC., respondents.
GUTIERREZ, JR., J:
Facts:
In June 1983, the Board of Directors and the stockholders of
Pepsi Cola adopted its amended articles of incorporation to
shorten its corporate term in accordance with Section 120 of
the Corporation Code following the procedure laid down by
Section 37 (power to extend or shorten the corporate term) and
Section 16 (amendment of the articles of incorporation) of the
same Code. Immediately after such amendment or on June 16,
23 and 30, 1983, Pepsi Cola caused the publication of a notice
of dissolution and the assumption of liabilities by PEPSICO in a
newspaper of general circulation. Meanwhile, a vehicular
accident occured on 1 March 1984, involving a Mazda Minibus
used as a schoolbus with Plate Number NWK-353 owned and
driven by Crisostomo Rebollido and Fernando Valencia,
respectively and a truck trailer with Plate Number NRH-522
owned at that time by Pepsi Cola Bottling Company of the
Philippines, Inc. and driven by Alberto Alva. The dissolution of
Pepsi Cola as approved by the Securities and Exchange
Commission (SEC) materialized on 2 March 1984, one day
after the accident occurred.
Issue:
Whether Pepsi Cola, the dissolved corporation, is the real party
in interest to whom summons should be served in the civil case
for damages.
Held:
Rebollido, et al. had a valid cause of action for damages
against Pepsi Cola. The law provides that a corporation whose
corporate term has ceased can still he made a party to suit.
Under paragraph 1, Section 122 of the Corporation Code, a
dissolved corporation "shall nevertheless be continued as a
body corporate for three (3) years after the time when it would
have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property and to
distribute its assets, but not for the purpose of continuing the
business for which it was established." The rationale for
extending the period of existence of a dissolved corporation is
that "this continuance of its legal existence for the purpose of
enabling it to close up its business is necessary to enable the
corporation to collect the demands due it as well as to allow its
creditors to assert the demands against it. If this were not so,
then a corporation that became involved in liabilities might
escape the payment of its just obligations by merely
surrendering its charter, and thus defeat its creditors or greatly
hinder and delay them in the collection of their demands. This
course of conduct on the part of corporations the law in justice
to persons dealing with them does not permit. The person who
has a valid claim against a corporation, whether it arises in
contract or tort should not be deprived of the right to prosecute
an action for the enforcement of his demands by the action of
the stockholders of the corporation in agreeing to its
dissolution. The dissolution of a corporation does not
extinguish obligations or liabilities due by or to it." Herein, the
right of action of Rebollido, et al. against Pepsi Cola and its
driver arose not at the time when the complaint was filed but
when the acts or omission constituting the cause of action
accrued, i.e. on March 1, 1984 which is the date of the
accident and when Pepsi Cola allegedly committed the wrong.
[G.R. No. 105364. June 28, 2001.]
PHILIPPINE VETERANS BANK EMPLOYEES
UNION-N.U.B.E. and PERFECTO V.
FERNANDEZ, petitioners, vs. HONORABLE
BENJAMIN VEGA, Presiding Judge of Branch
39 of the REGIONAL TRIAL COURT of Manila,
the CENTRAL BANK OF THE PHILIPPINES and
THE LIQUIDATOR OF THE PHILIPPINE
VETERANS BANK, respondents.
KAPUNAN, J:
Facts:
Sometime in 1985, the Central Bank of the Philippines filed
with Branch 39 of the Regional Trial Court of Manila a Petition
for Assistance in the Liquidation of the Philippine Veterans
Bank (Case SP-32311). Thereafter, the Philippine Veterans
Bank Employees Union-N.U.B.E. (PVBEU-NUBE), represented
by Perfecto V. Fernandez, filed claims for accrued and unpaid
employee wages and benefits with said court in SP-3231. After
lengthy proceedings, partial payment of the sums due to the
employees were made. However, due to the piecemeal
hearings on the benefits, many remain unpaid. On 8 March
1991, PVBEU-NUBE Fernandez moved to disqualify the Judge
Benjamin Vega, Presiding Judge of Branch 39 of the Regional
Trial Court of Manila, from hearing the above case on grounds
of bias and hostility towards petitioners. On 2 January 1992,
the Congress enacted Republic Act 7169 providing for the
rehabilitation of the Philippine Veterans Bank. Thereafter,
PVBEU-NUBE and Fernandez filed with the labor tribunals
their residual claims for benefits and for reinstatement upon
reopening of the bank. Republic Act 7169 entitled "An Act To
Rehabilitate The Philippine Veterans Bank Created Under
Republic Act 3518, Providing The Mechanisms Therefor, And
For Other Purposes", which was signed into law by President
Corazon C. Aquino on 2 January 1992 and which was
published in the Official Gazette on 24 February 1992,
provides in part for the reopening of the Philippine Veterans
Darla Grey| Corporation Law Digest | 64
Bank together with all its branches within the period of 3 years
from the date of the reopening of the head office.
