.
By-Laws are indispensable to corporations, since they are required by law
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH)
ASSOCIATION, INC., petitioner, vs.HON. COURT OF APPEALS,
HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.
G.R. No. 117188 August 7, 1997
ROMERO, J.:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was
organized on 8 February 1983 as the homeoenwers' association for Loyola
Grand Villas. It was also registered as the sole homeowners' association in
the said village with the Home Financing Corporation (which eventually
became Home Insurance Guarantee Corporation ["HIGC"]). However, the
association was not able file its corporate by-laws.
The LGVHAI officers then tried to registered its By-Laws in 1988, but
they failed to do so. They then discovered that there were two other
homeowners' organizations within the subdivision - the Loyola Grand
Villas Homeowners (North) Association, Inc. [North Association] and
herein Petitioner Loyola Grand Villas Homeowners (South) Association,
Inc.["South Association].
Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI
was dissolved for its failure to submit its by-laws within the period
required by the Corporation Code and for its non-user of corporate charter
because HIGC had not received any report on the association's activities.
These paved the way for the formation of the North and South
Associations.
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo
Javier, and questioned the revocation of its registration. Hearing Officer
Javier ruled in favor of LGVHAI, revoking the registration of the North
and South Associations.
Petitioner South Association appealed the ruling, contending that
LGVHAI's failure to file its by-laws within the period prescribed by
Section 46 of the Corporation Code effectively automatically dissolved the
corporation. The Appeals Board of the HIGC and the Court of Appeals
both rejected the contention of the Petitioner affirmed the decision of
Hearing Officer Javier.
Issue:
W/N LGVHAI'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.
Ruling: No.
The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this
Code, must within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government not inconsistent
with this Code.
Ordinarily, the word "must" connotes an imposition of duty which must be
enforced. However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an ecercise of discretion. If the
language of a statute, considered as a whole with due regard to its nature
and object, reveals that the legislature intended to use the words "shall"
and "must" to be directory, they should be given that meaning.
The legislative deliberations of the Corporation Code reveals that it was
not the intention of Congress to automatically dissolve a corporation for
failure to file the By-Laws on time.
Moreover, By-Laws may be necessary to govern the corporation, but By-
Laws are still subordinate to the Articles of Incorporation and the
Corporation Code. In fact, there are cases where By-Laws are unnecessary
to the corporate existence and to the valid exercise of corporate powers.
The Corporation Code does not expressly provide for the effects of non-
filing of By-Laws. However, these have been rectified by Section 6 of PD
902-A which provides that SEC shall possess the power to suspend or
revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations upon failure to file By-Laws within the
required period.
This shows that there must be notice and hearing before a corporation is
dissolved for failure to file its By-Laws. Even assuming that the existence
of a ground, the penalty is not necessarily revocation, but may only be
suspension.
for an orderly management of corporations. However, failure to file them
within the period prescribed does not equate to the automatic dissolution
of a corporation
SAWADJAAN
Vs.
COURT OF APPEALS,
G.R. No. 141735
FACTS OF THE CASE
Petitioner Sappari K. Sawadjaan was among the first employees of the
Philippine Amanah Bank (PAB) when it was created by virtue of
Presidential Decree No. 264. Sometime in 1988, while still designated as
appraiser/investigator, he was assigned to inspect the properties offered as
collaterals by Compressed Air Machineries and Equipment Corporation
(CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The
properties consisted of two parcels of land covered by Transfer
Certificates of Title (TCTs). On the basis of his Inspection and Appraisal
Report, the PAB granted the loan application. When the loan matured,
CAMEC requested an extension to repay the loan.
In January 1990, Congress passed Republic Act 6848 creating the AIIBP
and repealing P.D. No. 264 (which created the PAB). All assets, liabilities
and capital accounts of the PAB were transferred to the AIIBP, and the
existing personnel of the PAB were to continue to discharge their
functions unless discharged. In the ensuing reorganization, Sawadjaan was
among the personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now
referred to as the AIIBP, discovered that one of the TCT was spurious, the
property described therein non-existent, and that the property covered by
the other TCT had a prior existing mortgage.
The Board of Directors of the AIIBP created an Investigating Committee
to look into the CAMEC transaction, which had cost the bank Six Million
Pesos (P6, 000,000.00) in losses. The Board of Directors of AIIBP
adopted Resolution No. 2309 finding petitioner guilty of Dishonesty in the
Performance of Official Duties and/or Conduct Prejudicial to the Best
Interest of the Service and imposing the penalty of Dismissal from the
Service. On reconsideration, they adopted the Resolution No. 2332
reducing the penalty imposed on petitioner from dismissal to suspension
for a period of six (6) months and one (1) day.
Petitioner filed a notice of appeal to the Merit System Protection Board
(MSPB). The CSC adopted Resolution No. 94-4483 dismissing the appeal
for lack of merit and affirming Resolution No. 2309 of the Board of
Directors of AIIBP. The CSC adopted Resolution No. 95-2574 denying
petitioner’s Motion for Reconsideration. Hence this petition for certiorari
under Rule 65 of the Rules of Court.
ISSUE
Whether or not the failure of AIIBP to file its by-laws within the period
prescribed results to a nullity of all actions and proceedings it has initiated.
RULING
Petitioner’s efforts are unavailing, and we deny his petition for its
procedural and substantive flaws. Petitioner’s recurrent argument, tenuous
at its 128
very best, is premised on the fact that since respondent AIIBP failed to file
its by-laws within the designated 60 days from the effectively of Rep. Act
No. 6848, all proceedings initiated by AIIBP and all actions resulting
therefrom are a patent nullity. Petitioner already raised the question of
AIIBP’s corporate existence and lack of jurisdiction in his Motion for
New Trial/Motion for Reconsideration and was denied by the Court of
Appeals. Despite the volume of pleadings he has submitted thus far, he has
added nothing substantial to his arguments.
The AIIBP was created by Rep. Act No. 6848. It has a main office where
it conducts business, has shareholders, corporate officers, a board of
directors, assets, and personnel. It is, in fact, here represented by the
Office of the Government Corporate Counsel, "the principal law office of
government-owned corporations, one of which is respondent bank." At the
very least, by its failure to submit its by-laws on time, the AIIBP may be
considered a de facto corporation who’s right to exercise corporate powers
may not be inquired into collaterally in any private suit to which such
corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the
prescribed period does not ipso facto lose its powers as such. The SEC
Rules on Suspension/Revocation of the Certificate of Registration of
Corporations, details the procedures and remedies that may be availed of
before an order of revocation can be issued. There is no showing that such
a procedure has been initiated in this case.
Wherefore, the petition is dismissed
PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION and ALEJANDRO
GALVAN, respondents.
277 SCRA 462 – Business Organization – Corporation Law – By-laws and
Innocent Third Persons
In 1991, PMI Colleges hired the services of Alejandro Galvan for the
latter to teach in said institution. However, for unknown reasons, PMI
defaulted from paying the remunerations due to Galvan. Galvan made
demands but were ignored by PMI. Eventually, Galvan filed a labor case
against PMI. Galvan got a favorable judgment from the Labor Arbiter; this
was affirmed by the National Labor Relations Commission. On appeal,
PMI reiterated, among others, that the employment of Galvan is void
because it did not comply with its by-laws. Apparently, the by-laws
require that an employment contract must be signed by the Chairman of
the Board of PMI. PMI asserts that Galvan’s employment contract was not
signed by the Chairman of the Board.
ISSUE: Whether or not Galvan’s employment contract is void.
HELD: No. PMI Colleges never even presented a copy of the by-laws to
prove the existence of such provision. But even if it did, the employment
contract cannot be rendered invalid just because it does not bear the
signature of the Chairman of the Board of PMI. By-Laws operate merely
as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge
of the same. In this case, PMI was not able to prove that Galvan knew of
said provision in the by-laws when he was employed by PMI.
The Government of the Philippine Islands vs. El Hogar Filipino
G.R. No. L-26649 July 13, 1917
FACTS:
The Philippine Commission enacted Act No. 1459, also known as the
Corporation Law, on March 1, 1906. El Hogar Filipino, organized in 1911
under the laws of the Philippine Islands, was the first corporation
organized under Sec. 171-190 Act No. 1459, devoted to the subject of
building and loan associations, their organization and administration. In
the said law, the capital of the corporation was not permitted to exceed
P3M, but Act No. 2092 amended the statute, permitting capitalization to
the amount of ten millions.
El Hogar took advantage of the amendment of Act No. 1459 and
amended its AOI as a result thereof, stating that the amount of capital must
not exceed what has been stated in Act No. 2092. This resulted to El
Hogar having 5,826 shareholders, 125,750 shares with paid-up value of
P8.7M. The corporation paid P7.16M to its withdrawing stockholders.
The Government of the Philippine Islands filed an action against
El Hogar due to the alleged illegal holding title to real property for a
period exceeding five (5) years after the same was bought in a foreclosure
sale. Sec. 13(5) of the Corporation Law states that corporations must
dispose of real estate obtained within 5 years from receiving the title. The
Philippine Government also prays that El Hogar be excluded from all
corporate rights and privileges and effecting a final dissolution of said
corporation.
It appears from the records that El Hogar was the holder of a
recorded mortgage on the San Clemente land as security for a P24K loan
to El Hogar. However, shareholders and borrowers defaulted in payment
so El Hogar foreclosed the mortgage and purchased the land during the
auction sale. A deed of conveyance in favor of El Hogar was executed and
sent to the Register of Deeds of Tralac with a request that the certificate of
title be cancelled and a new one be issued in favor of El Hogar from the
Register of Deeds of Tarlac. However, no reply was received. El Hogar
filed a complaint with the Chief of the General Land Registration Office.
The certificate of title to the San Clemente land was received by El Hogar
and a board resolution authorizing Benzon to find a buyer was issued.
Alcantara, the buyer of the land, was given extension of time to make
payment but defaulted so the contract treated rescinded. Efforts were made
to find another buyer. Respondent acquired title in December 1920 until
the property was finally sold to Felipa Alberto in July 1926. The interval
exceeded 5 years but the period did not commence to run until May 7,
1921 when the register of deeds delivered the new certificate of title. It has
been held that a purchaser of land registered under the Torrens system
cannot acquire the status of an innocent purchaser for value unless the
vendor is able to place the owner’s duplicate in his hands showing the title
to be in the vendor. During the period before May 1921, El Hogar was not
in a position to pass an indefeasible title to any purchaser. Therefore, El
Hogar cannot be held accountable for this delay which was not due to its
fault. Likewise, the period from March 25, 1926 to April 20, 1926 must
not be part of the five-year period because this was the period where
respondent was under the obligation to sell the property to Alcantara prior
to the contract’s rescission due to Alcantara’s non-payment.
Another circumstance causing the delay is the fact that El Hogar
purchased the property in the full amount of the loan made by the former
owner which is nearly P24K when it was subsequently found that the
property was not salable and later sold for P6K notwithstanding El
Hogar’s efforts to find a purchaser upon better terms.
ISSUE:
Whether the acts of respondent corporation merit its dissolution or
deprivation of its corporate franchise and to exclude it from all corporate
rights and privileges
HELD:
SUSTAINED only as to administering of real property not owned by it
and when permitted by contract.
Causes of action:
1) Alleged illegal holding of real property for a period exceeding
five years from receipt of title-Cause of delay is not
respondent’s fault
2) That respondent is owning and holding a business lot with the
structure thereon in excess of its reasonable requirements and in
contravention of Sec. 13(5) of Corpo. Law- WITHOUT MERIT
Every corporation has the power to purchase, hold and lease such real
property as the transaction would of the lawful business may reasonably
and necessarily require.
3) That respondent is engaged in activities foreign to the purposes
for which the corporation was created and not reasonably
necessary to its legitimate ends-VALID
The administration of property, payment of real estate taxes, causing
necessary repairs, managing real properties of non-borrowing shareholders
is more befitting to the business of a real estate agent or a trust company
than a building and loan association.
4) That the by-laws of the association stating that, “the board of
directors by the vote of an absolute majority of its members is
empowered to cancel shares and to return the balance to the
owner by reason of their conduct or any other motive or
liquidation” is in direct conflict with Sec. 187 of the Corporation
Law which provides that the board of directors shall not have
the power to force the surrender and withdrawal of unmatured
stock except in case of liquidation or forfeiture of stock for
delinquency-WITHOUT MERIT
There is no provision of law making it a misdemeanor to incorporate an
invalid provision in the by-laws of a corporation; and if there were such,
the hazards incident to corporate effort would be largely increased.
5) Art. 61 of El Hogar’s by-laws which states that “ attendance in
person or by proxy by shareholders owning one-half plus one of
the shareholders shall be necessary to constitute a quorum for
the election of directors” is contrary to Sec. 31 of the Corpo Law
which provides that owners of the majority of the subscribed
capital stock entitled to vote must be present either in person or
by proxy at all elections of directors- WITHOUT MERIT
No fault can be imputed to the corporation on account of the failure of the
shareholders to attend the annual meetings and their non-attendance in
meetings is doubtless to be interpreted in part as expressing their
satisfaction of the way in which things have been conducted. Mere failure
of a corporation to elect officers does not terminate the terms of existing
officers nor dissolve the corporation. The general rule is to allow the
officer to holdover until his successor is duly qualified.
6) That the directors of El Hogar, instead of receiving nominal pay
or serving without pay, have been receiving large compensation,
varying in amount from time to time, out of respondents’
profits- WITHOUT MERIT
With the growth of the corporation, the amount paid as compensation to
the directors has increased beyond what would probably be necessary is a
matter that cannot be corrected in this action. Nor can it properly be made
a basis for depriving respondent of its franchise or enjoining it from
compliance with the provisions of its own by-laws. If a mistake has been
made, the remedy is to lie rather in publicity and competition.
7) That the promoter and organizer of El Hogar was Mr. Antonio
Melian and that in the early stages of the organization of the
association, the board of directors authorized the association to
make a contract with him and that the royalty given to him as
founder is “unconscionable, excessive and out of proportion to
the services rendered”-NOT SUSTAINED
The mere fact that compensation is in excess of what may be considered
appropriate is not a proper consideration for the court to resolve. That El
Hogar is in contact with its promoter did not affect the association’s legal
character. The court is of the opinion that the traditional respect for the
sanctity of the contract obligation should prevail over the radical and
innovating tendencies.
8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as
board of directors to be holders of shares of the paid up value of
P5,000 which shall be held as security, is objectionable since a
poor member or wage earner cannot serve as a director
irrespective of other qualifications- NOT SUSTAINED
Corpo. Law expressly gives the power to the corporation to provide in its
by-laws for the qualification of its directors and the requirement of
security from them for the proper discharge of the duties of their pffice in
the manner prescribed in Art. 70 is highly prudent and in conformity with
good practice.
9) That respondent abused its franchise in issuing “special” shares
alleged to be illegal and inconsistent with the plan and purposes
of building and loan associations- WITHOUT MERIT
The said special shares are generally known as advance payment shares
which were evidently created for the purpose of meeting the condition
caused by the prepayment of dues that is permitted. Sec. 178 of Corpo
Law allows payment of dues or interest to be paid in advance but the
corporation shall not allow interest on advance payment grater than 6%
per annum nor for a period longer than one year. The amount is satisfied
by applying a portion of the shareholder’s participation in the annual
earnings.The mission of special shares does not involve any violation of
the principle that the shares must be sold at par.
10) That in making purchases at foreclosure sales constituting as
security for 54 of the loans, El Hogar bids the full amount after
deducting the withdrawal value, alleged to be pusuing a policy
of depreciating at the rate of 10 percent per annum, the value of
the real properties it acquired and that this rate is excessive-
UNSUSTAINABLE
The board of directors possess discretion in this matter. There is no
provision of law prohibiting the association from writing off a reasonable
amount for depreciation on its assets for the purpose of determining its
real profits. Art. 74 of its by-laws expressly authorizes the board of
directors to determine each year the amount to be written down upon the
expenses for the installation and the property of the corporation. The court
cannot control the discretion of the board of directors about an
administrative matter as to which they have no legitimate power of action.
11) That respondent maintains excessive reserve funds-
UNFOUNDED
The function of this fund is to insure stockholders against losses. When
the reserves become excessive, the remedy is in the hands of the
Legislature.
No prudent person would be inclined to take a policy in a
company which had so improvidently conducted its affairs that it only
retained a fund barely sufficient to pay its present liabilities and therefore
was in a condition where any change by the reduction of interest upon or
depreciation in the value of securities or increase of mortality would
render it insolvent and subject to be placed in the hands of a receiver.
12) That the board of directors has settled upon the unlawful policy of
paying a straight annual dividend of 10 percent per centum regardless of
losses suffered and profits made by the corporation, in contravention with
the requirements of Sec. 188 of the Corpo law- UNFOUNDED
As provided in the previous cause of action, the profits and losses shall be
determined by the board of directors and this means that they shall
exercise the usual discretion of good businessmen in allocating a portion
of the annual profits to purposes needful of the welfare of the association.
The law contemplates distribution of earnings and losses after legitimate
obligations have been met.
13) That El Hogar has made loans to the knowledge of its officers which
were intended to be used by the borrowers for other purposes than the
building of homes and no attempt has been made to control the borrowers
with respect to the use made of the borrowed funds- UNFOUNDED
There is no statute expressly declaring that loans may be made by these
associations SOLELY for the purpose of building homes. The building of
himes in Sec. 171 of Corpo Law is only one among several ends which
building and loan associations are designed to promote and Sec. 181
authorizes the board of directors of the association to fix the premium to
be charged.
14) That the loans made by defendant for purposes other than building or
acquiring homes have been extended in extremely large amounts and to
wealthy persons and large companies- WITHOUT MERIT
The question of whether the making of large loans constitutes a misuser of
the franchise as would justify the court in depriving the association of its
corporate life is a matter confided to the discretion of the board of
directors. The law states no limit as to the size of the loans to be made by
the association. Resort should be had to the legislature because it is not a
matter amenable to judicial control
15) That when the franchise expires, supposing the corporation is not
reorganized, upon final liquidation of the corporation, a reserve fund may
exist which is out of all proportion to the requirements that may fall upon
it in the liquidation of the company-NO MERIT
This matter may be left to the discretion of the board of directors or to
legislative action if it should be deemed expedient to require the gradual
suppression of reserve funds as the time for dissolution approaches. It is
no matter for judicial interference and much less could the resumption of
the franchise be justified on this ground.
16) That various outstanding loans have been made by the respondent to
corporations and partnerships and such entities subscribed to respondents’
shares for the sole purpose of obtaining such loans-NO MERIT
Sec. 173 of Corpo Law declares that “any person” may become a
stockholder in building and loan associations. The phrase ANY PERSON
does not prevent a finding that the phrase may not be taken in its proper
and broad sense of either a natural or artificial person.
17) That in disposing real estate purchased by it, some of the properties
were sold on credit and the persons and entities to which it was sold are
not members nor shareholders nor were they made members or
shareholders, contrary to the provision of Corpo Law requiring requiring
loans to be stockholders only- NOT SUSTAINED
The law does not prescribe that the property must be sold for cash or that
the purchaser shall be a shareholder in the corporation. Such sales can be
made upon the terms and conditions approved by the parties.
Respondent is enjoined in the future from administering real property
not owned by itself, except as may be permitted to it by contract when a
borrowing shareholder defaults in his obligation. In all other respects, the
complaint is DISMISSED.
Thomson vs. Court of Appeals, 298 SCRA 280 (1998)
Ponente: Justice Quisumbing
Facts:
Petitioner Marsh Thomson (Thomson) was the Executive Vice-President
and, later on, the Management Consultant of private respondent, the
American Chamber of Commerce of the Philippines, Inc. (AmCham) for
over ten years. While petitioner was still working with private respondent,
his superior, A. Lewis Burridge, retired as AmCham's President. Before
Burridge decided to return to his home country, he wanted to transfer his
proprietary share in the Manila Polo Club (MPC) to petitioner. However,
through the intercession of Burridge, private respondent paid for the share
but had it listed in petitioner's name. This was made clear in an
employment advice dated January 13, 1986, wherein petitioner was
informed by private respondent. On April 25, 1986, Burridge transferred
said proprietary share to petitioner, as confirmed in a letter of notification
to the Manila Polo Club. Upon his admission as a new member of the
MPC, petitioner paid the transfer fee of P40,000.00 from his own funds;
but private respondent subsequently reimbursed this amount. On
November 19, 1986, MPC issued Proprietary Membership Certificate
Number 3398 in favor of petitioner. But petitioner, however, failed to
execute a document recognizing private respondent's beneficial ownership
over said share. Following AmCham's policy and practice, there was a
yearly renewal of employment contract between the petitioner and private
respondent. But petitioner never acknowledged that private respondent is
the beneficial owner of the share. When petitioner's contract of
employment was up for renewal in 1989, he notified private respondent
that he would no longer be available. The private respondent asked the
petitioner to stay on for another six (6) months. Pending the negotiation
for the consultancy arrangement, private respondent executed a Release
and Quitclaim, stating that AMCHAM, its directors, officers and assigns,
employees and/or representatives do hereby release, waive, abandon and
discharge J. MARSH THOMSON from any and all existing claims. The
quitclaim, expressed in general terms, did not mention specifically the
MPC share. On April 5, 1990, private respondent, through counsel sent a
letter to the petitioner demanding the return and delivery of the MPC
share. Failing to get a favorable response, private respondent filed on May
15, 1990, a complaint against petitioner. The trial court awarded the MPC
share to defendant (petitioner now) on the ground that the Articles of
Incorporation and By-laws of Manila Polo Club prohibit artificial persons,
such as 383
corporations, to be club members. Private respondent appealed to the
Court of Appeals which in turn reversed the RTC decision.
Issue/s:
Whether the Court of Appeals in declaring AmCham to be the real owner
of the shares
Ruling:
The Supreme court ruled that the Court of Appeals did not err and
affirmed the appellate court’s decision. It held that there is a trust
relationship that existed between the parties. Moreover, petitioner failed to
present evidence to support his allegation of being merely a debtor when
the private respondent paid the purchase price of the MPC share.
Applicable here is the rule that a trust arises in favor of one who pays the
purchase money of property in the name of another, because of the
presumption that he who pays for a thing intends a beneficial interest
therein for himself. Although petitioner initiated the acquisition of the
share, evidence on record shows that private respondent acquired said
share with its funds. Petitioner did not pay for said share, although he later
wanted to, but according to his own terms, particularly the price. The
quitclaim executed by private respondent does not clearly show the intent
to include therein the ownership over the MPC share. Private respondent
even asserts that at the time the Release and Quitclaim was executed on
September 29, 1989, the ownership of the MPC share was not
controversial nor contested. Settled is the rule that a waiver to be valid and
effective must, in the first place, be couched in clear and unequivocal
terms which leave no doubt as to the intention of a party to give up a right
or benefit which legally pertains to him. A waiver may not be attributed to
a person when the terms thereof do not explicitly and clearly evidence an
intent to abandon a right vested in such person. If we apply the standard
rule that waiver must be cast in clear and unequivocal terms, then clearly
the general terms of the cited release and quitclaim indicates merely a
clearance from general accountability, not specifically a waiver of
AmCham's beneficial ownership of the disputed shares.
ENRIQUE SALAFRANCA, petitioner,
vs.
PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS
ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND
DIVISION, NATIONAL LABOR RELATIONS COMMISSION
(NLRC), respondents.