Issue:
Whether a liquidation court can continue with liquidation
proceedings of the Philippine Veterans Bank (PVB) when
Congress had mandated its rehabilitation and reopening.
Held:
The enactment of Republic Act 7169, as well as the
subsequent developments has rendered the liquidation court
functus officio. Consequently, Judge Vega has been stripped
of the authority to issue orders involving acts of liquidation.
Liquidation, in corporation law, connotes a winding up or
settling with creditors and debtors. It is the winding up of a
corporation so that assets are distributed to those entitled to
receive them. It is the process of reducing assets to cash,
discharging liabilities and dividing surplus or loss. On the
opposite end of the spectrum is rehabilitation which connotes a
reopening or reorganization. Rehabilitation contemplates a
continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of
successful operation and solvency. It is crystal clear that the
concept of liquidation is diametrically opposed or contrary to
the concept of rehabilitation, such that both cannot be
undertaken at the same time. To allow the liquidation
proceedings to continue would seriously hinder the
rehabilitation of the subject bank.
[G.R. No. 142924. December 5, 2001.]
TEODORO B. VESAGAS, and WILFRED D. ASIS,
petitioners, vs. The Honorable COURT OF
APPEALS and DELFINO RANIEL and HELENDA
RANIEL, respondents.
PUNO, J:
Facts:
Spouses Delfino and Helenda Raniel are members in good
standing of the Luz Village Tennis Club, Inc. Teodoro B.
Vesagas, who claims to be the club's duly elected president,
with Wilfred D. Asis, who, in turn, claims to be its duly elected
vice-president and legal counsel, allegedly summarily stripped
them of their lawful membership, without due process of law.
Thereafter, the spouses filed a Complaint with the Securities
and Exchange Commission (SEC) on 26 March 1997 against
the Vesagas and Asis (SEC Case 03-97-5598). The spouses
Raniel asked the Commission to declare as illegal their
expulsion from the club as it was allegedly done in utter
disregard of the provisions of its by-laws as well as the
requirements of due process. They likewise sought the
annulment of the amendments to the by-laws made on 8
December 1996, changing the annual meeting of the club from
the last Sunday of January to November and increasing the
number of trustees from nine to fifteen. Finally, they prayed for
the issuance of a Temporary Restraining Order and Writ of
Preliminary Injunction.
Issue:
Whether the club has already ceased to be a corporate body.
Held:
The club, according to the SEC's explicit finding, was duly
registered and a certificate of incorporation was issued in its
favor. The question of whether the club was indeed registered
and issued a certification or not is one which necessitates a
factual inquiry. To substantiate their claim of dissolution,
Vesagas and Asis submitted only two relevant documents: the
Minutes of the First Board Meeting held on 5 January 1997,
and the board resolution issued on 14 April 1997 which
declared "to continue to consider the club as a non-registered
or a non-corporate entity and just a social association of
respectable and respecting individual members who have
associated themselves, since the 1970's, for the purpose of
playing the sports of tennis." These two documents will not
suffice. The requirements mandated by the Corporation Code
should have been strictly complied with by the members of the
club. The records reveal that no proof was offered by Vesagas
and Asis with regard to the notice and publication
requirements. Similarly wanting is the proof of the board
members' certification. Lastly, and most important of all, the
SEC Order of Dissolution was never submitted as evidence.
WEEK 12
[G.R. No. L-38649. March 26, 1979.]