ROMERO, J.:
DOCTRINE: The right to amend the by-laws lies solely in the discretion
of the employer, this being in the exercise of management prerogative or
business judgment. However this right, extensive as it may be, cannot
impair the obligation of existing contracts or rights.
FACTS:
Petitioner Enrique Salafranca started working with the private
respondent Philamlife Village Homeowners Association on May 1,
1981 as administrative officer for a period of six months.
From this date until December 31, 1983, petitioner was reappointed
to his position three more times. Petitioner was generally responsible for
the management of the village's day to day activities. After petitioner's
term of employment expired on December 31, 1983, he still continued to
work in the same capacity, albeit, without the benefit of a renewed
contract.
Sometime in 1987, private respondent decided to amend its by-laws.
Included therein was a provision regarding officers, specifically, the
position of administrative officer under which said officer shall hold
office at the pleasure of the Board of Directors.
In view of this development, private respondent, informed the
petitioner that his term of office shall be co-terminus with the Board
of Directors which appointed him to his position. Furthermore, until
he submits a medical certificate showing his state of health, his
employment shall be on a month-to-month basis. Oddly,
notwithstanding the failure of herein petitioner to submit his medical
certificate, he continued working until his termination in December 1992.
Claiming that his services had been unlawfully and unceremoniously
dispensed with, petitioner filed a complaint for illegal dismissal with
money claims and for damages.
Labor Arbiter: Ordering private respondent to pay the petitioner the
amount of P257,833.33 representing his backwages, separation pay and
13th month pay.
Said Amendment would not be applicable to the case of complainant who
had become a regular employee long time before the Amendment took
place. Should be applied prospectively and not retroactively.
NLRC: Reversed the decision of the L.A. Reducing petitioner's
monetary award to only one-half (1/2) month pay for every year of service
representing his retirement pay.
That the Association's Rules and Regulations were amended to put to rest
the tenural (sic) limit of the office of the Administrative Officer in
accordance with its earlier intention, that it is co-terminus with that of the
members of the Board of Directors.
ISSUE: WON petitioner’s dismissal is valid, on the ground that the latter's
position is coterminus with that of the Village's Board of Directors, as
provided for in its amended by-laws.
HELD: NO
Admittedly, the right to amend the by-laws lies solely in the discretion
of the employer, this being in the exercise of management prerogative
or business judgment. However this right, extensive as it may be,
cannot impair the obligation of existing contracts or rights.
Prescinding from these premises, private respondent's insistence that it can
legally dismiss petitioner on the ground that his tenure has expired is
untenable. To reiterate, petitioner, being a regular employee, is entitled
to security of tenure, hence, his services may only be terminated for
causes provided by law.
A contrary interpretation would not find justification in the laws or the
Constitution. If we were to rule otherwise, it would enable an employer to
remove any employee from his employment by the simple expediency of
amending its by-laws and providing that his/her position shall cease to
exist upon the occurrence of a specified event.
If private respondent wanted to make the petitioner's position co-
terminus with that of the Board of Directors, then the amendment
must be effective after petitioner's stay with the private respondent,
not during his term.
Obviously, the measure taken by the private respondent in amending
its by-laws is nothing but a devious, but crude, attempt to circumvent
petitioner's right to security of tenure as a regular employee
guaranteed under the Labor Code.
WHEREFORE, in view of the foregoing, the instant petition is
GRANTED. The NLRC decision dated June 15, 1995 is hereby
REVERSED and SET ASIDE.
Salafranca v. Philamlife (Pamplona Village Homeowners Assoc)
GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT
OF APPEALS, GRACE VILLAGE ASSOCIATION, INC.,
ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Petitioner Grace Christian High School is an educational institution
located at the Grace Village in Quezon City, while Private respondent
Grace Village Association, Inc. ["Association'] is an organization of lot
and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed
of eleven (11) members, shall serve for one (1) year until their successors
are duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a
draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL
representative is a permanent
Director of the ASSOCIATION."
However, this draft was never presented to the general membership for
approval. Nevertheless, from 1975 to 1990, petitioner was given a
permanent seat in the board of directors of the association.
On 13 February 1990, the association's committee on election sought to
change the by-laws and informed the Petitioner's school principal "the
proposal to make the Grace Christian High School representative as a
permanent director of the association, although previously tolerated in the
past elections should be reexamined."
Following this advice, notices were sent to the members of the association
that the provision on election of directors of the 1968 by-laws of the
association would be observed. Petitioner requested the chairman of the
election committee to change the notice to honor the 1975 by-laws
provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and
Guaranty Corporation (HIGC) to compel the board of directors to
recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and
SEC rendered an opinion to the effect that the practice of allowing
unelected members in the board was contrary to the existing by-laws of
the association and to §92 of the Corporation Code (B.P. Blg. 68). This
was adopted by the association in its Answer in the mandamus filed with
the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision
was affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board
seat was valid.
Ruling: No.
Section 23 of the Corporation Code (and its predecessor Section 28 and 29
of the Corporation Law) leaves no room for doubt that the Board of
Directors of a Corporation must be elected from among the stockholders
or members.
There may be corporations in which there are unelected members in the
board but it is clear that in these instances, the unelected members sit as ex
officio members, i.e., by virtue of and for as long as they hold a particular
office (e.g. whoever is the Archbishop of Manila is considered a member
of the board of Cardinal Santos Memorial Hospital, Inc.)
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 it has gone
unchallenged for fifteen years 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.
It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of
"practice." Practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law.
SALINAS INC versus CA
FACTS: On June 10, 1979, Clemente G. Guerrero, President of the Rural
Bank of Salinas, Inc., executed a Special Power of Attorney in favor of his
wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage
473 shares of stock of the Bank registered in his name (represented by the
Bank's stock certificates nos. 26, 49 and 65), to execute the proper
documents therefor, and to receive and sign receipts for the dispositions.
Pursuant to said SPA, private respondent Melania Guerrero, as Attorney-
in-Fact, executed a Deed of Assignment for 472 shares out of the 473
shares, in favor of private respondents Luz Andico (457 shares),
Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of Clemente
Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant
to the same SPA, executed a Deed of Assignment for the remaining one (1)
share of stock in favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner
Rural Bank of Salinas the two (2) Deeds of Assignment for registration
with a request for the transfer in the Bank's stock and transfer book of the
473 shares of stock so assigned, the cancellation of stock certificates in the
name of Clemente G. Guerrero, and the issuance of new stock certificates
covering the transferred shares of stocks in the name of the new owners
thereof. However, petitioner Bank denied the request of respondent.
Private respondent filed with the Securities and Exchange Commission"
(SEC) an action for mandamus against petitioners Rural Bank of Salinas,
its President and Corporate Secretary.
Petitioners filed their Answer with counterclaim on December 19, 1980
alleging the upon the death of Clemente G. Guerrero, his 473 shares of
stock became the property of his estate, and his property and that of his
widow should first be settled and liquidated in accordance with law before
any distribution can be effected so that petitioners may not be a party to
any scheme to evade payment of estate or inheritance tax and in order to
avoid liability to any third persons or creditors of the late Clemente G.
Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol
Guerrero, a legally adopted daughter of the late Clemente G. Guerrero and
private respondent Melania Guerrero, who stated therein that on
November 26, 1980 (almost two weeks before the filing of the petition
for Mandamus) a Petition for the administration of the estate of the late
Clemente G. Guerrero had been filed with the Regional Trial Court, Pasig.
Maripol further claimed that the Deeds of Assignment for the subject
shares of stock are fictitious and antedated; that said conveyances are
donations since the considerations therefor are below the book value of the
shares, the assignees/private respondents being close relatives of private
respondent Melania Guerrero; and that the transfer of the shares in
question to assignees/private respondents, other than private respondent
Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful
share in the inheritance. The SEC hearing officer denied the Motion for
Intervention for lack of merit. On appeal, the SEC En Banc affirmed the
decision of the hearing officer.
On December 10, 1984, the SEC Hearing Officer rendered a Decision
granting the writ of Mandamus prayed for by the private respondents and
directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the
Bank, all in the name of Clemente G. Guerrero, and to issue new
certificates in the names of private respondents, except Melania Guerrero.
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer.
Petitioner filed a petition for review with the Court of Appeals but said
Court likewise affirmed the decision of the SEC.
ISSUE: Whether or not the respondent court erred in sustaining the
Securities and Exchange Commission when it compelled
by Mandamus the Rural Bank of Salinas to register in its stock and
transfer book the transfer of 473 shares of stock to private respondents
HELD: We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving intracorporate
controversies. An intracorporate controversy has been defined as one
which arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exception whatsoever (Rivera vs.
Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of
stock, their registration, cancellation and issuances thereof by petitioner
Rural Bank of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of
stock in question in private respondent's names. Such ruling finds support
under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person legally authorized to make
the transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court
interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code])
contemplates no restriction as to whom the stocks may be transferred. It
does not suggest that any discrimination may be created by the corporation
in favor of, or against a certain purchaser. The owner of shares, as owner
of personal property, is at liberty, under said section to dispose them in
favor of whomever he pleases, without limitation in this respect, than the
general provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is
when the corporation holds any unpaid claim against the shares intended
to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in legislative
enactment, as the corporation itself cannot create such impediment. By-
laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction; they are always subject to the charter
of the corporation. The corporation, in the absence of such power, cannot
ordinarily inquire into or pass upon the legality of the transactions by
which its stock passes from one person to another, nor can it question the
consideration upon which a sale is based. . . . (Tomson on Corporation
Sec. 4137, citedin Fleisher vs. Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is
an inherent right flowing from his ownership of the stocks. Thus:
Whenever a corporation refuses to transfer and register stock in cases like
the present, mandamuswill lie to compel the officers of the corporation to
transfer said stock in the books of the corporation" (26, Cyc. 347, Hyer vs.
Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of ownership.
(Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses
to make such transaction without good cause, it may be compelled to do so
by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the
transferred shares in its stock and transfer book, which duty is ministerial
on its part, is to render nugatory and ineffectual the spirit and intent of
Section 63 of the Corporation Code. Thus, respondent Court of Appeals
did not err in upholding the Decision of respondent SEC affirming the
Decision of its Hearing Officer directing the registration of the 473 shares
in the stock and transfer book in the names of private respondents. At all
events, the registration is without prejudice to the proceedings in court to
determine the validity of the Deeds of Assignment of the shares of stock in
question.
WHEREFORE, the petition is DISMISSED for lack of merit.
SAN MIGUEL CORPORATION (MANDAUE PACKAGING
PRODUCTS PLANTS), petitioner, vs. MANDAUE PACKING
PRODUCTS PLANTS-SAN PACKAGING PRODUCTS –SAN
MIGUEL CORPORATION MONTHLIES RANK-AND-FILE UNION –
FFW (MPPP-SMPP-SMAMRFU-FFW), respondent.
Facts:
On 15 June 1998, respondent, identifying itself as an affiliate of
Federation of Free Workers (FFW), filed a petition for certification
election with the DOLE Regional Office No. VII. In the petition,
respondent stated that it sought to be certified and to represent the
permanent rank-and-file monthly paid employees of the petitioner. The
following documents were attached to the petition: (1) a Charter
Certificate issued by FFW on 5 June 1998 certifying that respondent as of
that date was duly certified as a local or chapter of FFW; (2) a copy of the
constitution of respondent prepared by its Secretary and attested by its
President; (3) a list of respondent’s officers and their respective addresses;
(4) a certification signifying that respondent had just been organized and
no amount had yet been collected from its members, signed by
respondent’s treasurer and (5) a list of all the rank-and-file monthly paid
employees of the Mandaue Packaging Products Plants and Mandaue Glass
Plant.
On 27 July 1998, petitioner filed a motion to dismiss the petition for
certification election on the sole ground that herein respondent is not listed
or included in the roster of legitimate labor organizations based on the
certification issued by the Officer-In-Charge, Regional Director of the
DOLE Regional Office No. VII, Atty. Jesus B. Gabor, on 24 July 1998.
On 20 August 1998, petitioner filed a petition to cancel the union
registration of respondent. However, this petition was denied, and such
denial was subsequently affirmed by the Court of Appeals in a decision
that has since become final.
Respondent promptly appealed the 15 September 1998 Order to the
DOLE. On 22 February 1999, DOLE Undersecretary rendered a Decision
reversing the Order.
Issue:
WON the Union acquired legal personality.
Held:
Yes.
Section 3, Rule VI of Department Order No. 9 provides when the
local/chapter acquires legal personality.
Section 3. Acquisition of legal personality by local chapter. – A
local/chapter constituted in accordance with Section 1 of this Rule shall
acquire legal personality from the date of filing of the complete documents
enumerated therein. Upon compliance with all the documentary
requirements, the Regional Office or Bureau shall issue in favor of the
local/chapter a certificate indicating that it is included in the roster of
legitimate labor organizations.
It is evident based on this rule that the local/chapter acquires legal
personality from the date of the filing of the complete documentary
requirements, and not from the issuance of a certification to such effect by
the Regional Office or Bureau. On the other hand, a labor organization is
deemed to have acquired legal personality only on the date of issuance of
its certificate of registration, which takes place only after the Bureau of
Labor Relations or its Regional Offices has undertaken an evaluation
process lasting up until thirty (30) days, within which period it approves or
denies the application. In contrast, no such period of evaluation is
provided in Department Order No. 9 for the application of a local/chapter,
and more importantly, under it such local/chapter is deemed to acquire
legal personality “from the date of filing” of the documents enumerated
under Section 1, Rule VI, Book V.
Gokongwei vs. Securities and Exchange Commission
[GR L-45911, 11 April 1979]
Facts:
On 22 October 1976, John Gokongwei Jr., as stockholder of 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. As a first cause of action, Gokongwei alleged that on 18
September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel,
Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas,
and Antonio Prieto amended by bylaws of the corporation, basing their
authority to do so on a resolution of the stockholders adopted on 13 March
1961, when the outstanding capital stock of the corporation was only
P70,139.740.00, divided into 5,513,974 common shares at P10.00 per
share and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043, with a
total par value of P301,270,430.00.
It was contended that according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the power to amend,
modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less
than 2/3 of the subscribed and paid up capital stock of the corporation,
which 2/3 should have been computed on the basis of the capitalization at
the time of the amendment.
Since the amendment was based on the 1961 authorization, Gokongwei
contended that the Board acted without authority and in usurpation of the
power of the stockholders. As a second cause of action, it was alleged that
the authority granted in 1961 had already been exercised in 1962 and
1963, after which the authority of the Board ceased to exist. As a third
cause of action, Gokongwei averred that the membership of the Board of
Directors had changed since the authority was given in 1961, there being 6
new directors. As a fourth cause of action, it was claimed that prior to the
questioned amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder thereof; that as
a stockholder, Gokongwei had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the election
of directors; and that in amending the by-laws, Soriano, et. al. purposely
provided for Gokongwei's disqualification and deprived him of his vested
right as afore-mentioned, hence the amended by-laws are null and void.
As additional causes of action, it was alleged that corporations have no
inherent power to disqualify a stockholder from being elected as a director
and, therefore, the questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing other corporations,
entered into contracts (specifically a management contract) with the
corporation, which was avowed because the questioned amendment gave
the Board itself the prerogative of determining whether they or other
persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether
or not a person is engaged in competitive business, the Board may
consider such factors as business and family relationship, is unreasonable
and oppressive and, therefore, void; and that the portion of the amended
by-laws which requires that "all nominations for election of directors shall
be submitted in writing to the Board of Directors at least five (5) working
days before the date of the Annual Meeting" is likewise unreasonable and
oppressive. It was, therefore, prayed that the amended by-laws be declared
null and void and the certificate of filing thereof be cancelled, and that
Soriano, et. al. be made to pay damages, in specified amounts, to
Gokongwei. On 28 October 1976, in connection with the same case,
Gokongwei filed with the Securities and Exchange Commission an
"Urgent Motion for Production and Inspection of Documents", alleging
that the Secretary of the corporation refused to allow him to inspect its
records despite request made by Gokongwei for production of certain
documents enumerated in the request, and that the 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.
The motion was opposed by Soriano, et. al. The Corporation, Soriano, et.
al. filed their answer, and their opposition to the petition, respectively.
Meanwhile, on 10 December 1976, while the petition was yet to be heard,
the corporation issued a notice of special stockholders' meeting for the
purpose of "ratification and confirmation of the amendment to the By-
laws", setting such meeting for 10 February 1977. This prompted
Gokongwei to ask the SEC for a summary judgment insofar as the first
cause of action is concerned, for the alleged reason that by calling a
special stockholders' meeting for the aforesaid purpose, Soriano, et. al.
admitted the invalidity of the amendments of 18 September 1976. The
motion for summary judgment was opposed by Soriano, et. al. Pending
action on the motion, Gokongwei filed an "Urgent Motion for the Issuance
of a Temporary Restraining Order", praying that pending the
determination of Gokongwei's application for the issuance of a
preliminary injunction and or Gokongwei's motion for summary judgment,
a temporary restraining order be issued, restraining Soriano, et. al. from
holding the special stockholders' meeting as scheduled. This motion was
duly opposed by Soriano, et. al. On 10 February 1977, Cremation issued
an order denying the motion for issuance of temporary restraining order.
After receipt of the order of denial, Soriano, et. al. conducted the special
stockholders' meeting wherein the amendments to the by-laws were
ratified. On 14 February 1977, Gokongwei filed a consolidated motion for
contempt and for nullification of the special stockholders' meeting. A
motion for reconsideration of the order denying Gokongwei's motion for
summary judgment was filed by Gokongwei before the SEC on 10 March
1977.
Gokongwei alleged that, having discovered that the corporation has been
investing corporate funds in other corporations and businesses outside of
the primary purpose clause of the corporation, in violation of section 17-
1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a
petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as
well as the corporation declared guilty of such violation, and ordered to
account for such investments and to answer for damages. On 4 February
1977, motions to dismiss were filed by Soriano, et. al., to which a
consolidated motion to strike and to declare Soriano, et. al. in default and
an opposition ad abundantiorem cautelam were filed by Gokongwei.
Despite the fact that said motions were filed as early as 4 February 1977,
the Commission acted thereon only on 25 April 1977, when it denied
Soriano, et. al.'s motions to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29 and
May 3, 1977. Soriano, et. al. issued notices of the annual stockholders'
meeting, including in the Agenda thereof, the "reaffirmation of the
authorization to the Board of Directors by the stockholders at the meeting
on 20 March 1972 to invest corporate funds in other companies or
businesses or for purposes other than the main purpose for which the
Corporation has been organized, and ratification of the investments
thereafter made pursuant thereto."
By reason of the foregoing, on 28 April 1977, Gokongwei filed with the
SEC an urgent motion for the issuance of a writ of preliminary injunction
to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the
annual stockholders' meeting, requesting that the same be set for hearing
on 3 May 1977, the date set for the second hearing of the case on the
merits. The SEC, however, cancelled the dates of hearing originally
scheduled and reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the purpose of urging the
Commission to act, Gokongwei filed an urgent manifestation on 3 May
1977, but this notwithstanding, no action has been taken up to the date of
the filing of the instant petition.
Gokongwei filed a petition for petition for certiorari, mandamus and
injunction, with prayer for issuance of writ of preliminary injunction, with
the Supreme Court, alleging that there appears a deliberate and concerted
inability on the part of the SEC to act.
Issue:
1. Whether the corporation has the power to provide for the
(additional) qualifications of its directors.
2. Whether the disqualification of a competitor from being elected
to the Board of Directors is a reasonable exercise of corporate
authority.
3. Whether the SEC gravely abused its discretion in denying
Gokongwei's request for an examination of the records of San
Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.
4. Whether the SEC gravely abused its discretion in allowing the
stockholders of San Miguel Corporation to ratify the investment
of corporate funds in a foreign corporation.
Held:
1. It is recognized by all authorities that "every corporation has the
inherent power to adopt by-laws 'for its internal government,
and to regulate the conduct and prescribe the rights and duties of
its members towards itself and among themselves in reference to
the management of its affairs.'" In this jurisdiction under section
21 of the Corporation Law, a corporation may prescribe in its
by-laws "the qualifications, duties and compensation of
directors, officers and employees." This must necessarily refer
to a qualification in addition to that specified by section 30 of
the Corporation Law, which provides that "every director must
own in his right at least one share of the capital stock of the
stock corporation of which he is a director." 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." To this
extent, therefore, the stockholder may be considered to have
"parted with his personal right or privilege to regulate the
disposition of his property which he has invested in the capital
stock of the corporation, and surrendered it to the will of the
majority of his fellow incorporators. It can not therefore be
justly said that the contract, express or implied, between the
corporation and the stockholders is infringed by any act of the
former which is authorized by a majority." 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 Gokongwei
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.
2. Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any
doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As
agents entrusted with the management of the corporation for the
collective benefit of the stockholders, "they occupy a fiduciary
relation, and in this sense the relation is one of trust." "The
ordinary trust relationship of directors of a corporation and
stockholders is not a matter of statutory or technical law. It
springs from the fact that directors have the control and
guidance of corporate affairs and property and hence of the
property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof." A director is a
fiduciary. Their powers are powers in trust. He who is in such
fiduciary position cannot serve himself first and his cestuis
second. He cannot manipulate the affairs of his corporation to
their detriment and in disregard of the standards of common
decency. He cannot by the intervention of a corporate entity
violate the ancient precept against serving two masters. He
cannot utilize his inside information and strategic position for
his own preferment. He cannot violate rules of fair play by doing
indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly
through the corporation what he could not do so directly. He
cannot use his power for his personal advantage and to the
detriment of the stockholders and creditors no matter how
absolute in terms that power may be and no matter how
meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it
may not be exercised for the aggrandizement, preference, or
advantage of the fiduciary to the exclusion or detriment of the
cestuis. The doctrine of "corporate opportunity" is precisely a
recognition by the courts that the fiduciary standards could not
be upheld where the fiduciary was acting for two entities with
competing interests. This doctrine rests fundamentally on the
unfairness, in particular circumstances, of an officer or director
taking advantage of an opportunity for his own personal profit
when the interest of the corporation justly calls for protection. 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, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversification;
(c) research and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tie-ups with
other firms. 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. The offer and assurance of
Gokongwei that to avoid any possibility of his taking unfair
advantage of his position as director of San Miguel Corporation,
he would absent himself from meetings at which confidential
matters would be discussed, would not detract from the validity
and reasonableness of the by-laws involved. Apart from the
impractical results that would ensue from such arrangement, it
would be inconsistent with Gokongwei's primary motive in
running for board membership — which is to protect his
investments in San Miguel Corporation. More important, such a
proposed norm of conduct would be against all accepted
principles underlying a director's duty of fidelity to the
corporation, for the policy of the law is to encourage and enforce
responsible corporate management.