FACILITIES MANAGEMENT CORPORATION, J.
S. DREYER, and J. V. CATUIRA, petitioners, vs.
LEONARDO DE LA OSA AND THE HONORABLE
COURT OF INDUSTRIAL RELATIONS,
respondents.
MAKASIAR, J:
Facts:
In a petition filed on July 1, 1967, Leonardo dela Osa sought
his reinstatement with full backwages, as well as the recovery
of his overtime compensation, swing shift and graveyard shift
differentials. Petitioner alleged that he was employed by
respondents as follows:
(1) Painter with an hourly rate of $1.25 from March, 1964 to
November, 1964, inclusive;
Darla Grey| Corporation Law Digest | 65
 (2) Houseboy with an hourly rate of $1.26 from December, 1964
to November, 1965, inclusive;
(3) Houseboy with an hourly rate of $1.33 from December, 1965
to August, 1966, inclusive; and
(4) Cashier with an hourly rate of $1.40 from August, 1966 to
March 27, 1967, inclusive.
He further averred that from December, 1965 to August, 1966,
inclusive, he rendered overtime services daily, and that this
entire period was divided into swing and graveyard shifts to
which he was assigned, but he was not paid both overtime and
night shift premiums despite his repeated demands from
respondents.
Respondents filed on August 7, 1967 their letter-answer
without substantially denying the material allegations of the
basic petition but interposed the following special defenses,
namely: That respondents Facilities Management Corporation
and J. S. Dreyer are domiciled in Wake Island which is beyond
the territorial jurisdiction of the Philippine Government; that
respondent J. V. Catuira, though an employee of respondent
corporation presently stationed in Manila, is without power and
authority of legal representation; and that the employment
contract between petitioner and respondent corporation carries
the approval of the Department of Labor of the Philippines.
Subsequently on May 3, 1968, respondents filed a motion to
dismiss the subject petition on the ground that this Court has
no jurisdiction over the instant case, and on May 24, 1968,
petitioner interposed an opposition thereto.
CIR: denied, the contract of employment between the parties
litigant was shown to have been originally executed and
subsequently renewed in Manila, as asserted by petitioner and
not denied by respondents. Hence, any dispute arising
therefrom should necessarily be determined in the place or
venue where it was contracted.
Issue:
WON the mere act by a non-resident foreign corporation of
recruiting Filipino workers for its own use abroad, in law doing
business in the Philippines
Held:
The object of Sections 68 and 69 of the Corporation Law was
not to prevent the foreign corporation from performing single
acts, but to prevent it from acquiring a domicile for the purpose
of business without taking the steps necessary to render it
amendable to suit in the local courts. It was never the purpose
of the Legislature to exclude a foreign corporation which
happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts.
No general rule or governing principle can be laid down as to
what constitutes 'doing' or 'engaging in' or 'transacting'
business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however,
seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it
was organized or whether it has substantially retired from it
and turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.
If a foreign corporation, not engaged in business in the
Philippines, is not barred from seeking redress from courts in
the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in Philippine courts for acts done
against a person or persons in the Philippines.
[G.R. No. L-34382. July 20, 1983.]
THE HOME INSURANCE COMPANY, petitioner,
vs. EASTERN SHIPPING LINES and/or ANGEL
JOSE TRANSPORTATION, INC. and HON. A.
MELENCIO-HERRERA, Presiding Judge of the
Manila Court of First Instance, Branch XVII,
respondents.
[G.R. No. L-34383. July 20, 1983.]
THE HOME INSURANCE COMPANY, petitioner,
vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN
PHILIPPINES, INC., and/or GUACODS, INC., and
HON. A. MELENCIO HERRERA, Presiding Judge
of the Manila Court of First Instance, Branch
XVII, respondents.