3. Pursuant to the second paragraph of section 51 of the
Corporation Law, "(t)he record of all business transactions of
the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the
corporation at reasonable hours." The stockholder's right of
inspection of the corporation's books and records is based upon
their ownership of the assets and property of the corporation. It
is, therefore, an incident of ownership of the corporate property,
whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. This
right is predicated upon the necessity of self-protection. It is
generally held by majority of the courts that where the right is
granted by statute to the stockholder, it is given to him as such
and must be exercised by him with respect to his interest as a
stockholder and for some purpose germane thereto or in the
interest of the corporation. In other words, the inspection has to
be germane to the petitioner's interest as a stockholder, and has
to be proper and lawful in character and not inimical to the
interest of the corporation. The "general rule that stockholders
are entitled to full information as to the management of the
corporation and the manner of expenditure of its funds, and to
inspection to obtain such information, especially where it
appears that the company is being mismanaged or that it is being
managed for the personal benefit of officers or directors or
certain of the stockholders to the exclusion of others." While the
right of a stockholder to examine the books and records of a
corporation for a lawful purpose is a matter of law, the right of
such stockholder to examine the books and records of a wholly-
owned subsidiary of the corporation in which he is a stockholder
is a different thing. Stockholders are entitled to inspect the
books and records of a corporation in order to investigate the
conduct of the management, determine the financial condition of
the corporation, and generally take an account of the
stewardship of the officers and directors. herein, considering that
the foreign subsidiary is wholly owned by San Miguel
Corporation and, therefore, under Its control, it would be more
in accord with equity, good faith and fair dealing to construe the
statutory right of petitioner as stockholder to inspect the books
and records of the corporation as extending to books and records
of such wholly owned subsidiary which are in the corporation's
possession and control.
 4. Section 17-1/2 of the Corporation Law allows a corporation to
"invest its funds in any other corporation or business or for any
purpose other than the main purpose for which it was organized"
provided that its Board of Directors has been so authorized by
the affirmative vote of stockholders holding shares entitling
them to exercise at least two-thirds of the voting power. If the
investment is made in pursuance of the corporate purpose, it
does not need the approval of the stockholders. It is only when
the purchase of shares is done solely for investment and not to
accomplish the purpose of its incorporation that the vote of
approval of the stockholders holding shares entitling them to
exercise at least two-thirds of the voting power is necessary. As
stated by the corporation, the purchase of beer manufacturing
facilities by SMC was an investment in the same business stated
as its main purpose in its Articles of Incorporation, which is to
manufacture and market beer. It appears that the original
investment was made in 1947-1948, when SMC, then San
Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and
marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI
in Bermuda as a tax free reorganization. Assuming arguendo
that the Board of Directors of SMC had no authority to make the
assailed investment, there is no question that a corporation, like
an individual, may ratify and thereby render binding upon it the
originally unauthorized acts of its officers or other agents. This
is true because the questioned investment is neither contrary to
law, morals, public order or public policy. It is a corporate
transaction or contract which is within the corporate powers, but
which is defective from a purported failure to observe in its
execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding
two-thirds of the voting power. This requirement is for the
benefit of the stockholders. The stockholders for whose benefit
the requirement was enacted may, therefore, ratify the
investment and its ratification by said stockholders obliterates
any defect which it may have had at the outset. Besides, the
investment was for the purchase of beer manufacturing and
marketing facilities which is apparently relevant to the corporate
purpose. The mere fact that the corporation submitted the
assailed investment to the stockholders for ratification at the
annual meeting of 10 May 1977 cannot be construed as an
admission that the corporation had committed an ultra vires act,
considering the common practice of corporations of periodically
submitting for the ratification of their stockholders the acts of
their directors, officers and managers.
YU CHUCK, MACK YUENG, and DING MOON, plaintiffs-
appellees,
vs.
"KONG LI PO," defendant-appellant.
December 3, 1924, OSTRAND, J.:
FACTS:
 The defendant is a domestic corporation organized in
accordance with the laws of the Philippine Islands and engaged
in the publication of a Chinese newspaper styled Kong Li Po. Its
articles of incorporation and by-laws are in the usual form and
provide for a board of directors and for other officers among
them a president whose duty it is to "sign all contracts and other
instruments of writing." No special provision is made for a
business or general manager.
 Sometime in 1919, C. C./T. C. Chen was appointed general
business manager of the newspaper.
 Dec 1919, Chen entered into an agreement with the plaintiffs by
which the latter bound themselves to do the necessary printing
for the newspaper for the sum of P580 per month.
 Under this agreement the plaintiffs worked for the defendant
from January 1, 1920, until January 31, 1921, when they were
discharged by the new manager, Tan Tian Hong, who had been
appointed in the meantime, C. C. Chen having left for China.
The letter of dismissal stated no special reasons for the discharge
of the plaintiffs.
 The plaintiffs thereupon brought the present action alleging,
among other things, in the complaint that their contract of
employment was for a term of three years from the first day of
January, 1920; that in the case of their discharge by the
defendant without just cause before the expiration of the term of
the contract, they were to receive full pay for the remaining
portion of the term; that they had been so discharged without
just cause and therefore asked judgment for damages in the sum
of P20,880.
 Included in its 5 special defenses , Kong Li Po states that C. C.
Chen, the person whose name appears to have been signed to the
contract of employment was not authorized by the defendant to
execute such a contract in its behalf. Other defenses include
delayed printing, failure to correct errors, neglect and refusal to
print.
 At the trial of the case the plaintiffs presented in evidence
Exhibit A which purports to be a contract between Chen and
the plaintiffs and which provides that in the event the plaintiffs
should be discharged without cause before the expirations of the
term of three years from January 1, 1920, they would be given
full pay for the unexpired portion of the term "even if the said
paper has to fall into bankruptcy." The contract is signed by the
plaintiffs and also bears the signature "C. C. Chen, manager
of Kong Li Po." The authenticity of the latter signature is
questioned by the defendant, but the court below found that the
evidence upon this point preponderate in favor of the plaintiffs
and there appears to be no sufficient reason to disturb this
finding.
 Trial Court found in favour of petitioners saying contract had
been impliedly ratified by the defendant. Kong Li Po appeals
saying that contract was not signed by C.C. Chen and in any
event C. C. Chen had no power or authority to bind the
defendant corporation by such contract; and that there was no
ratification of the contract by the corporation.
ISSUE: WON Chen [the general manger] had the power to bind the
corporation by a contract of the character indicated – NO. Only valid by a
reasonable and usual contract of employment
RATIO:
Procedure/Evidence
The contract supposedly attached with the complaint was a translation. As
this translation may be considered a copy and as the defendant failed to
deny its authenticity under oath, it will perhaps be said that under
section 103 of the Code of Civil Procedure the omission to so deny it
constitutes an admission of the genuineness and due execution of the
document as well as of the agent's authority to bind the defendant.
(Merchant vs. International Banking Corporation, 6 Phil., 314.) However
the court ruled that this case was an exception since evidence was
presented by plaintiff on the execution of the document. [Plaintiff waived]
Chen’s Authority
It is conceded that Chen had no express authority to do so, but the
evidence is conclusive that he, at the time the contract was entered into,
was in effect the general business manager of the newspaper Kong Li
Po and that he, as such, had charge of the printing of the paper, and the
plaintiff maintain that he, as such general business manager, had implied
authority to employ them on the terms stated and that the defendant
corporation is bound by his action.
The general rule is that the power to bind a corporation by contract lies
with its board of directors or trustees, but this power may either expressly
or impliedly be delegated to other officers or agents of the corporation,
and it is well settled that except where the authority of employing servants
and agent is expressly vested in the board of directors or trustees, an
officer or agent who has general control and management of the
corporation's business, or a specific part thereof, may bind the corporation
by the employment of such agent and employees as are usual and
necessary in the conduct of such business. But the contracts of
employment must be reasonable.
Chen, as general manager of the Kong Li Po, had implied authority to bind
the defendant corporation by a reasonable and usual contract of
employment with the plaintiffs, but we do not think that the contract here
in question can be so considered. Not only is the term of employment
unusually long, but the conditions are otherwise so onerous to the
defendant that the possibility of the corporation being thrown into
insolvency thereby is expressly contemplated in the same contract.
Neither do we think that the contention that the corporation impliedly
ratified the contract is supported by the evidence. The contention is based
principally on the fact that Te Kim Hua, the president of the corporation
for the year 1920, admitted on the witness stand that he saw the plaintiffs
work as printers in the office of the newspaper. He denied, however, any
knowledge of the existence of the contract and asserted that it was never
presented neither to him nor to the board of directors. Before a contract
can be ratified knowledge of its existence must, of course, be brought
home to the parties who have authority to ratify it or circumstances must
be shown from which such knowledge may be presumed. No such
knowledge or circumstances have been shown here. That the president of
the corporation saw the plaintiffs working in its office is of little
significance; there were other printers working there at that time and as the
president had nothing to do with their employment, it was hardly to be
expected that be would inquire into the terms of their contracts. Moreover,
a ratification by him would have been of no avail; in order to validate a
contract, a ratification by the board of directors was necessary. The
fact that the president was required by the by-laws to sign the documents
evidencing contracts of the corporation, does not mean that he had power
to make the contracts.
In his decision his Honor, the learned judge of the court below appears to
have placed some weight on a notice inserted in the January 14th issue of
the Kong Li Po by T. C. Chen and which, in translation, reads as follows:
To Whom It May Concern: Announcement is hereby given that thereafter
all contracts, agreements and receipts are considered to be null and void
unless duly signed by T. C. Chen, General Manager of this paper. This is
signed by Chen. This notice led the plaintiffs to think that Chen had
authority to make the contract. It may further be observed that the notice
confers no special powers, but is, in effect, only an assertion by Chen that
he would recognize no contracts, agreements, and receipts not duty signed
by him. It may be presumed that the contracts, agreements, and receipts
were such as were ordinarily made in the course of the business of
managing the newspaper. There is no evidence to show that the notice was
ever brought to the attention of the officers of the defendant corporation.
Held: The judgment appealed from is reversed and the defendant
corporation is absolved from the complaint.
Concurring (Street)
There must be a limit somewhat upon the authority of a manager with
respect to the duration of contracts which he makes for the corporation,
and my eye has fallen upon no decision in which contract for the period of
three years, or longer, has been upheld on the bare fact that the contract
was made by a manager, though there are case in which contracts for the
period of only one year have been sustained.
But no presumption of law can be indulged in that, because as person acts
as such a manager, he has the power to bind his principal to contracts of an
extraordinary nature, and of such a character as would involved the
corporation in enormous obligations and for long periods of time.
Dissenting (Malcolm)
Defendant corporation held T. C. Chen out to the public as the business
manager of the newspaper Kong Li Po and clothes him with apparent
authority to bind the corporation. The president of the corporation
admitted as much on the witness stand, while public announcement was
made [Notice].
The action of the business manager was thus ratified by his superior
officers and they are now in estoppel to deny such ratification. As held
in the case of Macke vs. Camps ([1907], 7 Phil., 553), one who clothes
another with apparent authority as his agent and holds him out to the
public as such, cannot be permitted to deny the authority of such person to
act as his agent in good faith and in the honest belief that he is what he
appears to be. Unless the contrary appears, the authority of an agent must
be presumed to include all the necessary and usual means of carrying his
agency into effect.
Dealing with corporations the public at large is bound to rely to a large
extent upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not having
notice of want of authority, may usually rely upon those appearances; and
if it be found that the directors had permitted the agent to exercise that
authority and thereby held him out as a person competent to bind the
corporation, or had acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted. The
public is not supposed nor required to know the transactions which happen
around the table where the corporate board of directors or the stockholders
are from time to time convoked. Whether as particular officer actually
possesses the authority which he assumes to exercise is frequently known
to very few, and the proof of it usually is not readily accessible to the
stranger who deals with the corporation on the faith of the ostensible
authority exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a contract
in its name, that the corporation should be required, if it denies his
authority, to state such defense in its answer. [Merchant vs. International
Banking Corporation, supra, and other cases ]
SECOND DIVISION
[ G.R. No. 150694, March 13, 2009 ]
ZOMER DEVELOPMENT COMPANY, INC. PETITIONER, VS.
INTERNATIONAL EXCHANGE BANK AND SHERIFF IV
ARTHUR R. CABIGON, RESPONDENTS.
DECISION
CARPIO MORALES, J.:
On August 25, 1997, the Board of Directors of Zomer Development
Company, Inc. (petitioner) approved a resolution authorizing it to apply
for and obtain a credit line with respondent International Exchange Bank
(IEB) in the amount of P60,000,000 as well as temporary excesses or
permanent increases thereon as may be approved by IEB from time to
time.[1] The Board of Directors also authorized petitioner to assign, pledge,
or mortgage its properties as security for this credit line; and to secure and
guarantee the term loan and other credit facility of IDHI Prime Aggregates
Corporation (Prime Aggregates) with IEB.[2]
Prime Aggregates obtained on August 26, 1997 a term loan from IEB in
the amount of P60,000,000.[3] On September 2, 1997, petitioner, through
its Treasurer Amparo Zosa (Amparo) and its General Manager Manuel
Zosa, Jr. (Zosa), executed a real estate mortgage covering three parcels of
land (the real estate mortgage) in favor of IEB to secure
The payment of all loans, overdrafts, credit lines and other credit facilities
or accommodations obtained or hereinafter obtained by the
MORTGAGOR and/or by IDHI Prime Aggregates
Corporation (hereinafter referred to as DEBTOR)
The payment of all interests, charges, penalties, reimbursements and other
obligations owing by the MORTGAGOR and/or DEBTOR to the
MORTGAGEE whether direct or indirect, principal or secondary; absolute
or contingent as appearing in the accounts, books and records of the
MORTGAGEE.
The payment of all obligations of the MORTGAGOR and/or DEBTOR of
whatever kind or nature whether such obligations have been contracted
before, during, or after the constitution of [the] MORTGAGE.
In case the MORTGAGOR and/or DEBTOR incurs subsequent
obligations of whatever kind or nature whether such obligations, as
extension thereof, or as new loans or is given any other kind of
accommodations, the payment of said obligations, and/or accommodations
without the necessity of executing new agreements.
The faithful and strict performance and compliance by the MORTGAGOR
and/or DEBTOR of all the terms and conditions of the MORTGAGE, the
credit agreements, promissory notes and other loan documents and
agreements evidencing the loan, overdrafts, credit lines and other credit
accommodations granted to the MORTGAGOR and/or DEBTOR;
including all amendments thereon, such as but not limited to changes in
the interest rates, penalties, charges, or fees; acceleration of payments; and
the like.
x x x x[4] (Emphasis, italics and underscoring supplied)
Prime Aggregates subsequently obtained several loans from IEB from
September 1997 until September 1998.[5]
Prime Aggregates failed to settle its outstanding obligation which stood at
P90,267,854.96 and US$211,547.12[6] as of September 15, 2000, drawing
IEB to file a petition for extra-judicial foreclosure of mortgage before the
Regional Trial Court (RTC) of Cebu City.
Respondent Sheriff IV Arthur R. Cabigon (Cabigon) having issued on
October 18, 2000 a Notice of Extra-Judicial Foreclosure and
Sale[7]scheduled on November 28, 2000, petitioner filed a complaint[8] for
Injunction with application for writ of preliminary injunction/temporary
restraining order before the Cebu City RTC, alleging that the real estate
mortgage was null and void because Amparo and Zosa were authorized to
execute it to secure only one obligation of Prime Aggregates. Petitioner
thus prayed
x x x that after due notice and hearing, judgment be rendered declaring the
real estate mortgage and its extrajudicial foreclosure sale as null and void
and that defendant bank be sentenced to pay plaintiff the sum of
P100,000.00 as attorney's fees and P100,000.00 as litigation expenses.
In the meantime, it is most respectfully prayed that a writ of
preliminary injunction/TRO be issued enjoining the extrajudicial
foreclosure sale of plaintiff's properties scheduled on November 28, 2000
or December 5, 2000.
. . . that after trial, the writ of preliminary injunction be made permanent. x
x x[9] (Emphasis and underscoring supplied)
The complaint, docketed as Civil Case No. CEB-25762, was amended on
November 15, 2000.
Branch 9 of the Cebu City RTC denied petitioner's prayer for a writ of
preliminary injunction.[10] Petitioner filed a Motion for
Reconsideration[11] and a Motion for Admission of a Second Amended
Complaint,[12] albeit it later filed a Motion to Withdraw Second Amended
Complaint and to admit Third Amended Complaint.[13] The trial court
denied petitioner's Motion for Reconsideration.[14]
Petitioner assailed the trial court's orders denying its prayer for the
issuance of a writ of preliminary injunction before the Court of Appeals
via certiorari,[15] docketed as CA-G.R. SP No. 64390 (certiorari case),
alleging, in the main, that the real estate mortgage it executed was null and
void for being ultra vires[16] as it was not empowered to mortgage its
properties as security for the payment of obligations of third parties; and
that Amparo and Zosa were authorized to mortgage its properties to secure
only a P60,000,000 term loan and one credit facility of Prime
Aggregates.[17]
In the meantime, Branch 15 of the Cebu City RTC to which Civil Case
No. CEB-25762 was re-raffled after the Presiding Judge of Branch 9
inhibited himself in the case, dismissed petitioner's Third Amended
Complaint[18] by Order of September 10, 2001. Petitioner appealed this
Order to the Court of Appeals which docketed it as CA-G.R. CV No.
73063.
By Decision[19] of October 30, 2001, the appellate court, acting on the
certiorari case filed by petitioners, denied it due course as it found that the
trial court committed no grave abuse of discretion in denying petitioner's
prayer for preliminary injunction.[20] It brushed aside petitioner's
arguments that the real estate mortgage was ultra vires and that Amparo
and Zosa were only authorized to mortgage petitioner's properties to
secure the P60,000,000 term loan and one credit facility of Prime
Aggregates.
Hence, the present petition[21] for review faulting the Court of Appeals in
I - X X X NOT HOLDING THAT THE JUDGE WHO DENIED
PETITIONER'S APPLICATION FOR INJUNCTION WAS A BIASED
AND PARTIAL JUDGE AS RESPONDENTS WERE GIVEN A COPY
OF THE ORDER ON MARCH 2, 2001 WHEN IT WAS SIGNED BY
THE JUDGE BUT BEFORE ITS OFFICIAL RELEASE ON MARCH 5,
2001.
II - X X X USING THE DECISION OF THIS HONORABLE COURT IN
THE CASE OF UNION BANK V. COURT OF APPEALS, ET. AL., 311
SCRA 795 IN SAYING THAT PETITIONER IS NOT ENTITLED TO A
WRIT OF PRELIMINARY INJUNCTION INSTEAD OF USING THE
CASE OF REPUBLIC V. COURT OF APPEALS, 324 SCRA 569
WHEREIN THIS HONORABLE COURT HELD THAT EVEN P.D. 385
CANNOT BE USED AS A SHIELD TO STOP BY INJUNCTION THE
FORECLOSURE OF A MORTGAGE WHERE THE VERY
PROPRIETY OF SAID FORECLOSURE IS IN SERIOUS DOUBT
WHICH IS THE SAME ISSUE RAISED IN THE CASE AT BAR.
III - X X X HOLDING THAT [PRIME AGGREGATES] IS A
SUBSIDIARY OF PETITIONER IN THE ABSENCE OF A FINDING
THAT PETITIONER OWNS ANY SHARE IN [PRIME
AGGREGATES].
IV - X X X NOT HOLDING THAT THE SECRETARY'S
CERTIFICATE OF PETITIONER WAS NULL AND VOID FOR NOT
PUTTING ANY LIMITATION OF THE AMOUNT OF THE
OBLIGATION OF [PRIME AGGREGATES] TO BE SECURED BY A
THIRD PARTY MORTGAGE OF ITS PROPERTIES
V - X X X NOT HOLDING THAT THE THIRD PARTY REAL
ESTATE MORTGAGE EXECUTED BY THE AGENTS OF
PETITIONER IN FAVOR OF PRIVATE RESPONDENT IS NULL AND
VOID BECAUSE THEY EXCEEDED THEIR AUTHORITY IN
SIGNING THE SAME.
VI - X X X NOT CONSTRUING STRICTLY AGAINST PRIVATE
RESPONDENT THE SECRETARY'S CERTIFICATE AND THIRD
PARTY REAL ESTATE MORTGAGE WHICH WERE ALL
DOCUMENTS OF ADHESION AND ALL PREPARED BY IT AND TO
EFFECT THE LEAST TRANSMISSION OF RIGHTS PURSUANT TO
ARTICLE 1378 OF THE NEW CIVIL CODE SINCE THE THIRD
PARTY REAL ESTATE MORTGAGE IS A GRATUITOUS
CONTRACT WHICH WAS EXECUTED PURELY FOR
ACCOMODATION OF [PRIME AGGREGATES].
VII - X X X NOT LAYING THE BLAME ON PRIVATE
RESPONDENT IN MAKING THE AGENTS OF PETITIONER SIGN
AN ILLEGAL CONTRACT SINCE IT WAS VERY WELL AWARE OF
THEIR AUTHORITY AS ALL THE DOCUMENTS WERE ITS
FORMS, PRE-PRINTED AND PREPARED BY IT.
VIII - X X X HOLDING THAT THE PETITIONER RATIFIED BY
INACTION THE ILLEGAL CONTRACT EXECUTED BY ITS
AGENTS SINCE THE PRIVATE RESPONDENT WAS VERY WELL
AWARE OF THE EXTENT OF THEIR AUTHORITY.
IX - MAKING CONFLICTING FINDINGS OF FACTS.[22]
Respondents, in their Comment[23] dated February 27, 2002, move for the
dismissal of the petition for being moot and academic, alleging that:
On October 8, 2001 [sic], [petitioner's] principal action for annulment
of real estate mortgage was dismissed by the trial court and that said
action is now on appeal with the Court of Appeals x x x [.]
On November 19, 2001, [petitioner's] mortgaged properties
were foreclosed by [IEB]. In fact, as the highest bidder in the said
foreclosure sale and in view of the passage of the new General Banking
Law (which allows banks to consolidate its [sic] title within a shorter
period if the mortgagor of a foreclosed property is a corporation), iBank
had consolidated its title on the mortgaged properties.
[Petitioner's] application for issuance of writ of preliminary injunction, the
subject of the instant appeal purportedly under Rule 45 of the Rules of
Court, cannot survive the dismissal of its principal action as well as the
foreclosure and consolidation in [IEB] name of its mortgaged
properties.[24] (Emphasis and underscoring supplied)
In its Reply,[25] petitioner argues that when Branch 15 of the Cebu City
RTC dismissed the Third Amended Complaint in Civil Case No. CEB-
25762 on September 10, 2001, it no longer had jurisdiction over it because
said Branch had on August 14, 2001 been designated as a drug court.
Petitioner goes on to argue that even if the acts sought to be restrained
have already been committed, since they are continuing in nature and in
derogation of its rights at the outset, preliminary mandatory injunction
may still be availed of to restore the status quo, citingManila Electric
Railroad and Light Company v. del Rosario and Jose.[26]
Acting on petitioner's appeal from the dismissal by Branch 15 of
its Third Amended Complaint, the appellate court, by Decision of April
14, 2005, set aside the trial court's order of dismissal and ordered the
reinstatement of said complaint to the docket of Branch 15 of the Cebu
City RTC.
The records show that, indeed, petitioner's mortgaged properties were
already foreclosed, as shown by the Certificate of Sale issued by Cabigon
on November 19, 2001.[27] And they also show that ownership of the
lands-subject of the real estate mortgage had been consolidated and
transfer certificates of title had been issued in IEB's name.[28] It is on this
score that the Court finds petitioner's prayer for a writ of preliminary
injunction moot and academic. This leaves it unnecessary for the Court to
still dwell on petitioner's argument that it was not, under its By-Laws,
empowered to mortgage its properties to secure the obligation of a third
party. In any event, the Court finds well-taken the appellate court's
following disposition of such argument:
We do agree that the Petitioner, under its "By-Laws," is not empowered
to mortgage its properties as a security for the payment of the obligations
of third parties. This is on the general premise that the properties of a
corporation are regarded as held in trust for the payment of corporate
creditors and not for the creditors of third parties. However, the Petitioner
is not proscribed from mortgaging its properties as security for the
payment of obligations of third parties. In an opinion of the Securities and
Exchange Commission, dated April 15, 1987, it declared that a private
corporation, by way of exceptions, may give a third party mortgage:
"1. When the mortgage of corporate assets/properties shall be done in the
furtherance of the interest of the corporation and in the usual and regular
course of its business; and
2. To secure the debt of a subsidiary."
While admittedly, the "Opinion" of the Securities & Exchange
Commission may not be conclusive on the Respondent Court, however,
admittedly the same is of persuasive effect.
In the present recourse, the Respondent Court found that not only is Prime
Aggregates a subsidiary of the Petitioenr but that the Petitioner
appeared to be a "family" corporation:
"a. The plaintiff appears to be a family corporation. The incorporators and
stockholders and the membership of the board of directors are Zosa
family. x x x
b. Francis and Rolando Zosa are directors of [Prime Aggregates] and of
plaintiff corporation x x x
c. The REM was executed by Amparo Zosa who was the treasurer of
plaintiff and Manuel Zosa, the General Manager, both are
directors/stockholders of the plaintiff. Amparo Zosa is the biggest
stockholder and is the mother of practically all the other stockholders of
plaintiff. Manuel Zosa, Jr. is the General Manager and a son of Amparo.
d. The Corporate Secretary of plaintiff and [Prime Aggregates] are
members of the Zosa family. The Corporate Secretary of [Prime
Aggregates] is also the daughter of Francis Zosa, president of plaintiff.
e. The President of plaintiff corporation, Francis Zosa and the president of
[Prime Aggregates], Rolando Zosa, are brothers (aside from being
common directors of both corporations.)
We agree with the Respondent Court.
The Petitioner's shrill incantations that the "Resolution", approved by its
Board of Directors, authorizing its Treasurer and General Manager to
execute a "Real Estate Mortgage" as security for the payment of the
account of Prime Aggregates, a sister corporation, is not for its best
interest, is a "puzzlement" xxx. Since when is a private corporation, going
to the aid of a sister corporation, not for the best interest of both
corporation? For in doing so, the two (2) corporations are enhancing,
boosting and promoting a common interest, the interest of "family" having
ownership of both corporations. In the second place, Courts are loathe to
overturn decisions of the management of a corporation in the conduct of
its business via its Board of Directors x x x.
xxxx
There is no evidence on record that the "Real Estate Mortgage" was
executed by the Petitioner and the Private Respondent to prejudice
corporate creditors of the Petitioner or will result in the infringement of
the trust fund doctrine or hamper the continuous business operation of the
Petitioner or that the Prime Aggregates was insolvent or incapable of
paying the Private Respondent. Indeed, the latter approved Prime
Aggregates' loan availments and credit facilities after its investigation of
the financial capability of Prime Aggregates and its capacity to pay its
account to the Private respondent.[29]
xxxx
[U]nder the "Resolution" of the Board of Directors, it authorized its
Treasurer and General Manager to execute a "Real Estate Mortgage"
over its properties as security for the "term loan and credit facility" of
Prime Aggregates. The maximum amounts of such term loan and credit
facility were not fixed in the "Resolution". The term "credit facility" is a
broad term in credit business transactions to denote loans, pledges,
mortgages, trust receipt transactions and credit agreements. And then,
again, such term loan and/or credit facility may be granted, by the Private
Respondent, in favor of Prime Aggregates, in trenches or in staggered
basis, each disbursement evidenced by separate agreements depending
upon the needs of Prime Aggregates for the establishment of its sand and
gravel plant and port facilities and the purchase of equipments and
machinery for said project. Hence, the "Long Term Agreements" and
"Credit Agreements" executed by Prime Aggregates and the Private
Respondent, with the Petitioner's properties, as collateral therefore, were
envisaged in the terms "term loan and credit facility" in the "Resolution"
of the Board of Directors of the Petitioner.
The intention of the Members of the Board of Directors of the Petitioner,
in approving the "Resolution," may be ascertained xxx also from the
contemporaneous and subsequent acts of the Petitioner, the Private
Respondent and Prime Aggregates. Given the factual milieu in the present
recourse, as found and declared by the Respondent Court, there can be no
equivocation that, indeed the Petitioner conformed to and ratified, and
hence, is bound by the execution, by its Treasurer and General Manager,
of the "Real Estate Mortgage" in favor of the Private respondent, with its
properties used as securities for the payment of the credit and loan
availments of Prime Aggregates from the Private Respondent on the basis
of the "Resolution" approved by its Board of Directors. As our Supreme
Court declared, ratification and/or approval by the corporation of the acts
of its agents/officers may be ascertained through x x x the acquiescence in
his acts of a particular nature, with actual or constructive thereof, whether
within or beyond the scope of his ordinary powers.
As it was, the Petitioner finally awoke from its slumber when the Private
Respondent filed its "Petition" for the extra-judicial foreclosure of the
"Real Estate Mortgage", with the Sheriff, and assailed the authority of its
Board of Directors to approve the said "Resolution" and of its Treasurer
and General Manager to execute the deed and brand the said "Resolution"
and the said deed as "ultra vires" and hence, not binding on the Petitioner,
and hurried off to the Respondent Court and prayed for injunctive relief.
Before then, the Petitioner maintained a stoic silence and adopted a "hands
off" stance. We find the Petitioner's stance grossly inequitable. We must
take heed and pay obeisance to the equity rule that if one maintains silence
when, in conscience he ought to speak, equity will debar him from
speaking when, in conscience, he ought to remain silent. He who remains
silent when he ought to speak cannot be heard to speak when he ought to
be silent. More, the transactions between the Petitioner and the Private
Respondent over its properties are neither malum in se or malum
prohibitum. Hence, the Petitioner cannot hide behind the cloak of "ultra
vires" for a defense.
xxxx
The plea of "ultra vires" will not be allowed to prevail, whether interposed
for or against a corporation, when it will not advance justice but, on the
contrary, will accomplish a legal wrong to the prejudice of another who
acted in good faith.[30] (Underscoring and emphasis in the original)
WHEREFORE, the petition is DISMISSED.
Costs against petitioner.
SO ORDERED.
Quisumbing, Tinga, Velasco, Jr., and Brion, JJ., concur.
Yasuma vs. Heirs of Cecilio S. De Villa, 499 SCRA 466 , August 22,
2006
Corporation Law; Agency; The general principles of agency govern the
relation between the corporation and its officers or agents—when
authorized, their acts bind the corporation, otherwise, their acts cannot
bind it.—A corporation is a juridical person, separate and distinct from its
stockholders. Being a juridical entity, a corporation may act through its
board of directors, as provided in Section 23 of the Corporation Code of
the Philippines: Sec. 23. The Board of Directors or Trustees.—Unless
otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors
or trustees . . . x x x x x x x x x The corporation can also act through its
corporate officers who may be authorized either expressly by the by-laws
or board resolutions or impliedly such as by general practice or policy or
as are implied from express powers.The general principles of agency
govern the relation between the corporation and its officers or agents.
When authorized, their acts can bind the corporation. Conversely, when
unauthorized, their acts cannot bind it.
Same; Same; The corporation may ratify—expressly or impliedly—the
unauthorized acts of its corporate officers.—The corporation may ratify
the unauthorized act of its corporate officer. Ratification means that the
principal voluntarily adopts, confirms and gives sanction to some
unauthorized act of its agent on its behalf. It is this voluntary choice,
knowingly made, which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the party so making the
ratification. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ratification can be made
either expressly or impliedly. Implied ratification may take various
forms—like silence or acquiescence, acts showing approval or adoption of
the act, or acceptance and retention of benefits flowing therefrom.
Same; Same; Loans; Special Power of Attorney; The power to borrow
money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney.—The power to borrow
money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special
power of attorney conferring authority on de Villa was ever presented. The
promissory notes evidencing the loans were signed by de Villa (who was
the president of respondent corporation) as borrower without indicating in
what capacity he was signing them. In fact, there was no mention at all of
respondent corporation. On their face, they appeared to be personal loans
of de Villa.
Same; Same; Same; Ratification is a voluntary choice that is knowingly
made.—Respondent corporation could not have ratified the act of de Villa
because there was no proof that it knew that he took out a loan on its
behalf. As stated earlier, ratification is a voluntary choice that is
knowingly made. The corporation could not have ratified an act it had no
knowledge of: x x x x x x x x x Ordinarily, the principal must have full
knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed
to act as agent. Thus, if material facts were suppressed or unknown, there
can be no valid ratification . . . . The fact that the corporation admitted
receiving the proceeds of the loan did not amount to ratification of the
loan. It accepted the amount from de Villa, its president at that time, in
good faith. Good faith is always presumed. Petitioner did not show that the
corporation acted in bad faith. It follows that respondent corporation was
not liable for the subsequent loss of the money which it accepted as an
investment. It could not be faulted for not knowing that it was the
proceeds of a loan obtained by de Villa. It was under no obligation to
check the source of the investments which went into its coffers. As long as
the investment was used for legitimate corporate purposes, the investor
bore the risk of loss.
Same; Same; Same; Investments; As long as the investment is used for
legitimate corporate purposes, the investor bears the risk of loss.—The
fact that the corporation admitted receiving the proceeds of the loan did
not amount to ratification of the loan. It accepted the amount from de
Villa, its president at that time, in good faith. Good faith is always
presumed. Petitioner did not show that the corporation acted in bad faith.
It follows that respondent corporation was not liable for the subsequent
loss of the money which it accepted as an investment. It could not be
faulted for not knowing that it was the proceeds of a loan obtained by de
Villa. It was under no obligation to check the source of the investments
which went into its coffers. As long as the investment was used for
legitimate corporate purposes, the investor bore the risk of loss.
Same; Same; Real Estate Mortgage; Special Power of Attorney; In the
absence of a special power of attorney in favor of the corporation’s
president, no valid mortgage could be executed by him.—A special power
of attorney is necessary to create or convey real rights over immovable
property. Furthermore, the special power of attorney must appear in a
public document. In the absence of a special power of attorney in favor of
de Villa as president of the corporation, no valid mortgage could have
been executed by him. Since the mortgage was void, it could not be
ratified. Petitioner cannot blame anyone but himself. He did not check if
the person he was dealing with had the authority to mortgage the property
being offered as collateral. [suma vs. Heirs of Cecilio S. De Villa, 499
SCRA 466(2006)]
WOODCHILD HOLDINGS, INC. vs ROXAS ELECTRIC AND
CONSTRUCTION COMPANY, INC.
- Roxas Electric and Construction Company, Inc. (RECCI) authorized its
President Roberto B. Roxas through a resolution to sell a parcel of land
owned by the corporation, and to execute, sign and deliver for and on
behalf of the company.
- Petitioner Woodchild Holdings, Inc. (WHI) through its President
Jonathan Y. Dy, offered to buy the land from RECCI.
- The offer to purchase stated that it is made on the representation and
warranty of the OWNER/SELLER, that he holds a good and registrable
title to the property, which shall be conveyed CLEAR and FREE of all
liens and encumbrances, and that in the event that the right of way is
insufficient for the buyer’s purpose, the seller agrees to sell additional
square meter from his current adjacent property to allow the buyer full
access and full use of the property.
- Roxas accepted the offer and indicated his acceptance on Page 2 of the
Deed.
- The sale was consummated.
- WHI subsequently entered into a construction agreement with Wimbeco
Builder’s Inc. (WBI) for the construction of a warehouse, and a lease
agreement with Poderosa Leather Goods Company, Inc. with a condition
that the warehouse be ready by April 1, 1992.
- The building was finished and Poderosa became the lessee.
- WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been granted a
right of way. Roxas promised to look into the matter. Dy and Roxas
discussed the need of the WHI to buy a 500-square-meter portion the
adjacent lot as provided for in the deed of absolute sale. However, Roxas
died soon thereafter.
- WHI wrote the RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of absolute sale, and
complained about the latter’s failure to eject the squatters within the three-
month period agreed upon in the said deed.
- RECCI rejected the demand of WHI, so WHI filed a case for Specific
Performance and Damages in the RTC of Makati.
RTC - in favor of WHI.
CA - reversed the RTC decision and dismissed the complaint. The CA
ruled that, under the resolution of the Board of Directors of the RECCI,
Roxas was merely authorized to sell the first lot, but not to grant right of
way in favor of the WHI over a portion of the second lot, or to grant an
option to the petitioner to buy a portion thereof.
ISSUE - WON respondent is bound by the provisions of the deed of sale
granting to the petitioner the beneficial use and right of way over the
adjacent lot of the lot they previously bought. WON such provision is
enforceable.
SC - We agree with respondent. Judgment of CA affirmed with
modification.
- A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is
not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the
corporation’s board of directors.
- Indubitably, a corporation may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through
its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law.
- Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article 1910 of
the New Civil Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them.
- In this case, the respondent denied authorizing its then president Roberto
B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, and to create a lien or burden thereon. The petitioner was thus
burdened to prove that the respondent so authorized Roxas to sell the same
and to create a lien thereon.
- Evidently, Roxas was not specifically authorized under the said
resolution to grant a right of way in favor of the petitioner on a portion of
the second lot or to agree to sell to the petitioner a portion thereof.
- For the principle of apparent authority to apply, the petitioner was
burdened to prove the following: (a) the acts of the respondent justifying
belief in the agency by the petitioner; (b) knowledge thereof by the
respondent which is sought to be held; and, (c) reliance thereon by the
petitioner consistent with ordinary care and prudence.[34] In this case,
there is no evidence on record of specific acts made by the respondent[35]
showing or indicating that it had full knowledge of any representations
made by Roxas to the petitioner that the respondent had authorized him to
grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085, or to create a burden or lien thereon, or that
the respondent allowed him to do so.
WESTMONT BANK v. INLAND CONSTRUCTION AND
DEVELOPMENT CORP.
582 SCRA 230 (2009), SECOND DIVISION (Carpio Morales, J.)
DOCTRINE:
If a corporation, however, consciously lets one of its officers, or any other
agent, to act within the scope of an apparent authority, it will be estopped
from denying such officer’s authority.
FACTS:
Respondent Inland Construction and Development Corp. (Inland) obtained
various loans from petitioner Westmont Bank (Westmont). To secure the
payment of its obligations, Inland executed Real Estate Mortgages over
three real properties and issued promissory notes in favor of the bank.
By a Deed of Assignment, Conveyance and Release, one Felix Aranda,
assigned and conveyed all his rights and interests at Hanil-Gonzales
Construction & Development Phils. Corporation (HGCDP) in favor of
Horacio Abrante. Under the same Deed, it appears that HGCDP assumed
the obligations of Inland. Westmont’s Account Officer, Lionel Calo, Jr.
(Calo), signed for its conformity to the deed. Inland was subsequently
served with a Notice of Sheriff’s Sale foreclosing the real estate mortgages
over its real properties prompting it to file a complaint for injunction
against the Westmont.
In its answer, Westmont underscored that it had no knowledge, much less
did it give its conformity to the alleged assignment of the obligation. The
trial court found that Westmont ratified the act of Calo. It accordingly
rendered judgment in favor of Inland. On appeal, the appellate court
affirmed the trial court’s decision insofar as it finds Westmont to have
ratified the Deed of Assignment.
ISSUE:
Whether or not Westmont Bank ratified the Deed of Assignment
HELD:
The general rule remains that, in the absence of authority from the board
of directors, no person, not even its officers, can validly bind a
corporation. If a corporation, however, consciously lets one of its officers,
or any other agent, to act within the scope of an apparent authority, it will
be estopped from denying such officer’s authority.
The records show that Calo was the one assigned to transact on
petitioner’s behalf respecting the loan transactions and arrangements of
Inland as well as those of Hanil-Gonzales and Abrantes. Since it
conducted business through Calo, who is an Account Officer, it is
presumed that he had authority to sign for the bank in the Deed of
Assignment.
Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a
corporation should first prove by clear evidence that its corporate officer is
not in fact authorized to act on its behalf before the burden of evidence
shifts to the other party to prove, by previous specific acts, that an officer
was clothed by the corporation with apparent authority. In the present
petitions, Westmont Bank failed to discharge its primary burden of
proving that Calo was not authorized to bind it, as it did not present proof
that Calo was unauthorized. It did not present, much less cite, any
Resolution from its Board of Directors or its Charter or By-laws from
which the Court could reasonably infer that he indeed had no authority to
sign in its behalf or bind it in the Deed of Assignment.
Western Institute of Technology Inc. vs. Salas
[GR 113032, 21 August 1997]
Facts: Salas family, are the majority and controlling members of the
Board of Trustees of Western Institute of Technology, Inc. (WIT), a stock
corporation engaged in the operation, among others, of an educational
institution. According to the Villasis the minority stockholders of WIT,
sometime on 1 June 1986 in the principal office of WIT at La Paz, Iloilo
City, a Special Board Meeting was held. In attendance were other
members of the Board including Reginald Villasis. Prior to said Special
Board Meeting, copies of notice thereof, dated 24 May 1986, were
distributed to all Board Members. The notice allegedly indicated that the
meeting to be held on 1 June 1986 included Item 6 which states that
"Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of
Western Institute of Technology, Inc. on compensation of all officers of
the corporation." In said meeting, the Board of Trustees passed Resolution
48, series 1986, granting monthly compensation to Salas, et. al. as
corporate officers retroactive 1 June 1985, in the following amounts:
“Chairman 9,000.00/month, Vice Chairman P3,500.00/month, Corporate
Treasurer P3,500.00/month and Corporate Secretary P3,500.00/month,
retroactive June 1, 1985 and the ten percentum of the net profits shall be
distributed equally among the ten members of the Board of Trustees. This
shall amend and supercede any previous resolution.”
A few years later, or on 13 March 1991 the Villasis and Dimas Enriquez
filed an affidavit-complaint against Salas, et. al. before the Office of the
City Prosecutor of Iloilo, as a result of which 2 separate criminal
informations, one for falsification of a public document under Article 171
of the Revised Penal Code and the other for estafa under Article 315, par.
1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court
of Iloilo City. The charge for falsification of public document was
anchored on Salas, et. al.'s submission of WIT's income statement for the
fiscal year 1985-1986 with the Securities and Exchange Commission
(SEC) reflecting therein the disbursement of corporate funds for the
compensation of Salas, et. al. based on Resolution 4, series of 1986,
making it appear that the same was passed by the board on 30 March
1986, when in truth, the same was actually passed on 1 June 1986, a date
not covered by the corporation's fiscal year 1985-1986 (beginning May 1,
1995 and ending April 30, 1986). Thereafter, trial for the two criminal
cases (Criminal Cases 37097 and 37098), was consolidated. After a full-
blown hearing, Judge Porfirio Parian handed down a verdict of acquittal
on both counts dated 6 September 1993 without imposing any civil
liability against the accused therein. Villasis, et. al. filed a Motion for
Reconsideration of the civil aspect of the RTC Decision which was,
however, denied in an Order dated 23 November 1993. Villasis, et. al.
filed the petition for review on certiorari. Significantly on 8 December
1994, a Motion for Intervention, dated 2 December 1994, was filed before
this Court by Western Institute of Technology, Inc., disowning its
inclusion in the petition and submitting that Atty. Tranquilino R. Gale,
counsel for Villasis, et. al., had no authority whatsoever to represent the
corporation in filing the petition. Intervenor likewise prayed for the
dismissal of the petition for being utterly without merit. The Motion for
Intervention was granted on 16 January 1995.
Issue: Whether the grant of compensation to Salas, et. al. is proscribed
under Section 30 of the Corporation Code.
Held: Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption
that directors/trustees render service gratuitously, and that the return upon
their shares adequately furnishes the motives for service, without
compensation. Under Section 30 of the Corporation Code, there are only
two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a
provision in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital stock at a
regular or special stockholders' meeting agree to give it to them. Also, the
proscription, however, against granting compensation to director/trustees
of a corporation is not a sweeping rule. Worthy of note is the clear
phraseology of Section 30 which state: "[T]he directors shall not receive
any compensation, as such directors." The phrase as such directors is not
without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their
capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to
reasonable per diems, when they render services to the corporation in a
capacity other than as directors/trustees. Herein, resolution 48, s. 1986
granted monthly compensation to Salas, et. al. not in their capacity as
members of the board, but rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer and Secretary of
Western Institute of Technology. Clearly, therefore, the prohibition with
respect to granting compensation to corporate directors/trustees as such
under Section 30 is not violated in this particular case. Consequently, the
last sentence of Section 30 which provides that "In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during the
preceding year" does not likewise find application in this case since the
compensation is being given to Salas, et. al. in their capacity as officers of
WIT and not as board members.
Ignacio Vicente an Moises Angeles v Hon. Ambrosio Geraldez and Hi
Cement Corporation
GR. No. L-32473, 31 July 1973
Juan Bernabe v Hi Cement Corporation and Hon Ambrosio Geraldez
GR No. L-32483, 31 July 1973
Facts:
 Hi Cement filed a complaint for injuction and damages against
petitioners alleging that it had acquired Placer Lease Contract
under a deed of sale and transfer which was duly registered with
the Office of the Mining Recorder of Bulacan and duly approved
by the Sec. of Agriculture and Natural Resources for a period of
25 years covering two mining claims.
 Within the limits of the Placer Mining Claims are three parcels
of land each owned by petitioners.
 Hi Cement prayed that the petitioners allow it, its agents and
workers to enter, develop and extract minerals from the areas
claimed by defendants. Upon suggestion of the court, a surveyor
surveyed the area to relocate the boundaries of the mining
claims, which showed that the properties of the plaintiffs were
covered
 The counsels of parties conferred on the possibility of
terminating the case by compromise, the plaintiffs having
previously signified their willingness to sell their respective
properties.
 Counsels of parties executed and submitted to the court for its
approval a Compromise Agreement, which was approved and
enjoined the parties to comply with the terms and conditions.
One of the three lawyers of Hi Cement sent a copy of the CA to
the president of the corporation. However, the latter answered
that the Board of Directors do not agree with the valuation set by
the court.
 The trial court rendered judgment ordering Hi Cement to pay the
plaintiffs.
 A new motion was filed by the plaintiff on the ground that
decision was based on a CA which was null and void for want of
a special authority by Hi Cement’s lawyers to enter into said
agreement.
Issue:
W/N the compromise agreement entered into by corporration’s
lawyer is valid.
Held:
No.
Ruling:
Special powers of attorney are necessary in the ff: to compromise, and to
renounce the right to appeal from a judgment. Attorneys have authority to
bind their clients in any case by any agreement in relation thereto made in
writing, and in taking appeals, and in all matters of ordinary judicial
procedure, but they cannot, without special authority/compromise their
clients’ litigation, or receive anything in discharge of their clients’ claims
but the full amount in cash.
The Compromise Agreement was signed only by the lawyers for
petitioners and by the lawyers for private respondent corporation.
The Court held that the Rules require for attorneys to compromise the
litigation of their clients, a special authority. And while the same does not
state that the special authority be in writing, the same be duly established
by evidence other than the self-serving assertion of counsel himself that
such authority was verbally given him.
Law specifically required that juridical persons may compromise only in
the form and with the requisites which may be necessary to alienate their
property. Under the corporation law the power to compromise or settle
claims in favor of or against the corporation is ordinarily and primarily
committed to the Board of Directors.
As a general rule, an officer or agent of the corporation has no power to
compromise or settle a claim by or against the corporation, except to the
extent that such power is given to him either expressly or by reasonable
implication from the circumstances.