GUTIERREZ, JR., J:
Facts:
On or about January 13, 1967, S. Kajita & Co., on behalf of
Atlas Consolidated Mining & Development Corporation,
shipped on board the SS 'Eastern Jupiter' from Osaka, Japan,
2,361 coils of 'Black Hot Rolled Copper Wire Rods.' The said
VESSEL is owned and operated by defendant Eastern
Shipping Lines (CARRIER). The shipment was covered by Bill
of Lading, with arrival notice to Phelps Dodge Copper Products
Corporation of the Philippines (CONSIGNEE) at Manila. The
shipment was insured with plaintiff against all risks in under its
Insurance Policy. The coils discharged from the VESSEL were
in bad order. "For the loss/damage suffered by the cargo,
plaintiff paid the consignee under its insurance policy the
amount of P3,260.44, by virtue of which plaintiff became
subrogated to the rights and actions of the CONSIGNEE.
Plaintiff made demands for payment against the CARRIER and
the TRANSPORTATION COMPANY for reimbursement of the
aforesaid amount but each refused to pay the same.
Darla Grey| Corporation Law Digest | 66
On or about December 22, 1966, the Hansa Transport Kontor
shipped from Bremen, Germany, 30 packages of Service Parts
of Farm Equipment and Implements on board the VESSEL, SS
'NEDER RIJN' owned by the defendant, N. V. Nedlloyd Lijnen,
and represented in the Philippines by its local agent, the
defendant Columbian Philippines, Inc. (CARRIER). The
shipment was covered by a Bill of Lading for transportation to,
and delivery at, Manila, in favor of the consignee, international
Harvester Macleod, Inc. (CONSIGNEE). The shipment was
insured with plaintiff company under its Cargo Policy 'with
average terms' for P98,567.79. The packages discharged from
the VESSEL were found to be in bad order. Plaintiff paid the
CONSIGNEE under its Insurance Cargo Policy the amount of
P2,426.98, by virtue of which plaintiff became subrogated to
the rights and actions of the CONSIGNEE. Demands were
made on defendants CARRIER and CONSIGNEE for
reimbursement thereof but they failed and refused to pay the
same.
The plaintiff is a foreign insurance company duly authorized to
do business in the Philippines through its agent, Mr. VICTOR
H. BELLO, of legal age and with office address at Oledan
Building, Ayala Avenue, Makati, Rizal.
CFI: dismissing the complaints, on the ground that plaintiff
therein, now appellant, had failed to prove its capacity to sue.
Issue:
WON plaintiff-appellant lack legal existence or capacity
Held:
Petitioner was telling the truth when it averred in its complaints
that it was a foreign insurance company duly authorized to do
business in the Philippines through its agent Mr. Victor H.
Bello. However, when the insurance contracts which formed
the basis of these cases were executed, the petitioner had not
yet secured the necessary licenses and authority. The lower
court therefore, declared that pursuant to the basic public
policy reflected is the Corporation Law, the insurance contracts
executed before a license was secured must be held null and
void. The court ruled that the contracts could not be validated
by the subsequent procurement of the license. When the
complaints in these two cases were filed, the petitioner had
already secured the necessary license to conduct its insurance
business in the Philippines. It could already filed suits.
The object of the statute was to subject the foreign corporation
doing business in the Philippines to the jurisdiction of its courts.
The object of the statute was not to prevent the foreign
corporation from performing single acts, but to prevent it from
acquiring a domicile for the purpose of business without taking
the steps necessary to render it amenable to suit in the local
courts. The implication of the law is that it was never the
purpose of the Legislature to exclude a foreign corporation
which happens to obtain an isolated order for business from
the Philippines, from securing redress in the Philippine courts,
and thus, in effect, to permit persons to avoid their contracts
made with such foreign corporations. The effect of the statute
preventing foreign corporations from doing business and from
bringing actions in the local courts, except on compliance with
elaborate requirements, must not be unduly extended or
improperly applied. It should not be construed to extend
beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of
the entire law.
Insofar as litigation is concerned, the foreign corporation or its
assignee may not maintain any suit for the recovery of any
debt, claim, or demand whatever. The Corporation Law is
silent on whether or not the contract executed by a foreign
corporation with no capacity to sue is null and void ab initio.