A corporation officer's power as an agent of the corporation must therefore
be sought from the statute, the charter, the by-laws, or in a delegation of
authority to such officer, from the acts of board of directors, formally
expressed or implied from a habit or custom of doing business.
In the case at bar no provision of the charter and by-laws of the
corporation or any resolution or any other act of the board of directors of
HI Cement Corporation has been cited, from which We could reasonably
infer that the administrative manager had been granted expressly or
impliedly the power to bind the corporation or the authority to
compromise the case. Absent such authority to enter into the compromise,
the signature of Atty. Cardenas on the agreement would be legally
ineffectual.
Valle Verde Country Club, Inc. v. Africa
G.R. No. 151969, September 4, 2009, (Brion, J.)
FACTS: In 1996, during the Annual Stockholders’ Meeting of Valle
Verde Country Club, Inc. (VVCC), Villaluna, Dinglasan, Makalintal,
Ortigas III, Salta, Santiago, Jr., Dee, Sunico, and Gamboa were elected as
members of the VVCC Board of Directors. From 1997 to 2001, the
requisite quorum for the holding of the stockholders’ meeting could not be
obtained. Consequently, the above-named directors continued to serve in
the VVCC Board in a hold-over capacity.
In 1998, Dinglasan resigned from his position. He was replaced by Roxas
who was elected by the board still constituting a quorum. A year later,
Makalintal also resigned and was replaced by Jose Ramirez in 2001.
Ramirez was elected by the remaining members of the Board.
Africa, a member of VVCC, questioned the election of Roxas and
Ramirez with the SEC and the RTC, respectively. Before the RTC, Africa
alleged that a year after Makalintal’s election as member of the VVCC
Board in 1996, his term – as well as those of the other members of the
VVCC Board – should be considered to have already expired. According
to him, for the members to exercise the authority to fill in vacancies in the
board of directors, that there should be an unexpired term during which
the successor-member shall serve. Further, that the resulting vacancy
should have been filled by the stockholders in a regular or special meeting
called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case.
The RTC and the SEC ruled in favor of Africa. VVCC filed a petition for
review on certiorari.
ISSUE: Whether or not the remaining directors of the corporation’s
Board, still constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director.
RULING: Petition DENIED. Under Section 29 of the Corporation Code,
a vacancy occurring in the board of directors caused by the expiration of a
member’s term shall be filled by the corporation’s stockholders. As the
vacancy in this case was caused by Makalintal’s resignation, not by the
expiration of his term, VVCC insists that the board rightfully appointed
Ramirez to fill in the vacancy.
The holdover period is not part of the term of office of a member of the
board of directors. In several cases, we have defined "term" as the time
during which the officer may claim to hold the office as of right, and fixes
the interval after which the several incumbents shall succeed one
another. The term of office is not affected by the holdover.
Section 23 of the Corporation Code declares that the term of the members
of the board of directors shall be only for one year; their term expires one
year after election to the office. After the lapse of one year from his
election, Makalintal’s term of office is deemed to have already expired.
With the expiration of Makalintal’s term of office, a vacancy resulted
which, by the terms of Section 29, must be filled by the stockholders of
VVCC in a regular or special meeting called for the purpose. His
resignation as a holdover director did not change the nature of the
vacancy; the vacancy due to the expiration of Makalintal’s term had been
created long before his resignation.
Umale v. ASB Realty Corporation
[G.R. 181126, June 15, 2011]
TOPIC: Restrictions on capacity to act (Insolvency and Trusteeship
PONENTE: Del Castillo, J.
FACTS: (chronological order)
1996: Amethyst Pearl executed a Deed of Assignment in Liquidation of a
parcel of land in favor of ASB Realty in consideration of Amethyst Pearl’s
outstanding capital stock from ASB Realty making ASB Realty the owner
of the parcel of land.
Sometime in 2003: ASB Realty commenced an action in the MTC for
unlawful detainer against Umale. ASB Realty alleged that it entered into a
lease contract with Umale for the period June 1, 1999-May 31, 2000.
Their agreement was for Umale to conduct a pay-parking business on the
property and pay a monthly rent of P60,720.00. Upon the contract's
expiration on continued occupying the premises and paying rentals.
June 2003: ASB Realty served on Umale a Notice of Termination of Lease
and Demand to Vacate and Pay. ASB Realty stated that it was terminating
the lease effective midnight of June 30, 2003.Umale failed to comply with
ASB Realty's demands and continued in possession of the subject
premises, even constructing commercial establishments thereon
ISSUE(S): Can a corporate officer of ASB Realty (duly authorized by the
Board of Directors) file suit to recover an unlawfully detained corporate
property despite the fact that the corporation had already been placed
under rehabilitation?
HELD: Yes
RATIO:
- What petitioners argue is that the corporate officer of ASB
Realty is incapacitated to file this suit to recover a corporate
property because ASB Realty has a duly-appointed
rehabilitation receiver. Allegedly, this rehabilitation receiver is
the only one that can file the instant suit.
- Corporations, such as ASB Realty, are juridical entities that
exist by operation of law. As a creature of law, the powers and
attributes of a corporation are those set out, expressly or
impliedly, in the law.
- Corporate Rehabilitation’s concept of preserving the
corporation’s business as a going concern while it is undergoing
rehabilitation is called debtor-in-possession or debtor-in-place.
CASE LAW/ DOCTRINE:
Corporate rehabilitation is defined as “the restoration of the debtor to as
position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan
more if the corporation continues as a going concern than if it is
immediately liquidated”
G.R. No. 153468 August 17, 2006
PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN
CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI JR., EDWIN
NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P.
LIZARES and GRACE CHRISTIAN HIGH SCHOOL,
Petitioners,vs.PAUL SYCIP and MERRITTO LIM, Respondents
. there is nothing against one corporation being represented by another
FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation with 15 regular members, who also constitute the
board of trustees. During the annual members’ meeting, there were only
11 living member-trustees, as 4 have already died. Out of the 11, 7
attended the meeting through their respective proxies. The meeting was
convened and chaired by Atty. Sabino Padilla Jr. over the objection of
Atty. Antonio C. Pacis, who argued that there was no quorum. In the
meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and
Judith Tan were voted to replace the four deceased member-trustees. The
controversy reached SEC and the petitioners maintained that the deceased
member-trustees should not be counted in the computation of the quorum
because, upon their death, members automatically lost all their rights
(including the right to vote) and interests in the corporation. SEC declared
the meeting null and void and ruled that the phrase “entitled to vote” under
Sec 24 should be read with Sec 89 of Corpo Code.
ISSUE: In a non-stock corporation, should dead members still be counted
in determination of quorum for purposed of conducting the Annual
Members’ Meeting?
HELD: For stock corporations, the "quorum" referred to in Section 52 of
the Corporation Code is based on the number of outstanding voting stocks.
For nonstock corporations, only those who are actual, living members with
voting rights shall be counted in determining the existence of a quorum
during members’ meetings. Dead members shall not be counted.
One of the most important rights of a qualified shareholder or member is
the right
to vote -- either personally or by proxy -- for the directors or trustees who
are to manage the corporate affairs. The right to vote is inherent in and
incidental to the ownership of corporate stocks. In nonstock corporations,
the voting rights attach to membership. The principle for determining the
quorum for stock corporations is applied by analogy to nonstock
corporations, only those who are actual members with voting rights should
be counted. Under Section 52, the majority of the members representing
the actual number of voting rights, not the number or numerical constant
that may originally be specified in the articles of incorporation, constitutes
the quorum.
Having thus determined that the quorum in a members’ meeting is to be
reckoned as the actual number of members of the corporation, the next
question to resolve is what happens in the event of the death of one of
them. In stock corporations, the executor or administrator duly appointed
by the Court is vested with the legal title to the stock and entitled to vote
it. Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. On the other hand,
membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the
bylaws of the corporation provide otherwise. In other words, the
determination of whether or not "dead members" are entitled to exercise
their voting rights (through their executor or administrator), depends on
those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member. Applying
Section 91, dead members who are dropped from the membership roster in
the manner and for the cause provided for in the By-Laws of GCHS are
not to be counted in determining the requisite vote in corporate matters or
the requisite quorum for the annual members’ meeting. With 11 remaining
members, the quorum in the present case should be 6. Therefore, there
being a quorum, the annual members’ meeting was valid.
TUASON VS. BOLANOS
GR. No. L-4935. May 28, 1954
95 Phil. 106
CASE DIGEST
Facts:
Plaintiff’s complaint against defendant was to recover possession of a
registered land. In the complaint, the plaintiff is represented by its
Managing Partner, Gregorio Araneta, Inc., another corporation.
Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession under
claim of ownership, adverse to the entire world by defendant and his
predecessors in interest" from "time immemorial". After trial, the lower
court rendered judgment for plaintiff, declaring defendant to be without
any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent. Defendant
appealed directly to the Supreme Court and contended, among others, that
Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the
theory that it is illegal for two corporations to enter into a partnership
Issue:
Whether or not a corporation may enter into a joint venture with another
corporation.
Ruling:
It is true that the complaint states that the plaintiff is "represented herein
by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. cannot act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter
into a partnership, it may nevertheless enter into a joint venture with
another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80
A. L. R., 1043, citing 2. Fletcher Cyc. of Corp., 1082.). There is nothing in
the record to indicate that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is not in line with the
corporate business of either of them.
Negotiable Instruments Case Digest: Traders Royal Bank v. CA
(1997)
FACTS:
Filriters (assigned) > Philfinance (still under the name of Filriters
assigned) > Traders Royal Bank = ? (valid or not)
 November 27, 1979: Filriters Guaranty Assurance Corporation
(Filriters) executed a "Detached Assignment whereby Filriters,
as registered owner, sold, transferred, assigned and delivered
unto Philippine Underwriters Finance Corporation (Philfinance)
all its rights and title to Central Bank Certificates of
Indebtedness (CBCI) of P500k and having an aggregate value of
P3.5M
o The Detached Assignment contains an express
authorization executed by the transferor intended to
complete the assignment through the registration of
the transfer in the name of PhilFinance
 February 4, 1981: Traders Royal Bank (Traders) entered into a
Repurchase Agreement w/ PhilFinance whereby in consideration
of the sum of P500,000.00, PhilFinance sold, transferred and
delivered a CBCI w/ a face value of P500K which CBCI was
among those previously acquired by PhilFinance from Filriters
 PhilFinance failed to repurchase on the agreed date of maturity,
April 27, 1981, when the checks it issued in favor of petitioner
were dishonored for insufficient funds
 Philfinance transferred and assigned all, its rights and title in the
CBCI to Traders
 Respondent failed and refused to register the transfer as
requested, and continues to do so notwithstanding petitioner's
valid and just title over the same and despite repeated demands
in writing
 Traders prayed for the registration by the Central Bank of the
subject CBCI in its name.
 CA affirmed RTC: subsequent assignment in favor of Traders
Royal Bank null and void and of no force and effect.
o Philfinance acquired no title or rights under CBCI
which it could assign or transfer to Traders and which
it can register with the Central Bank
o instrument is payable only to Filriters, the registered
owner
ISSUE:
W/N the CBCI is a negotiable instrument
HELD:
NO. Petition is dismissed. CA affirmed.
 CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the
negotiable instruments law (Act 2031)
 certificate of indebtedness
o = certificates for the creation and maintenance of a
permanent improvement revolving fund
o similar to a "bond"
 properly understood as acknowledgment of
an obligation to pay a fixed sum of money
 usually used for the purpose of long term
loans
 Philfinance merely borrowed the CBCI from Filriters, a sister
corporation.
o lack of any consideration = assignment is a complete
nullity
 Filriters to Philfinance did not conform to the "Rules and
Regulations Governing Central Bank Certificates of
Indebtedness" (Central Bank Circular No. 769, series of
1980) under which the note was issued.
o Published in the Official Gazette on November 19,
1980, Section 3 thereof provides that any assignment
of registered certificates shall not be valid unless made
. . . by the registered owner thereof in person or by his
representative duly authorized in writing
 Alfredo O. Banaria, who signed the deed of
assignment purportedly for and on behalf of
Filriters, did not have the necessary written
authorization from the BOD
o Traders, being a commercial bank, cannot feign
ignorance of Central Bank Circular 769, and
its requirements.
 The fact that Filfinance owns majority shares in Filriters is not
by itself a ground to disregard the independent corporate status
of Filriters.
 Traders knew that Philfinance is not registered owner of the
CBCI.
o The fact that a non-owner was disposing of the
registered CBCI owned by another entity was a good
reason for petitioner to verify of inquire as to the title
Philfinance to dispose to the CBCI.
Strong and Strong vs. Repide
41 Phil. 947 3 May 1909
PONENTE: Justice Peckham
FACTS:
Among the lands comprising the friar lands are the Dominican
lands, the only valuable asset owned by the corporation Philippine Sugar
Estates Development Company Limited (Philippine Sugar Estates).
Francisco Gutierrez Repide (Repide), defendant, was the majority
stockholder and one of the five directors of Philippine Sugar Estates. He
was likewise elected by the board as the agent and administrator general of
such company.
The factual backdrop being during US occupation, the US
Government wanted to secure title over the friar lands. To accomplish this
objective, Governor for the Philippines entered into negotiations for the
purchase of the Dominican lands, during which Repide represented
Philippine Sugar Estates. The first offer of the Governor was to purchase
the subject lands in the amount of $6,043,219.47. As the majority
stockholder of Philippine Sugar Estates and without prior consultation
with the other stockholders, Repide rejected the offer. For the second
offer, the purchase price was increased to $7,535,000.
While negotiations for the second offer were ongoing and while
still holding out for a higher price of the Dominican lands, Repide took
steps to purchase the 800 shares of stock of Philippine Sugar Estates.
These shares were owned by Mrs. Eleanor Strong (Strong) which were
then in the possession of her agent, F. Stuart Jones (Jones). Repide, instead
of seeing Jones, employed Kauffman who later on employed Sloan, a
broker, to purchase the shares of Strong. Jones sold the 800 shares of
Strong for 16,000 Mexican currency. For this sale transaction a check of
one Rueda Ramos was issued.
Later on, the negotiations for the purchase of the Dominican
lands were concluded and a contract of sale was subsequently executed.
This sale transaction increased the value of the shares of stocks originally
owned by Strong from 16,000 Mexican currency to 76,256 US currency.
During the negotiations regarding the purchase of the shares of stock of
Strong, not one word of the facts affecting the value of this stock was
made known to her nor her agent, Jones. After the sale of Dominican lands
and after the purchase of the 800 shares of Strong, Repide became the
owner of 30,400 out of the 42,030 shares of Philippine Sugar Estates.
Strong filed a complaint for the recovery of her 800 shares. She
argued that her agent Jones had no authority to sell her shares and that
Repide fraudulently concealed the facts affecting their value.
ISSUE:
Was there fraud in effecting the purchase of Strong’s shares?
RULING:
Yes. With the factual circumstances of this case, it became the
duty of Repide, acting in good faith, to state the facts before making the
purchase of Strong’s shares. That Repide was one of the directors of
Philippine Sugar Estates was but one of the facts upon which liability is
asserted. He was not only a director, but he owned three-fourths of the
shares of its stock, and was, at the time of the purchase of the stock,
administrator general of the company with large powers and engaged in
the negotiations which finally led to the sale of the company’s lands at a
price which greatly enhanced the value of the stock. He was the negotiator
for the sale of the Dominican lands and was acting substantially as the
agent of the shareholders of Philippine Sugar Estates by reason of his
ownership of the shares in the company. Because of such ownership and
agency, no one knew as well as he does about the exact condition of the
negotiations. He was the only one who knew of the probability of the sale
of the Dominican lands to the government and of the probable purchase
price. Under these circumstances, Repide employed an agent to purchase
the stock of Strong, concealed his own identity and his knowledge of the
state of negotiations and their probable result. The concealment of his
identity while procuring the purchase of the stock, by his agent, was in
itself strong evidence of fraud on the part of Repide. By such means, the
more easily was he able to avoid questions relative to the negotiations for
the sale of Dominican lands and actual misrepresentations regarding that
subject. He kept up the concealment as long as he could by giving the
check of a third person Rueda Ramos, for the purchase money. This move
of Repide was a studied and intentional omission to be characterized as
part of the deceitful machinations to obtain the purchase without giving
any information whatever as to the state and probable result of the
negotiations and to obtain a lower price for the shares of Strong. After the
purchase of stock, he continued negotiations for the sale of the Dominican
lands as the administrator general and eventually entered into a contract of
sale. The whole transaction gives conclusive evidence of the
overwhelming influence Repide had in the negotiations and it is clear that
the final consummation was in his hands at all times.
OBITER DICTUM:
The directors are declared to be mandatories of the society and
that they are prohibited from acquiring by purchase, even at public or
judicial auction, the property the administration or sale of which, may
have been entrusted to them, and that this is the extent of the prohibition.
Tam Wing Tak vs Ramon Makasiar
Business Organization – Corporation Law – Ultra Vires Acts of
Corporate Officers – Derivative Suit
Sometime before November 1992, Vic Ang Siong issued a check to
Concord-World Properties, Inc. The check amounted to P83.5 million.
The check however bounced. In November 1992, Tam Wing Tak filed an
affidavit-complaint for violation of the Anti-Bouncing Checks Law
against Ang Siong. The fiscal did not file a criminal information against
Ang Siong because apparently Concord-World and Ang Siong are settling
out of court (in fact Ang Siong already paid P19 million); and that Tam
Wing Tak was not authorized by the Board of Directors of Concord-World
to sue Ang Siong. Tam Wing Tak then filed a petition for mandamus to
compel the fiscal to file the information. Judge Ramon Makasiar
dismissed the petition.
ISSUE: Whether or not the petition should be granted.
HELD: No. The petition for mandamus shall not lie. There was no grave
abuse of discretion when the fiscal refused to file the information.
Concord-World is the named payee in the check that bounced. As payee,
Concord-World is the injured party hence only Concord-World can file the
criminal case against Ang Siong but it did not do so because it chose to
amicably settle the issue with Ang Siong. Where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. This can be delegated but Tam Wing Tak never proved that he
was authorized by the Board of Concord-World.
But may the suit be considered a derivative suit where the Board’s
authorization may not be had?
No. 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. In this case, this was not complied with. Hence, Tam
Wing Tak cannot sue Ang Siong.
Strategic Alliance vs. Radstock Securities !
• Construction Development Corporation of the Philippines (CDCP) was
incorporated in
1966. It was granted a franchise to construct, operate and maintain toll
facilities in the North
and South Luzon Tollways and Metro Manila Expressway.
• CDCP Mining Corporation, an affiliate of CDCP, obtained loans from
Marubeni
Corporation of Japan. A CDCP official issued letters of guarantee for the
loans although
there was no CDCP Board Resolution authorizing the issuance of such
letters of guarantee. !
• CDCP Mining secured the Marubeni loans when CDCP and CDCP
Mining were still
privately owned and managed.
• Later on, CDCP’s name was changed to Philippine National
Construction Corporation
(PNCC) in order to reflect that the Government already owned 90.3% of
PNCC and only
9.70% is under private ownership. !
• Meanwhile, the Marubeni loans to CDCP Mining remained unpaid.
• PNCC Board passed Board Resolutions admitting PNCC’s liability to
Marubeni.
Previously, for two decades the PNCC Board consistently refused to admit
any liability for
the Marubeni loans.
• Later, Marubeni assigned its entire credit to Radstock Securities Limited
(Radstock), a
foreign corporation. Radstock immediately sent a notice and demand letter
to PNCC.
• PNCC and Radstock entered into a Compromise Agreement. Under this
agreement,
PNCC shall pay Radstock the reduced amount of P6,185,000,000.00 from
P17,040,843,968.00 !
• To satisfy its reduced obligation, PNCC undertakes to
• (1) "assign to a third party assignee to be designated by Radstock all its
rights and
interests" to the listed real properties of PNCC;
• (2) issue to Radstock or its assignee common shares of the capital stock
of PNCC; and
(3) assign to Radstock or its assignee 50% of PNCC’s 6% share, for the
next 27 years, in
the gross toll revenues of the Manila North Tollways Corporation.
• Strategic Alliance Development Corporation (STRADEC) moved for
reconsideration.
STRADEC alleged that it has a claim against PNCC as a bidder of the
National
Government’s shares, receivables, securities and interests in PNCC.
Issue
Whether or not the Compromise Agreement between PNCC (Board?) and
Radstock is
valid
!
• NO
• Radstock is a private corporation incorporated in the British Virgin
Islands. As a foreign
corporation, with unknown owners whose nationalities are also unknown,
Radstock is not
qualified to own land in the Philippines.
• Radstock is also disqualified to own the rights to ownership of lands and
transfer rights to
ownership of lands in the Phils. !
DOCTRINE:
• In this jurisdiction, the members of the board of directors have a three-
fold duty: duty of
obedience, duty of diligence, and duty of loyalty.
• Accordingly, the members of the board of directors
• (1) shall direct the affairs of the corporation only in accordance with the
purposes for
which it was organized;
• (2) shall not willfully and knowingly vote for or assent to patently
unlawful acts of the
corporation or act in bad faith or with gross negligence in directing
the affairs of the corporation; and
•(3) shall not acquire any personal or pecuniary interest in conflict with
their duty as such directors or trustees.
G.R. No. L-30460
March 12, 1929
Steinberg v. Velasco
Nature: Petition for review of lower court decision to dismiss P’s
complaint since it held that the Board of Driectors could legally declare
dividend of P3000
Facts:
Steinberg (P) is the receiver of Sibuguey Trading Corp. P alleges that
[Velasco, as president, Del Castillo, as vice-president, Navallo, as
secretary-treasurer, and Manuel, as director of the trading Company][R],
at a meeting of the board of directors held on July 24, 1922, approved and
authorized various lawful purchases already made of a large portion of the
capital stock of the company from its various stockholders, thereby
diverting its funds to the injury of the creditors of the corp. At the time of
such purchase, the corporation had debts amounting to P13,807.50, most
of which were unpaid at the time petition for the dissolution of the
corporation was financial condition, in contemplation of an insolvency and
dissolution. P also alleges that R approved a resolution for the payment of
P3,000 as dividends to its stockholders, which was done in bad faith, and
to the injury and fraud of its creditors since it had accounts less in amount
than the accounts receivable. R argues that the distribution of dividends
was authorized by the board of directors and they constitute surplus profit
of the corp. The lower court found out that R authorized the purchase of,
purchased and paid for, 330 shares of the capital stock of the corporation
at the agreed price of P3,300, and that at the time the purchase was made,
the corporation was indebted in the sum of P13,807.50, and that according
to its books, it had accounts receivable in the sum of P19,126.02.
Issue:
Whether R can declare dividends.
Ruling:
No. The action of the board in purchasing the stock from the corporation
and in declaring the dividends on the stock was all done at the same
meeting of the board of directors. The directors were permitted to resign
so that they could sell their stock to the corporation. The authorized capital
stock was P20,000 divided into 2,000 shares of the par value of P10 each,
which only P10,030 was subscribed and paid. Deducting the P3,300 paid
for the purchase of the stock, there would be left P7,000 of paid up stock,
from which deduct P3,000 paid in dividends, there would be left P4,000
only. R acted on assumption that it appeared from the books of the
corporation that it had accounts receivable of the face value of P19,126.02,
therefore it had a surplus over and above its debts and liabilities. However,
there is no stipulation as to the actual cash value of those accounts, and it
does appear from the stipulation that, P12,512.47 of those accounts had
but little value. The corporation did not then have an actual bona fide
surplus from which the dividends could be paid, and that the payment of
them in full at the time would affect the financial condition of the
corporation. Because of this, the directors did not act in good faith or that
they were grossly ignorant of their duties. Creditors of a corporation have
the right to assume that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets of the corporation
to purchase its own stock, and that it will not declare dividends to
stockholders when the corporation is insolvent.
Pleadings; powers of corporate officers.
G.R. No. 173326
SOUTH COTABATO COMMUNICATIONS CORPORATION and
GAUVAIN J. BENZONAN vs. HON. PATRICIA A. STO. TOMAS,
SECRETARY OF LABOR AND EMPLOYMENT, et. al., G.R. No.
173326, December 15, 2010
DECISION
LEONARDO-DE CASTRO, J.:
x x x.
Anent the first procedural issue, the Court had summarized the
jurisprudential principles on the matter in Cagayan Valley Drug
Corporation v. Commissioner of Internal Revenue.[15] In said case, we
held that a President of a corporation, among other enumerated corporate
officers and employees, can sign the verification and certification against
of non-forum shopping in behalf of the said corporation without the
benefit of a board resolution. We quote the pertinent portion of the
decision here:
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the
Corporation Code, clearly enunciates that all corporate powers are
exercised, all business conducted, and all properties controlled by the
board of directors. A corporation has a separate and distinct personality
from its directors and officers and can only exercise its corporate powers
through the board of directors. Thus, it is clear that an individual corporate
officer cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors. This has been
our constant holding in cases instituted by a corporation.
In a slew of cases, however, we have recognized the authority of some
corporate officers to sign the verification and certification against forum
shopping. In Mactan-Cebu International Airport Authority v. CA, we
recognized the authority of a general manager or acting general manager
to sign the verification and certificate against forum shopping; in Pfizer v.
Galan, we upheld the validity of a verification signed by an “employment
specialist” who had not even presented any proof of her authority to
represent the company; in Novelty Philippines, Inc. v. CA, we ruled that a
personnel officer who signed the petition but did not attach the authority
from the company is authorized to sign the verification and non-forum
shopping certificate; and in Lepanto Consolidated Mining Company v.
WMC Resources International Pty. Ltd. (Lepanto), we ruled that the
Chairperson of the Board and President of the Company can sign the
verification and certificate against non-forum shopping even without the
submission of the board’s authorization.
In sum, we have held that the following officials or employees of the
company can sign the verification and certification without need of a
board resolution: (1) the Chairperson of the Board of Directors, (2) the
President of a corporation, (3) the General Manager or Acting General
Manager, (4) Personnel Officer, and (5) an Employment Specialist in a
labor case.
While the above cases do not provide a complete listing of authorized
signatories to the verification and certification required by the rules, the
determination of the sufficiency of the authority was done on a case to
case basis. The rationale applied in the foregoing cases is to justify the
authority of corporate officers or representatives of the corporation to sign
the verification or certificate against forum shopping, being “in a position
to verify the truthfulness and correctness of the allegations in the
petition.”[16] (Emphases supplied.)
It must be stressed, however, that the Cagayan ruling qualified that the
better procedure is still to append a board resolution to the complaint or
petition to obviate questions regarding the authority of the signatory of the
verification and certification.[17]
Nonetheless, under the circumstances of this case, it bears reiterating that
the requirement of the certification of non-forum shopping is rooted in the
principle that a party-litigant shall not be allowed to pursue simultaneous
remedies in different fora, as this practice is detrimental to an orderly
judicial procedure. However, the Court has relaxed, under justifiable
circumstances, the rule requiring the submission of such certification
considering that, although it is obligatory, it is not jurisdictional. Not being
jurisdictional, it can be relaxed under the rule of substantial
compliance.[18]
In the case at bar, the Court holds that there has been substantial
compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on
Civil Procedure on the petitioners’ part in consonance with our ruling in
the Lepanto Consolidated Mining Company v. WMC Resources
International PTY LTD.[19] that we laid down in 2003 with the rationale
that the President of petitioner-corporation is in a position to verify the
truthfulness and correctness of the allegations in the petition. Petitioner
Benzonan clearly satisfies the aforementioned jurisprudential requirement
because he is the President of petitioner South Cotabato Communications
Corporation. Moreover, he is also named as co-respondent of petitioner-
corporation in the labor case which is the subject matter of the special civil
action for certiorari filed in the Court of Appeals.
Clearly, it was error on the part of the Court of Appeals to dismiss
petitioners’ special civil action for certiorari despite substantial
compliance with the rules on procedure. For unduly upholding
technicalities at the expense of a just resolution of the case, normal
procedure dictates that the Court of Appeals should be tasked with
properly disposing the petition, a second time around, on the merits.
The Court is mindful of previous rulings which instructs us that when
there is enough basis on which a proper evaluation of the merits can be
made, we may dispense with the time-consuming procedure in order to
prevent further delays in the disposition of the case.[20] However, based
on the nature of the two remaining issues propounded before the Court
which involve factual issues and given the inadequacy of the records,
pleadings, and other evidence available before us to properly resolve those
questions, we are constrained to refrain from passing upon them.
After all, the Court has stressed that its jurisdiction in a petition for review
on certiorari under Rule 45 of the Rules of Court is limited to reviewing
only errors of law, not of fact, unless the findings of fact complained of
are devoid of support by the evidence on record, or the assailed judgment
is based on the misapprehension of facts.[21]
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed
Resolutions of the Court of Appeals are REVERSED and SET ASIDE.
The case is REMANDED to the Court of Appeals for proper disposition of
CA-G.R. SP No. 00179-MIN.
SO ORDERED.
SOLER
VS.
COURT OF APPEALS
G.R. No. 123892
FACTS OF THE CASE
Petitioner Jazmin Soler is a well-known licensed professional interior
designer. Her friend Rosario Pardo asked her to talk to Nida Lopez, who
was manager of the COMBANK Ermita Branch for they were planning to
renovate the branch offices. During their meeting, petitioner was hesitant
to accept the job because of her many out of town commitments, and also
considering that Ms. Lopez was asking that the designs be submitted by
December 1986, which was such a short notice. Ms. Lopez insisted,
however, because she really wanted petitioner to do the design for
renovation. Petitioner acceded to the request. Petitioner even told Ms.
Lopez that her professional fee was P10, 000.00, to which Ms. Lopez
acceded.
After a few days, petitioner requested for the blueprint of the building so
that the proper design, plans and specifications could be given to Ms.
Lopez in time for the board meeting in December 1986. So come
December 1986, the lay out and the design were submitted to Ms. Lopez.
She even told petitioner that she liked the designs.
Subsequently, petitioner repeatedly demanded payment for her services
but Ms. Lopez just ignored the demands. To settle the controversy,
petitioner referred the matter to her lawyers, who wrote Ms. Lopez,
demanding payment for her professional fees in the amount of P10, 000.00
which Ms. Lopez ignored. Hence, the lawyers wrote Ms. Lopez once
again demanding the return of the blueprint copies petitioner submitted
which Ms. Lopez refused to return.
Petitioner filed at the RTC Pasig, a complaint against COMBANK and
Ms. Lopez for collection of professional fees and damages.
In its answer, COMBANK stated that there was no contract between
COMBANK and petitioner; that Ms. Lopez merely invited petitioner to
participate in a bid for the renovation of the COMBANK Ermita Branch;
that any proposal was still subject to the approval of the COMBANK’s
head office.
RTC ruled in favor of Soler. The Court of Appeals reversed the decision.
ISSUE
Whether Nida Lopez, the manager of the bank branch, had authority to
bind the bank in the transaction.
RULING
Yes.
It is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to act within the scope of an apparent
authority, it 222 holds him out to the public as possessing the power to do
those acts; and thus, the corporation will, as against anyone who has in
good faith dealt with it through such agent, be estopped from denying the
agent’s authority.
Petitioner believed that once she submitted the designs she would be paid
her professional fees. Ms. Lopez assured petitioner that she would be paid.
The discussion between petitioner and Ms. Lopez was to the effect that
she had authority to engage the services of petitioner. During their
meeting, she even gave petitioner specifications as to what was to be
renovated in the branch premises and when petitioners requested for the
blueprints of the building, Ms. Lopez supplied the same.
Ms. Lopez even insisted that the designs be rushed in time for presentation
to the bank. With all these discussion and transactions, it was apparent to
petitioner that Ms. Lopez indeed had authority to engage the services of
petitioner.
Smith v. Van Gorkom
Citation. Smith v. Van Gorkom, 488 A.2d 858, 1985 Del. LEXIS 421,
46 A.L.R.4th 821, Fed. Sec. L. Rep. (CCH) P91,921 (Del. Jan. 29,
1985)
Brief Fact Summary. Plaintiffs, Alden Smith and John Gosselin, brought
a class action suit against Defendant corporation, Trans Union, and its
directors, after the Board approved a merger proposal submitted by the
CEO of Trans Union, fellow Defendant Jerome Van Gorkom.
Synopsis of Rule of Law. Under the business judgment rule, a business
judgment is presumed to be an informed judgment, but the judgment will
not be shielded under the rule if the decision was unadvised.
Facts. Trans Union had large investment tax credits (ITCs) coupled with
accelerated depreciation deductions with no offsetting taxable income.
Their short term solution was to acquire companies that would offset the
ITCs, but the Chief Financial Officer, Donald Romans, suggested that
Trans Union should undergo a leveraged buyout to an entity that could
offset the ITCs. The suggestion came without any substantial research, but
Romans thought that a $50-60 share price (on stock currently valued at a
high of $39 ½) would be acceptable. Van Gorkom did not demonstrate any
interest in the suggestion, but shortly thereafter pursued the idea with a
takeover specialist, Jay Pritzker. With only Romans’ unresearched
numbers at his disposal, Van Gorkom set up an agreement with Pritzker to
sell Pritzker Trans Union shares at $55 per share. Van Gorkom also agreed
to sell Pritzker one million shares of Trans Union at $39 per share if
Pritzker was outbid. Van Gorkom also agreed not to solicit other bids and
agreed not to provide proprietary information to other bidders. Van
Gorkom only included a couple people in the negotiations with Pritzker,
and most of the senior management and the Board of Directors found out
about the deal on the day they had to vote to approve the deal. Van
Gorkom did not distribute any information at the voting, so the Board had
only the word of Van Gorkom, the word of the President of Trans Union
(who was privy to the earlier discussions with Pritzker), advice from an
attorney who suggested that the Board might be sued if they voted against
the merger, and vague advice from Romans who told them that the $55
was in the beginning end of the range he calculated. Van Gorkom did not
disclose how he came to the $55 amount. On this advice, the Board
approved the merger, and it was also later approved by shareholders.
Held. The Delaware Supreme Court held the business judgment to be
gross negligence, which is the standard for determining whether the
judgment was informed. The Board has a duty to give an informed
decision on an important decision such as a merger and can not escape the
responsibility by claiming that the shareholders also approved the merger.
The directors are protected if they relied in good faith on reports submitted
by officers, but there was no report that would qualify as a report under
the statute. The directors can not rely upon the share price as it contrasted
with the market value. And because the Board did not disclose a lack of
valuation information to the shareholders, the Board breached their
fiduciary duty to disclose all germane facts.
G.R. No. L-17131 June 30, 1922
SING JUCO and SING BENGCO, plaintiffs-appellees,
vs.
ANTONIO SUNYANTONG and his wife VICENTA LLORENTE DE
SUNYANTONG, defendants-appellants.
Montinola, Montinola and Hontiveros for appellants.
Fisher and De Witt for appellees.
ROMUALDEZ, J.:
On May 20, 1919, the plaintiffs obtained from Maria Gay a written option
to purchase an estate known as "San Antonio Estate," containing more
than 2,000 hectares situated in the municipality of Passi, Province of
Iloilo, together with the large cattle existing on said estate. The term of the
option expired, but the plaintiffs had it extended verbally until 12 o 'clock
noon of June 17, 1919.
The defendant Antonio Sunyantong was at the time an employee of the
plaintiffs, and the preponderance of evidence shows that they reposed
confidence in him and did not mind disclosing their plans to him,
concerning the purchase of the aforesaid estate and the progress of their
negotiations with Maria Gay.
It also sufficiently established in the records that in one of the conferences
held by the plaintiffs among themselves, relative to the purchase of the
aforesaid estate, at which the defendant was present, the latter remarked
that it would be advisable to let some days elapse before accepting the
terms of the transfer as proposed by Maria Gay, in order that the latter
might not think that they were coveting said property. This mere remark
along in itself cannot be taken to mean any wrongful intent on the part of
said defendant, but it ceases to be innocent when taken in connection with
the fact, also proven, that when the defendant met Alipio de los Santos
after the latter's return to Iloilo, sent by the plaintiffs to examine the estate
and satisfy himself of its condition, and Alipio de los Santos told him of
his favorable impression of the estate, he advised De los Santos not to
report the estate to the plaintiffs as being so highly valuable, for if it
proved failure they might blame him, De los Santos. One becomes more
strongly convinced that this defendant has been unfaithful to his
principals, the plaintiffs, when these circumstances are considered in
connection with the fact at an early hour in the morning of June 17, 1919,
only the midday of which the term of plaintiff's when these circumstances
are considered in connection with the fact that at an early hour in the
morning of June 17, 1919, on the midday of which the term of plaintiff's
option to purchase was to expire, said defendant Antonio Sunyantong
called at the house of Mari Gay when she was having breakfast, and
offered to buy the estate on the same terms proposed by her not yet
accepted by the plaintiffs, making the offer to buy not for the benefit of
the plaintiff's, but for own wife, his codefendant Vicenta Llorente de
Sunyatong. In view of the opportunity that offered itself, but respecting
the option granted the plaintiffs, Maria Gay communicated by telephone
with Manuel Sotelo, who was communicated by telephone with Manuel
Sotelo, who was acting as broker for the plaintiffs in these transactions,
and told him that another buyer of the estate had presented himself who
would accept the terms proposed by her and that she would like to know
immediately what decision had been reached by the plaintiffs on the
matter. In view of Maria Gay's insistence that the plaintiff give a
categorical answer, Sing Bengco, one of the plaintiffs who happened to be
present at the time the telephone conversation between Maria Gay and
Manuel Sotelo took place, instructed Sotelo to inform her at the time that
if she did not care to wait until 12 o'clock, "ella cuidado": (she could do as
she pleased). This is a purely Philippine phrase, an exact translation of the
Tagalog, "siya ang bahala" and approximately of the Visayan "ambut sa
iya," which has very different, and even contradictory, meanings. It might
be interpreted in several different ways, such as a threat on the part of Sing
Bengco to take legal action against Maria Gay in case she did not wait
until the expiration of the option, or that they would waive all claims to
the option and be agreeable to whatever action she might take. Interpreting
the phrase to mean that the plaintiffs waived their option to buy, Maria
Gay closed the sale of the estate in favor of the defendant Antonio
Sunyantong.
Even supposing that this latter interpretation of the phrase in question was
actual intention of Sing Bengco, the action of the defendant Sunyantong in
intervening in the negotiations in the manner in which he did does not
make him innocent of infidelity in view of the fact that he was an
employee of the plaintiffs to whom he owed loyalty and faithfullnes.
Even though it be concede that when he closed the contract of sale with
Maria Gay the plaintiffs' option had expired, but the fact cannot be denied
that he was the cause of the option having precipitously come to such an
end. His disloyalty to his employers was responsible for Maria Gay not
accepting the terms proposed by the plaintiffs, because of being certain of
another less exigent buyer. Without such intervention on the part of the
defendant it is presumed, taking into account all the circumstances of the
case, that the sale of the estate in question would have been consummated
between Maria Gay and the plaintiffs, perhaps with such advantages to the
plaintiffs, as they expected to obtain by prolonging negotiations.
Such an act of infidelity committed by a trusted employee calculated to
redound to his own benefit and to the detriment of his employers cannot
pass without legal sanction. Nemo debet aliena jactura locupletari; nemo
ex suo delicto meliorem suam conditionem facere potest. It is an illicit act
committed with culpa and, therefore, its agent is liable (art. 1089, Civil
Code), for the damage caused (art. 1902, ibidem). Not identical, but
similar, to this infidelity is the abuse of the confidence sanctioned in our
Penal Code as a generic circumstances, nay as specific aggravating one,
and even as an essential element of certain crimes.
This reparation provided for in the Civil Code and applied to the case at
bar seems to be limited to the indemnification of damages, as we are not
aware of any express provision in said Code which imposes upon the
person thus held liable, any obligation, such as that of transferring to
plaintiffs the estate in question.
Such principle, however, in case of this nature is generally recognized in
our laws, since the case of commercial agents ( factories) it is expressly
established. Undoubtedly, formerly under the circumstances then
prevailing such sanction was not necessary in the field of civil law,
because is sphere of action is the general relations of society; but event
then it was deemed necessary expressly to protect with such sanction the
commercial relations wherein the question of gain was involved, which is
sometimes so imperatives as to ignore everything, even the very principles
of loyalty, honesty, and fidelity.
This specific relief, however, has already come to be applied in this
jurisdiction in similar cases, among which can be cited that of Camacho
vs. Municipality of Baliuag (28 Phil., 466.)
And in the North American law such sanction is expressly recognized, and
the transaction of this nature might be regarded as an "equitable trust" by
virtue of which the things acquired by an employee is deemed not to have
been acquired for his own benefit or that of any other person but for his
principal, and held in trust for the latter (21 R. C. L., 825; 2 Corpus Juris,
353).
After examination and consideration of the case we do not find in the
appealed judgment any of errors assigned to it; wherefore the same is
affirmed with costs against the appellants. So ordered.
Araullo, C.J., Malcolm, Avanceña and Ostrand, JJ., concur.
SHIPSIDE INCORPORATED, petitioner, vs. THE HON. COURT
OF APPEALS [Special Former Twelfth Division], HON. REGIONAL
TRIAL COURT, BRANCH 26 (San Fernando City, La Union) &
THE REPUBLIC OF THE PHILIPPINES, respondents.
G.R. No. 143377, February 20, 2001
Facts:
On October 29, 1958, Original Certificate No. 0-381 was issued in favour
of Rafael Galvez, over four parcels of land.
On April 11, 1960, Lots No. 1 and 4 were sold by Rafael Galvez to
Filipina Mamaril, Cleopatra Llana, Regina Bustos, and Erlinda Balatbat,
with deed of sale inscribed as entry no. 9115OCT 0-381 on August
10,1960. Consequently, Transfer Certificate No. T-4304 was issued in
favour of the buyers covering Lots No. 1 and 4.
On August 16, 1960, Mamaril, et al. sold Lots No. 1 and 4 to Lepanto
Consolidated Mining Company. The deed of sale covering the aforesaid
property was inscribed as Entry No. 9173 on TCT No. T-4304.
Subsequently, Transfer Certificate No. T-4314 was issued in the name of
Lepanto Consolidated Mining Company as owner of Lots 1 and 4.
On February 1, 1963, unknown to Lepanto Consolidated Mining
Company, the Court of First Instance of La Union, Second Judicial
District, issued an order in Land registration Case No. N-361 entitled
“Rafael Galvez, Applicant, Eliza Bustos, et al., Parties-In-Interest;
Republic of the Philippines, Movant” declaring OCT No. 0-381 of the
Registry of Deeds for the Province of La Union issued in the name of
Rafel Galvez, null and void, and ordered the cancellation thereof.
On October 28, 1963, Lepanto Consolidated Mining Company sold to the
petitioner Lots No. 1 and 4, with the deed being entered in TCT No. 4314
as entry No. 12381. Transfer Certificate of Title No T-5710 was thus
issued in favour of the petitioner which starting since then exercised
proprietary rights over Lots No. 1 and 4.
In the meantime, Rafael Galvez filed his motion for reconsideration
against the order by the trial court declaring OCT No. 0-381 null and void.
The motion was denied on January 25, 1965. On appeal, the court of
Appeals ruled in favor of the Republic of the Philippines in a resolution
promulgated on August 14, 1973 in CA-G.R. No. 36061`-R.
Thereafter, the court of Appeals, issued an Entry of judgement, certifying
that its decision dated August 14, 1973 became final and executor on
October 23, 1973.
On April 22, 1974, the trial court in L.R.C. Case No. N-361 is sued a writ
of execution of the judgement which was served on the Register of Deeds,
San Fernando, La Union on April 29, 1974
On January 14, 1999, the office of the Solicitor General received a letter
dated January 11, 1999, from Mr. Victor Floresca, Vice-President, John
Hay Poro Point Development Corporation, stating that the aforementioned
orders and decision of the trial court in L.R.C. No. N-361 have not been
executed by the Register of Deeds, San Fernando, La Union despite
receipt of the writ of execution.
On April 21, 1999, the Office of the Solicitor General filed a complaint for
the revival of judgment and cancellation of titles before the Regional Trial
Court of the First judicial Region (Branch 26, San Fernando, La Union)
docketed therein as Civil Case No., 6346 entitled, “Republic of the
Philippines, Plaintiff, vs. Heirs of Rafael Galvez, represented by Teresita
Tan, Reynaldo Mamaril, Elisa Bustos, Erlinda Balatbat, Regina Bustos,
Shipside Incorporated and the Register of Deeds of La Union,
defendants.”
In its complaint in Civil Case No. 6346, the Solicitor General argued that
since the trial court in LRC Case no. 361 had ruled and declared OCT No.
0381 to be null and void, which ruling was subsequently affirmed by the
court of appeals, the defendants-successors-in-interest of Rafael Galvez
have no valid title over the property covers by OCT No. 0-381, and the
subsequent Torrens titles issued in their names should be consequently
cancelled.
On July 22, 1999, petitioner Shipside, Inc. Filed its Motion to Dismiss,
based on the following grounds: (1) the complaint stated no cause of
action because only final and executor judgements may be subject of an
action for revival for judgment; (2) the plaintiff is not the real party-in-
interest because the real property covered by the Torrens titles sought to
be cancelled, allegedly part of Camp Wallace (Wallace Air Station), were
under the ownership and administration of the Bases Conversion
Development Authority under RA No. 7227; (3) Plaintiff’s cause of action
is barred by prescription; (4) twenty-five years having lapsed since the
issuance of the writ of execution, no action for revival of judgment may be
instituted because under Paragraph 3 of Article 1144 of the Civil Code,
such action may be brought only within ten (10) years from the time the
judgement had been rendered.
On August 31, 1999, the trial court denied petitioner’s motion to dismiss
and on October 14, 1999, its motion for reconsideration was likewise
turned down.
On October 21, 1999, petitioner instituted a petition for certiorari and
prohibition with the Court of Appeals, docketed therein as CA-G.R. SP
No. 55535, on the ground that the orders of the trial court denying its
motion to dismiss and its subsequent motion for reconsideration were
issued in excess of jurisdiction.
On Novemeber 4, 1999, the court of Appeals dismissed the petition in CA-
G.R. SP No. 55535 on the ground that the verification and certification in
the petition, under the signature of Lorenzo Balbin, Jr., was made without
authority, there being no proof therein that Balbin was authorized to
institute the petition for and in behalf and of petitioner.
On May 23, 2000, the Court of Appeals denied petitioner’s motion for
reconsideration on the grounds that: (1) a complaint filed on behalf of a
corporation can be made only if authorized by its Board of Directors, and
in the absence thereof, the petition cannot prosper and be granted due
course; and (2) the petitioner was unable to show that it had substantially
complied with the rule requiring proof of authority to institute an action or
proceeding.