Our ruling that the lack of capacity at the time of the
execution of the contracts was cured by the subsequent
registration is also strengthened by the procedural
aspects of these cases. The petitioner averred in its
complaints that it is a foreign insurance company, that it is
authorized to do business in the Philippines, that its agent
is Mr. Victor H. Bello, and that its office address is the
Oledan Building at Ayala Avenue, Makati. These are all the
averments required by Section 4, Rule 8 of the Rules of
Court. The petitioner sufficiently alleged its capacity to
sue. The private respondents countered either with an
admission of the plaintiff's jurisdictional averments or with
a general denial based on lack of knowledge or
information sufficient to form a belief as to the truth of the
averments.
[G.R. No. 118843. February 6, 1997.]
ERIKS PTE. LTD., petitioner, vs . COURT OF
APPEALS and DELFIN F. ENRIQUEZ, JR.,
respondents.
PANGANIBAN, J:
Facts:
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation
engaged in the manufacture and sale of elements used in
sealing pumps, valves and pipes for industrial purposes, valves
and control equipment used for industrial fluid control and PVC
pipes and fittings for industrial uses. On various dates covering
the period January 17 — August 16, 1989, private respondent
Delfin Enriquez, Jr., doing business under the name and style
of Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various
elements used in sealing pumps, valves, pipes and control
equipment, PVC pipes and fittings.
The transfers of goods were perfected in Singapore, for private
respondent's account, F.O.B. Singapore, with a 90-day credit
term. Subsequently, demands were made by petitioner upon
Darla Grey| Corporation Law Digest | 67
private respondent to settle his account, but the latter
failed/refused to do so. On August 28, 1991, petitioner
corporation filed with the Regional Trial Court of Makati,
Branch 138, 4 Civil Case No. 91-2373 entitled "Eriks Pte. Ltd.
vs. Delfin Enriquez, Jr." for the recovery of S$41,939.63 or its
equivalent in Philippine currency, plus interest thereon and
damages. Private respondent responded with a Motion to
Dismiss, contending that petitioner corporation had no legal
capacity to sue.
RTC: dismissed, petitioner is a foreign corporation doing
business in the Philippines without a license.
CA: same, same. Affirm RTC decision
Issue:
WON a foreign corporation which sold its products sixteen
times over a five-month period to the same Filipino buyer
without first obtaining a license to do business in the
Philippines, prohibited from maintaining an action to collect
payment therefor in Philippine courts (YES)
WON such foreign corporation "doing business" in the
Philippines without the required license and thus barred access
to our court system (YES)
Held:
It was never the intent of the legislature to bar court access to
a foreign corporation or entity which happens to obtain an
isolated order for business in the Philippines. Neither, did it
intend to shield debtors from their legitimate liabilities or
obligations. 15 But it cannot allow foreign corporations or
entities which conduct regular business any access to courts
without the fulfillment by such corporations of the necessary
requisites to be subjected to our government's regulation and
authority. By securing a license, the foreign entity would be
giving assurance that it will abide by the decisions of our
courts, even if adverse to it.
The aforementioned provision prohibits, not merely absence of
the prescribed license, but it also bars a foreign corporation
"doing business" in the Philippines without such license access
to our courts. A foreign corporation without such license is not
ipso facto incapacitated from bringing an action. A license is
necessary only if it is "transacting or doing business" in the
country. However, there is no definitive rule on what
constitutes "doing," "engaging in," or "transacting" business.
The Corporation Code itself does not define such terms. To fill
the gap, the evolution of its statutory definition has produced a
rather all-encompassing concept in Republic Act No. 7042:
“…any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization…”
In the durable case of The Mentholatum Co. vs. Mangaliman,
this Court discoursed on the test to determine whether a
foreign company is "doing business" in the Philippines, thus:
". . . The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. (Traction Cos. v. Collectors
of Int. Revenue [C.C.A., Ohio], 223 F. 984, 987.]) The term implies a
continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.”
The accepted rule in jurisprudence is that each case must be
judged in the light of its own environmental circumstances. It
should be kept in mind that the purpose of the law is to subject
the foreign corporation doing business in the Philippines to the
jurisdiction of our courts. It is not to prevent the foreign
corporation from performing single or isolated acts, but to bar it
from acquiring a domicile for the purpose of business without
first taking the steps necessary to render it amenable to suits in
the local courts.