In support of its petition, Shipside, Inc. asseverates that:
1. The honourable Court of Appeals gravely abused its discretion
in dismissing the petition when it made a conclusive legal
presumption that Mr. Balbin had no authority to sign the petition
despite the clarity of laws, jurisprudence and Secretary’
certificate to the contrary.
2. The honourable Court of Appeals abused its discretion when it
dismissed the petition, in effect affirming the grave abuse of
discretion committed by the lower court, when it refused to
dismiss the 1999 Complaint for Revival of a 1973 judgment, in
violation of clear laws and jurisprudence.
Issues:
(1) Whether an authorization from petitioner’s Board of Directors is
still required in order for its resident manager to institute or
commence a legal action for and in behalf of the corporation;
(2) Whether the instant petition should be allowed; and
(3) Whether the republic of the Philippines can maintain action for
revival of judgment therein.
Held:
(1) Yes. The court of Appeals dismissed the petition for certiorari
on the ground that Lorenzo Balbin, the resident manager for
petitioner, who was the signatory in the verification and
certification on non-forum shopping, failed to show proof that
he was authorized by petitioner’s board of directors to file such
a petition.
A corporation, such as petitioner, has no power except those expressly
conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and /or its duly authorized officers and
agents. Thus, it has been observed that the power of a corporation to sue
and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the corporation,
like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by the corporate by-laws or by a specific
act of the board of directors to file said petition.
On October 21, 1999, when Balbin filed the petition, there was no proof
attached thereto that Balbin was authorized to sign the verification and
non-forum shopping certification therein. As a consequence, the petition
was dismissed by the Court of Appeals. However, subsequent to such
dismissal, petitioner filed a motion for reconsideration, attaching to said
motion a certificate issued by its board secretary stating that on October
11, 1999, or ten days prior to the filing of the petition, Balbin had been
authorized by petitioner’s board of directors to file said petition.
Verification is simply intended to secure an assurance that the allegations
in the pleading are true and correct and not the product of the imagination
or a matter of speculation, and that the pleading is filed in good faith. The
court may order the correction of the pleading if verification is lacking or
act on the pleading although it is not verified, if the attending
circumstances are such that strict compliance with the rules may be
dispensed with in order that the ends of justice may thereby be served.
On the other hand, the lack of certification against forum shopping is
generally incurable by the submission thereof after filing of the petition.
Section 5, Rule 45 of the 1997 Rules of Civil Procedure provides that the
failure of the petitioner to submit the required documents that should
accompany the petition, including the certification against forum
shopping, shall be sufficient ground for the dismissal thereof. The same
rule applies to certifications against forum shopping signed by a person on
behalf of a corporation which are unaccompanied by proof that said
signatory is authorized to file a petition on behalf of the corporation.
(2) Yes. In the instant case, the merits of the petitioner’s case should
be considered special circumstances or compelling reasons that
justify tempering the requirement in regard to the certificate of
non-forum shopping. With more reason should the instant
petition be allowed since the petitioner did submit a certification
on non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently
submitted a secretary’s certificate attesting that Balbin was
authorized to file an action.
It must also be kept in mind that while the requirement of the certificate of
non-forum shopping is mandatory, nonetheless the requirements should
not be interpreted literally and thus defeat the objective of preventing the
undesirable practice of forum- shopping. Lastly, technical rules of
procedure should be used to promote, not frustrate justice. While the swift
unclogging of court dockets is a laudable objective, the granting of
substantial justice is an even more urgent ideal.
(3) No. The action instituted by the Solicitor General in the trial
court is one for revival of judgment which is governed by
Article 1144 (3) of the Civil Code and Section 6, Rule 39 of the
1997 Rules on Civil Procedure. Article1144 (3) provides that an
action upon a judgement “must be brought within 10 years from
the time the right of action accrues.” On the other hand, Section
6, Rule 39 provides that a final and executor judgment or order
may be executed on motion within five (5) years from the date
of its entry, but that after the lapse of such time, and before it is
barred by the statute of limitations, a judgement may be
enforced by action. Taking those two provisions into
consideration, it is plain that an action for revival of judgment
must be brought within ten years from the time said judgment
becomes final.
From the records of the case, it is clear that the judgment sought to be
revived became final on October 23, 1973. On the other hand, the action
for revival of judgment was instituted only in 1999, or more than 25
uyears after the judgment had become final. Hence, the action is abarred
by extinctive prescription considering that such an action can be instituted
only within ten (10) years from the time the cause of action accrues.
The Solicitor-general’s contention that the state’s cause of action in the
cancellation of the land title issued to petitioner’s predecessor-in-interest
is imprescriptible because it is included in Camp Wallace, which belong to
the government, is misleading. While it is true that the prescription does
not run against the State, the same may not be invoked by the government
in this case since it is no longer interested in the subject matter. While
Camp Wallace may have belonged to the Government at the time Rafael
Galvez’s title was ordered cancelled in Land Registration Case no N-361,
the same no longer holds true today.
With the transfer of Camp Wallace to the BCDA, the government no
longer has a right or interest to protect. Consequently, the republic is not a
real party in interest and it may not institute the instant action. Nor may it
raise the defense of imprescriptibility the same being applicable only in
cases where the government is a party in interest. Under section 2 of Rule
3 of the 1997 Rules of Civil procedure, “every action must be prosecuted
or defined in the name of the real party in interest.” And to qualify a
person to be a real party in interest whose name in action must be
prosecuted, he must appear to be the present real owner of the right sought
to be enforced (Pioneer Insurance v. CA, 175 SCRA 668 [1989]). A real
party in interest is the party who stands to be benefitted or injured by the
judgment in the suit, or the party entitled to the avails of the suit. And by
real interest is meant a present substantial interest, as distinguished from a
mere expectancy, or a future, contingent, subordinate or consequential
interest (Ibonilla v. Province of Cebu, 210 SCRA 526 [1992]). Being the
owner of the areas covered by Camp Wallace, it is the Bases Conversion
and Development Authority, not the Government, which stands to be
benefited if the land covered by TCT No. T5710 issued in the name of
petitioner is cancelled.
MANUEL LUIS S. SANCHEZ, G.R. No. 172885
Petitioner,
Present:
Corona, J.,*
- versus - Carpio Morales,**
Acting Chairperson,
Chico-Nazario,***
Brion, and
Abad, JJ.
REPUBLIC OF THE PHILIPPINES,
Represented by the Department of Promulgated:
Education, Culture and Sports,
Respondent. October 9, 2009
x ---------------------------------------------------------------------------------------
-x
DECISION
ABAD, J.:
This petition for review on certiorari assails the February 21, 2006
Decision[1] of the Court of Appeals in CA-G.R. CV 83648 and its
Resolution[2] of May 29, 2006, which dismissed the petitioners appeal
from the decision of Branch 71 of the Regional Trial Court (RTC) of Pasig
City in Civil Case 66852.
The Facts and the Case
In 1980, during the regime of President Ferdinand E. Marcos, the
government-owned Human Settlements Development Corporation
(HSDC) built with public funds and on government land the St. Martin
Technical Institute Complex at Barangay Ugong, Pasig City. This later on
became known as the University of Life Complex.
In July 1980, First Lady Imelda R. Marcos and others organized
the University of Life Foundation, Inc. (ULFI), a private non-stock, non-
profit corporation devoted to non-formal education. On August 26,
1980 the government gave the management and operation of the Complex
to ULFI but HSDC was to continue to construct facilities and acquire
equipment for it. Although ULFI was to get all the incomes of the
Complex, ULFI had to pay HSDC an annual fee of 14 percent of HSDCs
investments in it.
After the fall of the Marcos regime in 1986, the new government
reorganized HSDC into the Strategic Investment Development
Corporation (SIDCOR) under the supervision of the Office of the
President. Realizing that ULFI never paid the 14 percent annual fee due to
HSDC, now totaling about P316 million, on July 25, 1989 SIDCOR
rescinded the HSDC-ULFI agreement. Ironically, in its place, SIDCOR
entered into an Interim Management Agreement with ULFI, allowing it to
continue managing and operating the Complex.
Meantime, in October 1989, the government transferred the ownership of
ULFIs properties to the Department of Education, Culture and Sports
(DECS). Later in January 1990, Republic Act 6847 transferred full control
and management of the Complex to DECS with effect two years from the
laws enactment. The DECS transferred its offices to the Complex in
December 1990. On January 29, 1991, SIDCOR transferred all its rights in
the Complex to the National Government which in turn transferred the
same to the DECS.
On January 31, 1991 DECS and ULFI entered into a Management
Agreement, granting ULFI the authority to manage and operate the
Complex until the end of that year.During this period, ULFI was expressly
mandated under the said Management Agreement to remit to the Bureau
of the Treasury, through the DECS, all incomes from the Complex, net of
allowable expenses.[3] At the end of 1991, the DECS gave ULFI notice to
immediately vacate the Complex. But ULFI declined, prompting the
DECS to file an action for unlawful detainer against it in Civil Case 2959
of the Metropolitan Trial Court (MeTC) of Pasig City. After hearing,
MeTC dismissed the action for lack of merit. On the DECSs appeal to the
RTC, the latter affirmed the order of dismissal.
On appeal of the DECS to the Court of Appeals by petition for
review,[4] however, the latter rendered judgment on January 17, 1995,
reversing the MeTC and RTC decisions. The appeals court ordered ULFI
to vacate the Complex and pay such reasonable rentals as the MeTC might
fix. This Court dismissed ULFIs recourse to it from the judgment of the
Court of Appeals.[5]
On April 15, 1996 the MeTC fixed, after hearing, the rents that ULFI had
to pay the DECS at P22,559,215.14 (due from February 1992 to January
1996) plus P6,325.00 per month until it shall have vacated the
premises.[6] The DECS succeeded in ejecting ULFI but the latter did not
pay the amounts due from it.
On June 15, 1998 the DECS filed a complaint[7] before the RTC of Pasig
City in Civil Case 66852 for collection of the P22,559,215.14 in
unremitted rents and damages against Henri Kahn, ULFIs President, and
petitioner Manuel Luis S. Sanchez, its Executive Vice-President, based on
their personal liability under Section 31 of the Corporation Code. The
latter two were Managing Director and Finance Director, respectively, of
the corporation.[8]
The complaint alleged that Kahn and petitioner Sanchez, as key ULFI
officers, were remiss in safekeeping ULFIs corporate incomes and in
accounting for them.[9] They neither placed the incomes derived from the
Complex in ULFIs deposit account nor submitted the required financial
statements detailing their transactions. The underlying theory of the case is
that Kahn and Sanchez operated ULFI as if it were their own property,
handled the collections and spent the money as if it were their personal
belonging.[10] The DECS asked the RTC to order Kahn and Sanchez
personally to pay it the P22,559,215.14 in rents due from ULFI with legal
interest, exemplary damages of P1,000,000.00, attorneys fees
of P500,000.00, and costs.
In his answer, petitioner Sanchez alleged that, being a mere officer of
ULFI, he cannot be made personally liable for its adjudged corporate
liability. He took exception to the complaint, characterizing it as an
attempt to pierce the corporate veil that cloaked ULFI.
Satisfied that the DECS fully established its case, on October 14, 2002, the
RTC rendered judgment, ordering Kahn and petitioner Sanchez to pay the
DECS, jointly and severally, P22,559,215.14 with legal interest from April
1, 1996 until they shall have fully paid the same, P500,000.00 in
exemplary damages, and P200,000.00 in attorneys fees, plus costs.[11]
Both Kahn and petitioner Sanchez appealed to the Court of Appeals. The
latter court gave due course to Sanchezs appeal but denied that of Kahn
since it was filed out of time. On February 21, 2006 the Court of Appeals
rendered judgment, wholly affirming the trial courts decision, [12] hence,
this petition.
In a nutshell, Sanchez argues that he cannot be made personally liable for
ULFIs corporate obligations absent specific allegations in the complaint
and evidence adduced during trial that would warrant a piercing of the
corporate veil. He further argues that the DECS is barred by res
judicata and forum shopping from collecting from him what it could not
get by execution from ULFI under the judgment in the ejectment
case. Finally, he claims that because ULFI suffered losses in operations
during the period 1992 up to 1996, there could have been nothing left of
the rentals it collected from the lessees of the Complex.
The DECS points out, on the other hand, that since Kahn and petitioner
Sanchez were guilty of fraud and bad faith in managing the funds of ULFI,
they can be made to personally answer for those funds and to pay its
corporate obligations pursuant to Section 31 of the Corporation
Code. They collected money from rents but did not, as was their duty,
remit this to the DECS pursuant to the DECS-ULFI agreement.
The Issues
The case before this Court presents the following issues:
1. Whether or not petitioner Sanchez, a director and chief executive officer
of ULFI, can be held liable in damages under Section 31 of the
Corporation Code for gross neglect or bad faith in directing the
corporations affairs; and
2. Whether or not the action in Civil Case 66852 is barred by res
judicata and constitutes forum shopping by the DECS.
Rulings of the Court
Petitioner Sanchez points out that the Court of Appeals decision arbitrarily
changed the DECSs theory of the case from one based on his and Kahns
alleged failure to deposit for the account of ULFI whatever rentals they
have collected to another based on their alleged failure to remit to the
DECS the incomes of the facilities they managed. But Sanchez is drawing
insignificant distinctions from what the DECS claims and what the court
below finds. Both essentially rest on Kahn and Sanchezs failure to account
for the rent incomes that they collected from lease of spaces in the
facilities of the Complex beyond the one-year management authority that
the DECS granted ULFI in 1991.
Petitioner Sanchez claims that there is no ground for the courts below to
pierce the veil of corporate identity and hold him and Kahn, who were
mere corporate officers, personally liable for ULFIs obligations to the
DECS. But this is not a case of piercing the veil of corporate fiction. The
DECS brought its action against Sanchez and Kahn under Section 31 of
the Corporation Code, which should not be confused with actions intended
to pierce the corporate fiction.
Section 31 of the Corporation Code makes directors-officers of
corporations jointly and severally liable even to third parties for their gross
negligence or bad faith in directing the affairs of their corporations. Thus:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members
and other persons. (Emphasis supplied)
xxxx
The DECS does not have to invoke the doctrine of piercing the veil of
corporate fiction. Section 31 above expressly lays down petitioner
Sanchez and Kahns liability for damages arising from their gross
negligence or bad faith in directing corporate affairs. The doctrine
mentioned, on the other hand, is an equitable remedy resorted to only
when the corporate fiction is used, among others, to defeat public
convenience, justify wrong, protect fraud or defend a crime. [13]
Moreover, in a piercing case, the test is complete control or domination,
not only of finances, but of policy and business practice in respect of the
transaction attacked.[14]This is not the case here. Section 31, under which
this case was brought, makes a corporate directorwho may or may not
even be a stockholder or memberaccountable for his management of the
affairs of the corporation.
Bad faith implies breach of faith and willful failure to respond to plain and
well understood obligation.[15] It does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will.[16] It partakes of the nature of fraud.[17]
Gross negligence, on the other hand, is the want of even slight care, acting
or omitting to act in a situation where there is duty to act, not inadvertently
but willfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected.[18] It evinces
a thoughtless disregard of consequences without exerting any effort to
avoid them;[19] the want or absence of or failure to exercise slight care or
diligence, or the entire absence of care.[20]
In resolving the issue of whether or not petitioner Sanchez, a director and
chief executive officer of ULFI, can be held liable in damages under
Section 31 of the Corporation Code for bad faith or gross neglect in
directing the corporations affairs, the Court will consider only the Court of
Appeals findings of facts. This Courts jurisdiction in a petition for review
on certiorari under Rule 45 is limited to reviewing only errors of law. It is
bound by the findings of fact of the Court of Appeals.
The Court of Appeals found that from January 1992 to January 1996, after
ULFIs authority to manage the Complex expired and despite the ejectment
suit that the DECS filed against it, petitioner Sanchez and Kahn still
continued to lease spaces in those facilities to third persons. And they
collected and kept all the rents although they knew that these primarily
belonged to the DECS. ULFI had merely managed the facilities and
collected earnings from them for the DECS. What is more, Sanchez and
Kahn were aware that they had to submit written accounts of those rents
and remit the net earnings from them to the Bureau of Treasury, through
the DECS, at the end of the year. Yet, Sanchez and Kahn, acting in bad
faith or with gross neglect did not turn over even one centavo of rent to the
DECS nor render an accounting of their collections. Nor did they account
for the money they collected by submitting to the Securities and Exchange
Commission the required financial statements covering such collections.
Parenthetically, a witness for the defense, Evangeline Naniong, ULFIs
bookkeeper, testified that the revenues from the rents were deposited in
the bank in the names of Sanchez and ULFIs accountant. And so only they
could withdraw and spend those revenues.[21]
Petitioner Sanchez of course claims that the funds they had collected
proved inadequate even to meet expenses. But, as the appellate court held,
he had been unable to substantiate such claims. As the officer charged
with approving and implementing corporate disbursements, Sanchez had
the duty to present documents showing how the incomes of the foundation
were spent. But he failed to do so even after the DECS, which took
custody of the records, asked Kahn to submit a list of the documents they
needed for establishing their defenses so these may be made available to
them.[22] Under the circumstances, the indubitable conclusion is that
petitioner Sanchez and Kahn acted with bad faith, if not with gross
negligence, in failing to perform their duty to remit to DECS or keep in
safe hands ULFIs incomes from the leases.
Section 31 lays down the doctrine of corporate opportunity and holds
personally liable corporate directors found guilty of gross negligence or
bad faith in directing the affairs of the corporation, which results in
damage or injury to the corporation, its stockholders or members, and
other persons. The ejectment suit that held only ULFI liable to the DECS
for unpaid rents does not constitute res judicata to the issue of personal
liabilities of Kahn and petitioner Sanchez under the circumstances to pay
such obligations, given that the unaccounted funds would have settled the
same.
Petitioners allegations of forum shopping must fail as well. The essence of
forum shopping is the filing of multiple suits involving the same parties
for the same cause of action, either simultaneously or successively, for the
purpose of obtaining a favorable judgment.[23] This is not the case with
respect to the ejectment suit vis--vis the action for damages.
WHEREFORE, the Court DENIES the petition
and AFFIRMS the February 21, 2006 Decision of the Court of Appeals in
CA-G.R. CV 83648 and its Resolution of May 29, 2006.
SO ORDERED.
San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals
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.
Nature of the Case:
The Case is a Petition for Review on Certiorari, assailing the March 18,
1997 Decision of the Court of Appeals in CA GR CV No. 46801 which, in
turn, modified the July 18, 1994 Decision of the Regional Trial Court of
Makati, Metro Manila, Branch 633 in Civil Case No. 89-3511 which
dismissed both the Complaint and the Counterclaim filed by the parties.
Facts:
Plaintiff San Juan structural and Steel fabricators Inc.’s amended
complaint alleged that on February 14, 1989, plaintiff-appellant entered
into an agreement with defendant Motorich Sales Corporation for the sale
of a parcel of land identified as lot 30, Block 1 of the Acropolis Greens
Subdivision located in the district of Murphy, Quezon City, Metro Manila
containing an area of 414 square meters, covered by TCT No. 362909;
through the latter’s treasurer, Nenita Gruenberg. San Juan advanced
P100,000.00 to Nenita as earnest money, the balance to be paid on or
before March 2, 1989;
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 99.866% 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.
Issues:
1) Whether or not the corporation’s treasurer act can bind the
corporation.
2) Whether or not the doctrine of piercing the veil of corporate
entity is applicable.
Held:
No. Such contract cannot bind Motorich, because it never authorized or
ratified such sale.
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is
not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the
corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees – Unless
otherwise provided in this code, the corporate powers of all corporations
formed under this code shall be exercised, all business conducted, and all
property of such corporations controlled and held by the board of directors
or trustees to be elected from among the stockholders of stocks, or where
there is no stock, from among the members of the corporations, who shall
hold office for 1 year and until their successors are elected and qualified.
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed
their authority, their actions, cannot bind the corporation, unless it has
ratified such acts as is estopped from disclaiming them.
Because Motorich had never given a written authorization to respondent
Nenita Gruenbeg to sell its parcel of land, we hold that the February 14,
1989 agreement entered into by the latter with petitioner is void under
Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. On equitable consideration, the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or serve as
a mere alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.
We stress that the corporate fiction should be set aside when it becomes a
shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof.
In the present case, however, the court finds no reason to pierce the
corporate veil of respondent Motorich. Petitioner utterly failed to establish
the said corporation was formed, or that it is operated for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like petitioner.
Additional Notes:
Definition of Close Corporation
Petitioner claims that Motorich is a close corporation. We rule that it is
not. Section 96 of the Corporation Code defines a close corporation as
follows:
“SEC. 96. Definition and Applicability of Title.—A close corporation,
within the meaning of this Code, is one whose articles of incorporation
provide that: (1) All of the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the
issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public offering of any of
its stock of any class. Notwithstanding the foregoing, a corporation shall
be deemed not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this Code. x x x.”
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 and
Nenita Gruenberg owned 99.866% of its subscribed capital stock. The
“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 personalities.”
Safic Alcan & Cie vs Imperial Vegetable Oil Co., Inc.
Business Organization – Corporation Law – Ultra Vires Acts of
Corporate Officers
In 1985, Safic Alcan & Cie (SAC), a corporation, entered into an
agreement with Imperial Vegetable Oil Co., Inc. (IVO) whereby the latter
shall deliver tones of coconut oil to SAC. Both parties complied. IVO was
represented by its president, Dominador Monteverde. In 1986, SAC again
entered into an several agreements with IVO but this time it was agreed
that IVO shall deliver the coconut oil 8 months from the agreement or
sometime in 1987. This time, IVO failed to deliver and SAC sued IVO.
IVO in its defense aver that Monteverde was acting beyond his power as
president when he made the 1986 agreement with SAC; that Monteverde
is acting beyond his power because the 1986 contracts were speculative in
nature and speculative contracts are prohibited by the by-laws of IVO.
SAC insists that there is an implied agency between IVO and Monteverde
because SAC and Monteverde has been transacting since 1985 and that
IVO benefited from said transactions.
ISSUE: Whether or not Monteverde’s act in entering into the 1986
contracts is ultra vires.
HELD: Yes. It was proven by IVO, when they presented a copy of their
by-laws, that Monteverde acted beyond his authority when he entered into
speculative contracts with SAC in 1986. The 1986 contracts are
speculative because at the time of the contracts, the coconuts are not even
growing at that time and are yet to be harvested. Hence, the 1986 contracts
are sales of mere expectations – and this is something prohibited by the
by-laws and the Board of Directors of IVO.
There can be no implied agency too simply because there has been a
previous transaction between SAC and IVO where IVO was represented
by Monteverde. This is because the 1985 contract and the 1986 contracts
are very different. The 1985 contract is not speculative while the 1986
contracts are speculative hence, SAC should have secured the
confirmation by IVO’s Board that Monteverde is indeed authorized to
enter into such agreements. Further, Monteverde did not even present the
said 1986 agreements before the Board of Directors so there was, in fact,
no occasion at all for ratification. The contracts were not even reported in
IVO’s export sales book and turn-out book. Neither were they reflected in
other books and records of the corporation. It must be pointed out that the
Board of Directors, not Monteverde, exercises corporate power. Clearly,
Monteverde’s speculative contracts with Safic never bound IVO and Safic
cannot therefore enforce those contracts against IVO.