We find no reason to disagree with both lower courts. The sale
by petitioner of the items covered by the receipts, which are
part and parcel of its main product line, was actually carried out
in the progressive prosecution of commercial gain and the
pursuit of the purpose and object of its business, pure and
simple. Further, its grant and extension of 90-day credit terms
to private respondent for every purchase made, unarguably
shows an intention to continue transacting with private
respondent, since in the usual course of commercial
transactions, credit is extended only to customers in good
standing or to those on whom there is an intention to maintain
long-term relationship.
By this judgment, we are not foreclosing petitioner's right to
collect payment. Res judicata does not set in a case dismissed
for lack of capacity to sue, because there has been no
determination on the merits. Moreover, this Court has ruled
that subsequent acquisition of the license will cure the lack of
capacity at the time of the execution of the contract. The
requirement of a license is not meant to put foreign
corporations at a disadvantage. Rather, the doctrine of lack of
capacity to sue is based on considerations of sound public
policy.
[G.R. No. 131367. August 31, 2000.]
HUTCHISON PORTS PHILIPPINES LIMITED,
petitioner, vs. SUBIC BAY METROPOLITAN
AUTHORITY, INTERNATIONAL CONTAINER
TERMINAL SERVICES INC., ROYAL PORT
SERVICES INC. and the EXECUTIVE
SECRETARY, respondents.
Darla Grey| Corporation Law Digest | 68
YNARES-SANTIAGO, J:
Facts:
Petitioner, a foreign corporation, was awarded by the Pre-
Qualification, Bids and Awards Committee (PBAC) of Subic
Bay Metropolitan Authority (SBMA) the concession to develop
and operate a modern marine container terminal within the
Subic Bay Freeport Zone. The following day, ICTSI filed a
letter-appeal with SBMA's Board of Directors requesting the
nullification and reversal of the above-quoted resolution
rejecting ICTSI's bid while awarding the same to HPPL. But
even before the SBMA Board could act on the appeal, ICTSI
filed a similar appeal before the Office of the President. On
August 30, 1996, then Chief Presidential Legal Counsel
(CPLC) Renato L. Cayetano submitted a memorandum to then
President Fidel V. Ramos.
The recommendation of CPLC Cayetano was approved by
President Ramos, and a copy of President Ramos' handwritten
approval was sent to the SBMA Board of Directors.
Accordingly, the SBMA Board, with the concurrence of
representatives of the Commission on Audit, agreed to focus
the reevaluation of the bids in accordance with the evaluation
criteria and the detailed components contained in the Tender
Document, including all relevant information gleaned from the
bidding documents, as well as the reports of the three
international experts and the consultancy firm hired by the
SBMA.
SBMA Board: SBMA through unanimous vote. HPPL is
accordingly selected as the winning bidder and is hereby
awarded the concession for the operation and development of
the Subic Bay Container Terminal.
Notwithstanding the SBMA Board's recommendations and
action awarding the project to HPPL, then Executive Secretary
Ruben Torres submitted a memorandum to the Office of the
President recommending that another rebidding be conducted.
Consequently, the Office of the President issued a
Memorandum directing the SBMA Board of Directors to refrain
from signing the Concession Contract with HPPL and to
conduct a rebidding of the project.
Ombudsman investigated the bidding. No grave abuse of
discretion on the part of SBMA in awarding the bid to HPPL.
On July 7, 1997, the HPPL, feeling aggrieved by the SBMA's
failure and refusal to commence negotiations and to execute
the Concession Agreement despite its earlier pronouncements
that HPPL was the winning bidder, filed a complaint against
SBMA before the RTC for specific performance, mandatory
injunction and damages. In due time, ICTSI, RPSI and the
Office of the President filed separate Answers-in-Intervention
to the complaint opposing the reliefs sought by complainant
HPPL. While the case before the trial court was pending
litigation, on August 4, 1997, the SBMA sent notices to plaintiff
HPPL, ICTSI and RPSI requesting them to declare their
interest in participating in a rebidding of the proposed project.
17 On October 20, 1997, plaintiff HPPL received a copy of the
minutes of the pre-bid conference which stated that the
winning bidder would be announced on December 5, 1997. 18
Then on November 4, 1997, plaintiff HPPL learned that the
SBMA had accepted the bids of ICTSI and RPSI who were the
only bidders who qualified.
The instant petition seeks the issuance of an injunctive writ for
the sole purpose of holding in abeyance the conduct by
respondent SBMA of a rebidding of the proposed SBICT
project until the case for specific performance is resolved by
the trial court.
Issue:
WON petitioner HPPL has the legal capacity to seek redress
from this Court
WON participating in the bidding is a mere isolated transaction,
or did it constitute "engaging in" or "transacting" business in the
Philippines such that petitioner HPPL needed a license to do
business in the Philippines before it could come to court
Held:
Admittedly, petitioner HPPL is a foreign corporation, organized
and existing under the laws of the British Virgin Islands. While
the actual bidder was a consortium composed of petitioner,
and two other corporations, namely, Guoco Holdings (Phils.)
Inc. and Unicol Management Services, Inc., it is only petitioner
HPPL that has brought the controversy before the Court,
arguing that it is suing only on an isolated transaction to evade
the legal requirement that foreign corporations must be
licensed to do business in the Philippines to be able to file and
prosecute an action before Philippines courts.
There is no general rule or governing principle laid down as to
what constitutes "doing" or "engaging in" or "transacting"
business in the Philippines. Each case must be judged in the
light of its peculiar circumstances. 28 Thus, it has often been
held that a single act or transaction may be considered as
"doing business" when a corporation performs acts for which it
was created or exercises some of the functions for which it was
organized. The amount or volume of the business is of no
moment, for even a singular act cannot be merely incidental or
casual if it indicates the foreign corporation's intention to do
business.
Participating in the bidding process constitutes "doing
business" because it shows the foreign corporation's intention
to engage in business here. The bidding for the concession
contract is but an exercise of the corporation's reason for
creation or existence. Thus, it has been held that "a foreign
company invited to bid for IBRD and ADB international projects
in the Philippines will be considered as doing business in the
Philippines for which a license is required." In this regard, it is
the performance by a foreign corporation of the acts for which
it was created, regardless of volume of business, that
Darla Grey| Corporation Law Digest | 69
determines whether a foreign corporation needs a license or
not. 30
The primary purpose of the license requirement is to compel a
foreign corporation desiring to do business within the
Philippines to submit itself to the jurisdiction of the courts of the
state and to enable the government to exercise jurisdiction
over them for the regulation of their activities in this country.
If a foreign corporation operates a business in the Philippines
without a license, and thus does not submit itself to Philippine
laws, it is only just that said foreign corporation be not allowed
to invoke them in our courts when the need arises.
Accordingly, petitioner HPPL must be held to be incapacitated
to bring this petition for injunction before this Court for it is a
foreign corporation doing business in the Philippines without
the requisite license.
[G.R. No. 138104. April 11, 2002.]
MR HOLDINGS, LTD., petitioner, vs. SHERIFF
CARLOS P. BAJAR, SHERIFF FERDINAND M.
JANDUSAY, SOLIDBANK CORPORATION, AND
MARCOPPER MINING CORPORATION,
respondents.
SANDOVAL-GUTIERREZ, J:
Facts:
Asian Development Bank (ADB), a multilateral development
finance institution, agreed to extend to Marcopper Mining
Corporation (Marcopper) a loan in the aggregate amount of
US$40,000,000.00 to finance the latter's mining project at Sta.
Cruz, Marinduque. The principal loan of US$15,000,000.00
was sourced from ADB's ordinary capital resources, while the
complementary loan of US$25,000,000.00 was funded by the
Bank of Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a
foreign corporation which owns 40% of Marcopper, executed a
"Support and Standby Credit Agreement" whereby the latter.
agreed to provide Marcopper with cash flow support for the
payment of its obligations to ADB.
To secure the loan, Marcopper executed in favor of ADB a
"Deed of Real Estate and Chattel Mortgage" dated November
11, 1992, covering substantially all of its (Marcopper's)
properties and assets in Marinduque. It was registered with the
Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan
obligation, Placer Dome, in fulfillment of its undertaking under
the "Support and Standby Credit Agreement," and presumably
to preserve its international credit standing, agreed to have its
subsidiary corporation, petitioner MR Holding, Ltd., assumed
Marcopper's obligation to ADB in the amount of
US$18,453,450.02. Consequently, in an "Assignment
Agreement" dated March 20, 1997, ADB assigned to petitioner
all its rights, interests and obligations under the principal and
complementary loan agreements, ("Deed of Real Estate and
Chattel Mortgage," and "Support and Standby Credit
Agreement"). On December 8, 1997, Marcopper likewise
executed a "Deed of Assignment" in favor of petitioner.
In the meantime, respondent Solidbank Corporation obtained a
Partial Judgment against Marcopper from the RTC, Branch 26,
Manila, in Civil Case No. 96-80083 entitled "Solidbank
Corporation vs. Marcopper Mining Corporation, John E. Loney,
Jose E. Reyes and Teodulo C. Gabor, Jr. ," Having learned of
the scheduled auction sale, petitioner filed an "Affidavit of
Third-Party Claim" asserting its ownership over all Marcopper's
mining properties, equipment and facilities by virtue of the
"Deed of Assignment.
Upon the denial of its "Affidavit of Third-Party Claim" by the
RTC of Manila, petitioner commenced with the RTC of
Marinduque presided by Judge Leonardo P. Ansaldo, a
complaint for reivindication of properties, etc., with prayer for
preliminary injunction and temporary restraining order against
respondents Solidbank, Marcopper, and sheriffs Bajar and
Jandusay.
RTC: In an Order 16 dated October 6, 1998, Judge Ansaldo
denied petitioner's application for a writ of preliminary
injunction on the ground that a) PETITIONER HAS NO LEGAL
CAPACITY TO SUE, IT BEING A FOREIGN CORPORATION
DOING BUSINESS IN THE PHILIPPINES WITHOUT
LICENSE; b) an injunction will amount "to staying the
execution of a final judgment by a court of co-equal and
concurrent jurisdiction"; and c) the validity of the "Assignment
Agreement" and the "Deed of Assignment" has been "put into
serious question by the timing of their execution and
registration.
CA: Prohibition and Mandamus, affirm RTC.
Hence, the present Petition for Review on Certiorari.
Issue:
WON petitioner has the legal capacity to seek redress from this
Court
Held:
In the case at bar, the Court of Appeals categorized as "doing
business" petitioner's participation under the "Assignment
Agreement" and the "Deed of Assignment." This is simply
untenable. The expression "doing business" should not be
given such a strict and literal construction as to make it apply
to any corporate dealing whatever. 28 At this early stage and
with petitioner's acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended
to continue the business for which it was organized. It may not
Darla Grey| Corporation Law Digest | 70
be amiss to point out that the purpose or business for which
petitioner was organized is not discernible in the records. No
effort was exerted by the Court of Appeals to establish the
nexus between petitioner's business and the acts supposed to
constitute "doing business." Thus, whether the assignment
contracts were incidental to petitioner's business or were
continuation thereof is beyond determination.

The Court of Appeals ruled that petitioner has no legal capacity

to sue in the Philippine courts because it is a foreign
corporation doing business here without license. A review of
this ruling does not pose much complexity as the principles
governing a foreign corporation's right to sue in local courts
have long been settled by our Corporation Law. These
principles may be condensed in three statements, to wit:

a) if a foreign corporation does business in the Philippines

without a license, it cannot sue before the Philippine courts;

b) if a foreign corporation is not doing business in the

Philippines, it needs no license to sue before Philippine courts on
an isolated transaction or on a cause of action entirely
independent of any business transaction; and

c) if a foreign corporation does business in the Philippines with

the required license, it can sue before Philippine courts on any
transaction.

Apparently, it is not the absence of the prescribed license but

the "doing (of) business" in the Philippines without such license
which debars the foreign corporation from access to our courts.

In the final analysis, we are convinced that petitioner was

engaged only in isolated acts or transactions. Single or isolated
acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical
examples of these are the making of a single contract, sale,
sale with the taking of a note and mortgage in the state to
secure payment therefor, purchase, or note, or the mere
commission of a tort. In these instances, there is no purpose to
do any other business within the country.

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