Rural Bank of Milaor vs. Francisca Ocfemia et. al G.R. No 137686,
February 8, 2000
Thursday, January 29, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Commercial Law
FACTS: Several parcels of land were mortgaged by the respondents
during the lifetime of the respondent’s grandparents to the Rural bank of
Milaor as shown by the Deed of Real Estate Mortgage and the Promissory
Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the
respondents, were not able to redeem the mortgaged properties consisting
of seven parcels of land and so the mortgage was foreclosed and thereafter
ownership was transferred to the petitioner bank. Out of the seven parcels
of land that were foreclosed, five of them are in the possession of the
respondents because these five parcels of land were sold by the petitioner
bank to the respondents as evidenced by a Deed of Sale. However, the five
parcels of land cannot be transferred in the name of the parents of Merife
Nino, one of the respondents, because there is a need to have the
document of sale registered. The Register of deeds, however, said that the
document of sale cannot be registered without the board resolution of the
petitioner bank confirming both the Deed of sale and the authority of
thebank manager, Fe S. Tena, to enter such transaction.
The petitioner bank refused her request for a board resolution and made
many alibis. Respondents initiated the present proceedings so that they
could transfer to their names the subject five parcel of land and
subsequently mortgage said lots and to use the loan proceeds for the
medical expenses of their ailing mother.
ISSUE: May the Board of Directors of a rural banking corporation be
compelled to confirm a deed of absolute sale of real property owned by
the corporation which deed of sale was executed by the bank manager
without prior authority of the board of directors of the rural banking
corporation?
HELD: YES. The bank acknowledges, by its own acts or failure to act, the
authority of Fe S. Tena to enter into binding contracts. After the execution
of the Deed of Sale, respondents occupied the properties indispute and
paid the real estate taxes. If the bank management believed that it had title
to the property, it should have taken measured to prevent the infringement
and invasion of title thereto and possession thereof. Likewise, Tena had
previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons
where representation is made in the course of its normal business by an
agent like Manager Tena even though such agent is abusing her authority.
Clearly, persons dealing with her could not be blamed for believing that
she was authorized to transact business for and on behalf of the bank.
The bank is estopped from questioning the authority of the bank to enter
into contract of sale. If a corporation knowingly permits one of its officers
or any other agent to act within the scope of an apparent authority, it holds
the agent 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 agent’s authority.
G.R. No. L-26555 November 16, 1926
BALDOMERO ROXAS, ENRIQUE ECHAUS and ROMAN J.
LACSON, petitioners,
vs.
Honorable MARIANO DE LA ROSA, Auxiliary Judge of First
Instance of Occidental Negros, AGUSTIN CORUNA, MAURO
LEDESMA and BINALBAGAN ESTATE, INC., respondents.
Roman J. Lacson, for petitioners.
The respondent judge in his own behalf.
The respondent corporation in its own behalf.
R. Nolan and Feria and La O for the respondents Coruna and Ledesma.
STREET, J.:
This is an original petition for the writ of certiorari whereby the
petitioners, Baldomeo Roxas, Enrique Echaus, and Roman J. Lacson, seek
to procure the abrogation of an order of the respondent judge granting a
preliminary injunction in an action in the Court of First Instance of
Occidental Negros, instituted by Agustin Coruna and Mauro Ledesma
against the petitioners and the Binalbagan Estate, Inc. The cause is now
before us upon the issues made by the answers filed by the respondents.
It appears that the Binalbagan Estate, Inc., is a corporation having its
principal plant in Occidental Negros where it is engaged in the
manufacture of raw sugar from canes grown upon farms accessible to its
central. In July, 1924, the possessors of a majority of the shares of the
Binalbagan Estate, Inc., formed a voting trust composed of three members,
namely, Salvador Laguna, Segunda Monteblanco, and Arthur F. Fisher, as
trustee. By the document constituting this voting trust the trustees were
authorized to represent and vote the shares pertaining to their constituents,
and to this end the shareholders undertook to assign their shares to the
trustees on the books of the company. The total number of outstanding
shares of the corporation is somewhat over 5,500, while the number of
shares controlled by the voting trust is less than 3,000.
On February 1, 1926, the general annual meeting of the shareholders of
the Binalbagan Estate, Inc., took place, at which Mr. J. P. Heilbronn
appeared as representative of the voting trust, his authority being
recognized by the holders of all the other shares present at this meeting.
Upon said occasion Heilbronn, by virtue of controlling the majority of the
shares, was able to nominate and elect a board of directors to his own
liking, without opposition from the minority. After the board of directors
had been thus elected and had qualified, they chose a set of officers
constituting of Jose M. Yusay, president, Timoteo Unson, vice-president,
Jose G. Montalvo, secretary-treasurer, and H. W. Corp and Agustin
Coruna, as members. Said officials immediately entered upon the
discharged of their duties and have continued in possession of their
respective offices until the present time.
Since the creation of the voting trust there have been a number of
vacancies caused by resignation or the absence of members from the
Philippine Islands, with the result that various substitutions have been
made in the personnel of the voting trust. At the present time the
petitioners Roxas, Echaus, and Lacson presumably constitute its
membership. We say presumably, because in the present proceedings an
issue of fact is made by the respondents upon the point whether the three
individuals named have been regularly substituted for their several
predecessors. In the view we take of the case it is not necessary to
determine this issue; and we shall assume provisionally that the three
petitioners are the lawful components of the voting trust.
Although the present officers of the Binalbagan Estate, Inc., were elected
by the representative of the voting trust, the present trustee are apparently
desirous of ousting said officers, without awaiting the termination of their
official terms at the expiration of one year from the date of their election.
In other to effect this purpose the petitioners in their character as members
of the voting trust, on August 2, 1926, caused the secretary of the
Binalbagan Estate, Inc., to issue to the shareholders a notice calling for a
special general meeting of shareholders to be held at 10 a. m., on August
16, 1926, "for the election of the board of directors, for the amendment of
the By-Laws, and for any other business that can be dealt with in said
meeting."
Within a few days after said notice was issued Agustin Coruña, as member
of the existing board, and Mauro Ledesma, as a simple shareholder of the
corporation, instituted a civil action (No. 3840) in the Court of First
Instance of Occidental Negros against the trustees and the Binalbagan
Estate, Inc., for the purpose of enjoining the meeting completed in the
notice above-mentioned.
In response to a proper for a preliminary injunction, in connection with
said action, the respondent judge issued the restraining order, or
preliminary injunction, which gave rise to the present petition for the writ
of certiorari. In the dispositive part of said order the Binalbagan Estate,
Inc., its lawyers, agents, representatives, and all others who may be
assisting or corroborating with them, are restrained from holding the
general shareholders' meeting called for the date mentioned and from
electing new directors for the company in substitution of the present
incumbents, said injunction to be effective until further order of the court.
it is now asserted here by the petitioners that the making of this order was
beyond the legitimate powers of the respondent judge, and it is
accordingly prayed that said order be set aside.
We are of the opinion that this contention is untenable and that the
respondent judge acted within his legitimate powers in making the order
against which relief is sought. In order to expose the true inwardness of
the situation before us it is necessary to take not of the fact that under the
law the directors of a corporation can only be removed from office by a
vote of the stockholders representing at least two-thirds of the subscribed
capital stock entitled to vote (Act No. 1459, sec. 34); while vacancies in
the board, when they exist, can be filled by mere majority vote, (Act No.
1459, sec. 25). Moreover, the law requires that when action is to be taken
at a special meeting to remove the directors, such purpose shall be
indicated in the call (Act No. 1459, sec. 34).
Now, upon examining into the number of shares controlled by the voting
trust, it will be seen that, while the trust controls a majority of the stock, it
does not have a clear two-thirds majority. It was therefore impolitic for the
petitioners, in forcing the call for the meeting of August 16, to come out
frankly and say in the notice that one of the purpose of the meeting was to
removed the directors of the corporation from office. Instead, the call was
limited to the election of the board of directors, it being the evident
intention of the voting trust to elect a new board as if the directorate had
been then vacant.
But the complaint in civil No. 3840 directly asserts that the members of
the present directorate were regularly elected at the general annual
meeting held in February, 1926; and if that assertion be true, the proposal
to elect, another directorate, as per the call of August 2, if carried into
effect, would result in the election of a rival set of directors, who would
probably need the assistance of judgment of court in an independent action
of quo warrantoto get them installed into office, even supposing that their
title to the office could be maintained. That the trial judge had jurisdiction
to forestall that step and enjoin the contemplated election is a matter about
which there cannot be the slightest doubt. The law contemplates and
intends that there will be one of directors at a time and that new directors
shall be elected only as vacancies occur in the directorate by death,
resignation, removal, or otherwise. lawphil.net
It is instituted that there was some irregularity or another in the election of
the present directorate. We see nothing upon which this suggestion can be
safely planted; And at any rate the present board of directors are de
factoincumbents of the office whose acts will be valid until they shall be
lawfully removed from the office or cease from the discharge of their
functions. In this case it is not necessary for us to agitate ourselves over
the question whether the respondent judge properly exercised his judicial
discretion in granting the order complained of. If suffices to know that in
making the order he was acting within the limits of his judicial powers.
It will be noted that the order in question enjoins the defendants from
holding the meeting called for August 16; and said order must not be
understood as constituting any obstacle for the holding of the regular
meeting at the time appointed in the by-laws of the corporation.
For the reasons stated the petition will be denied, and it is so ordered, with
costs.
DIVISION
[ GR No. 136821, Oct 17, 2002 ]
ROVELS ENTERPRISES v. EMMANUEL B. OCAMPO +
DECISION
439 Phil. 777
SANDOVAL-GUTIERREZ, J.:
Assailed in this petition for review on certiorari[1] is the Decision of the
Court of Appeals dated June 5, 1998[2] in CA-G.R. SP No. 43260,
affirming the Decision of the Securities and Exchange Commission
(SEC) in SEC Case No. 09-95-5135 dismissing the petition to be declared
the majority stockholder of Tagaytay Taal Tourist Development
Corporation (TTTDC). The petition was filed by Rovels Enterprises, Inc.
(Rovels), herein petitioner. Rovels is a domestic corporation engaged in
construction work. Its President is Eduardo Santos. TTTDC was among
Rovels' clients.
In payment for the services rendered by Rovels, the Board of Directors of
TTTDC passed a Resolution on December 29, 1975 providing as follows:
"RESOLVED, as it is hereby resolved that payment for professional fees
and services rendered by x x x Rovels' Enterprises x x x be made in cash if
funds are available, or its equivalent number of shares of stock of the
corporation at par value, and should said creditors elect the latter
mode of payment, it is further resolved that the President and/or his
Secretary be authorized as they are hereby authorized, to issue the
corresponding unissued shares of stock of the
corporation."[3] (emphasis added)
The Resolution was signed by three of TTTDC's directors, namely,
Victoriano Leviste, Bienvenido Cruz, Jr., and Roberto Roxas. Roberto
Roxas is the President of TTTDC and stockholder of Rovels at the same
time. Noticeably, the signatures of the other two (2) TTTDC directors Jose
Silva, Jr. and Emmanuel Ocampo do not appear in the subject Resolution
despite their presence in the December 29, 1975 Board meeting. [4]
On February 23, 1976, Eduardo Santos, President of Rovels, on behalf of
TTTDC, filed with the SEC an application for exemption from registration
of TTTDC's unissued shares of stock transferred to it (Rovels) as payment
for its services worth One Hundred Eight Thousand Pesos (P108,000.00).
This was done because under Section 4 (a) of the Revised Securities Act,
no shares of stocks shall be transferred unless first registered with the SEC
or permitted to be sold.[5]
On May 7, 1976, the SEC, in its Resolution No. 260, [6] granted Eduardo
Santos' application.
On March 1, 1976, the TTTDC Board of Directors passed another
Resolution[7] repealing its Resolution of December 29, 1975, thus:
"RESOLVED, as it is hereby resolved, that the Resolution of December
29, 1975 authorizing the payment of creditorswith unissued shares of
the corporation be as it is hereby repealed: Resolved further that the
matter as well as the amount of the creditors' claims be given adequate
study and consideration by the Board." (emphasis added)
In view of the December 29, 1975 TTTDC Board Resolution transferring
to Rovels the said shares of stock as construction fee, TTTDC Directors
Jose Silva, Jr. and Emmanuel Ocampo filed a complaint with the SEC
against Roberto Roxas, TTTDC President, and Eduardo Santos, Rovels'
President, docketed as SEC Case No. 1322. In their complaint, Silva and
Ocampo alleged that there was no meeting of the TTTDC's Board of
Directors on December 29, 1975; that they did not authorize the transfer of
TTTDC's shares of stock to Rovels; that they never signed the alleged
minutes of the meeting; and that the signatures of the other two (2)
Directors, Victoriano Leviste and Bienvenido Cruz, Jr., as well as that of
TTTDC's Secretary Francisco Carreon, Jr., were obtained through fraud
and misrepresentation. They also alleged that the TTTDC Board
Resolution dated December 29, 1975 was repealed by the March 1, 1976
Resolution. They thus prayed that the transfer of TTTDC's shares of stock
to Rovels pursuant to Resolution dated December 29, 1975 be annulled.
On March 17, 1979, SEC Hearing Officer Eugenio E. Reyes issued a
Decision[8] in favor of Silva and Ocampo, the dispositive portion of which
reads:
"Considering that the (December 29, 1975) board resolution which
authorizes the corporation to pay its creditors with its unissued shares of
stock x x x had been expressly revoked or repealed on March 1,
1976 as earlier pointed out, Commission Resolution No. 260 (granting
Santos' application for exemption from registration of the unissued
shares), when issued on May 7, 1976 x x x had lost its legal
basis. Consequently, the corresponding issuance of shares was without
authority of the board of directors."
xxxxxxxxx
"WHEREFORE, premises considered, this Commission finds and so holds
that the purported board resolution of December 29, 1975, not having
been properly passed upon at a duly constituted board meeting,
cannot be recognized as valid and hence, without legal force and
effect. Consequently, the issuance of shares of stock to corporate
creditors of the Tagaytay Taal Tourist Development Corporation is
null and void. In view thereof, the shares in question are still considered
unissued and remain part of the authorized capital stocks of the Tagaytay
Taal Tourist Development Corporation. This is without prejudice to the
rights of said corporate creditors as against Tagaytay Taal Tourist
Development Corporation for the latter's contractual obligations."
(emphasis added)
On appeal by Roberto Roxas and Eduardo Santos, the SEC en banc, in its
Decision dated September 2, 1982 in SEC-AC No. 049,[9]affirmed the
Decision of the SEC Hearing Officer. This Court, in its Decision of June
20, 1983 in G.R. No. 61863,[10] likewise affirmed the Decision of the
SEC en banc. The Decision of this Court became final and executory on
September 2, 1983.[11]
Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo, Victoriano
Leviste, Francisco Carreon, Jr., and Expedito Leviste, Sr., another
stockholder of TTTDC, (the SILVA GROUP, now respondents), filed
with the SEC a petition against Eduardo Santos, Sylvia S. Veloso, Josefina
Carballo, Augusto del Rosario, Reynaldo Alcantara and Lauro Sandoval
(the SANTOS GROUP), docketed as SEC Case No. 3806. (The SANTOS
GROUP were nominees of Rovels who, by virtue of the shares of stock
issued pursuant to the December 29, 1975 Resolution, proceeded to act as
directors and officers of TTTDC). In their petition, the SILVA GROUP
prayed that they be declared the true and lawful stockholders and
incumbent directors and officers of TTTDC.
On July 6, 1993, SEC Hearing Officer Alberto P. Atas rendered a
Decision[12] in favor of the SILVA GROUP, thus:
"WHEREFORE, judgment is hereby rendered in favor of the petitioners
(SILVA GROUP) and against the respondents (SANTOS GROUP), as
follows:
a. Declaring petitioners as the lawful stockholders, directors and officers
of Tagaytay Taal Tourist Development Corporation;
b. Declaring respondents, to be not stockholders of Tagaytay Taal Tourist
Development Corporation;
c. Declaring respondents to be not directors or officers of Tagaytay Taal
Tourist Development Corporation;
d. The writ of preliminary injunction issued on November 6, 1990 is
hereby made permanent; and
e. Ordering the Records Division of this Commission to purge the records
of Tagaytay Taal Tourist Development Corporation of all papers and
documents filed by respondents purportedly in behalf of Tagaytay Taal
Tourist Development Corporation." (emphasis and words in parentheses
added)
The above Decision became final and executory on September 1,
1994[13] as no appeal was interposed by either the SILVA GROUP or the
SANTOS GROUP.
However, Rovels, to whom the TTTDC shares of stock (worth
P108,000.00) were transferred, claimed that it became aware of the July 6,
1993 SEC Decision only in June of 1995. So on September 6, 1995, it
filed a petition with the SEC,[14] docketed as SEC Case No. 09-95-5135,
praying that it be declared the majority stockholder of TTTDC as against
respondents Ocampo, Silva, Leviste, Sr., Calalang and Carreon (belonging
to the SILVA GROUP). The material allegations of the petition state that:
(1) TTTDC passed a Resolution dated December 29, 1975 authorizing the
transfer of its unissued shares to Rovels as the latter's construction
fee;[15] (2) Pursuant to that Resolution, TTTDC shares of stock worth
P692,000.00 were transferred to Rovels;[16] (3) While TTTDC, in its
March 1, 1976 Resolution, repealed the December 29, 1975 Resolution,
such repeal does not bind Rovels for lack of notice;[17] (4) Several
"interrelated cases" (SEC Case Nos. 1322 and 3806) were filed with the
SEC involving the SILVA and SANTOS GROUPS;[18] (5) Rovels is not
bound by the SEC Decisions since it was not impleaded as a party in said
cases.[19]
Forthwith, the SILVA GROUP filed a motion to dismiss[20] the petition
on the following grounds: (1) Rovels has no cause of action since
TTTDC's December 29, 1975 Board Resolution was repealed by its March
1, 1976 Resolution;[21] (2) the petition is barred by the prior SEC
Decisions in SEC Case No. 1322 declaring that the issuance of TTTDC's
shares of stock to Rovels is valid, and the SEC Decision in 3806 declaring
the SILVA GROUP as the lawful stockholders of TTTDC;[22] and (3) the
petition is barred by estoppel, prescription and laches since it was filed
long after Rovels was notified of the repeal of the December 29, 1975
TTTDC Resolution.[23]
In an Order dated April 22, 1996[24] in SEC Case No. 09-95-5135, SEC
Hearing Officer Manuel P. Perea dismissed Rovel's petition on the
grounds of lack of cause of action, res judicata, estoppel, laches and
prescription. This Order was affirmed by the SEC en banc in its Decision
dated January 20, 1997[25] in SEC AC No. 560.
Upon a petition for review, docketed as CA-G.R. SP. No. 43260, the Court
of Appeals, in its Decision dated June 5, 1998,[26] affirmed the January 20,
1997 SEC en banc Decision. Rovels' motion for reconsideration was
likewise denied.[27]
Hence, the instant petition for review on certiorari,[28] alleging that the
Court of Appeals erred:
I Resolution was repealed by the March 1, 1976 Resolution. The petition
IN HOLDING THAT PETITIONER ROVELS HAS NO CAUSE OF
ACTION AGAINST PRIVATE RESPONDENTS; and
II
IN HOLDING THAT THE PETITION IN SEC CASE NO. 09-95-5135 IS
BARRED BY PRIOR JUDGMENT (RES JUDICATA), LACHES,
PRESCRIPTION AND ESTOPPEL.[29]
The petition is unmeritorious.
On the first assigned error, we find that the Court of Appeals is correct in
affirming the dismissal of Rovels' petition in SEC Case No. 09-955135 for
lack of cause of action.
A cause of action is defined as the delict or wrongful act or omission
committed by a person in violation of the right of another.[30] A cause of
action exists if the following elements are present: (1) a right in favor of
the plaintiff, (2) the correlative obligation of the defendant to respect such
right, and (3) the act or omission of the defendant in violation of plaintiff's
right.[31] The test is whether the material allegations of the complaint,
assuming them to be true, state ultimate facts which constitute plaintiff's
cause of action, such that plaintiff is entitled to a favorable judgment as a
matter of law.[32]
The pertinent portions of Rovels petition filed with the SEC read:
xxxxxxxxx
"5. x x x. On December 29, 1975, TTTDC in a Resolution signed by
majority members of the Board of Directors resolved that TTTDC pay its
creditors through a 'debt-to-equity swap;'
xxxxxxxxx
"9. x x x the relation between the Silva faction and the Santos
faction became adversarial. The Silva faction attempted to form an
alleged new board of directors and repealed the Board Resolution dated
December 29, 1975 Resolution regarding the 'debt' to equity swap. Thus,
it resolved:
'RESOLVED, as it is hereby resolved, that the Resolution of December
29, 1975 authorizing the payment of creditors with unissued shares of
the corporation be as it is hereby repealed: Resolved further that the
matter as well as the amount of the creditor's claims be given adequate
study and consideration by the Board. x x x'
"10. That what is clear from the above Resolution of March 1, 1976 is
the admission that indeed TTTDC owes certain amount of money from its
creditors. The creditors became stockholders of record as a result of shares
of stock issued in implementation of the 'debt to equity' conversion.
Corresponding shares of stock were issued and signed by then president of
the corporation Roberto Roxas and then corporate secretary Francisco N.
Carreon, Jr.
"Copy of said Certificate of Stocks are hereto attached and marked as
Annexes 'D' to 'P' and made an integral part hereof.
xxxxxxxxx
"12. That several interrelated cases were filed by Eduardo L. Santos
(SEC Case No. 1322), on one hand, and Expedito M. Leviste,
Francisco Carreon, Felicisimo Ocampo and Jose M. Silva (SEC Case
No. 3806) and vice versa on the other. Petitioner, Rovels Enterprises,
Inc. was never made a party in any of these cases and its nominees in
the Board of Directors of TTTDC continued to exercise its function from
1976.
xxxxxxxxx
"19. That to implement the decision in SEC CASE 3806, which declared
the Silva Group as the duly authorized directors and officers, without
looking deeply into the records of the case, i.e. the sub-poened authentic
'Stock and Transfer Book' of TTTDC and the earlier decision in PED Case
No. 89-0644, will constitute irreparable damage to the petitioner. Specially
so, Silva executed an affidavit showing 5 Directors of TTTDC but the
stock certificates were not signed by the corporate secretary who died in
1982.
xxxxxxxxx
"21. That petitioner which became duly registered majority stockholder
thru 'debt to equity swap' had been an innocent party to such controversy
between the aforesaid 2 ruling thereof, hence, petitioner remains as is on a
status quo basis as majority stockholder of TTTDC.
xxxxxxxxx
"PRAYER
"WHEREFORE, premises considered, petitioner prays that this Honorable
Commission render judgment in favor of petitioner and against
respondents (SILVA GROUP):
xxxxxxxxx
"2. After due notice and hearing, re-declaring petitioner lawful registered
majority stockholder of TTTDC x x x;
"3. Ordering respondents to desist from sitting in the Board of Directors of
TTTDC as they are not lawful registered stockholders in the books of the
said corporation.
x x x x x x x x x"[33]
A reading of the above petition (paragraph 5) shows that Rovels' prayer to
be declared the majority stockholder of TTTDC is anchored on the
December 29, 1975 TTTDC Board Resolution transferring its shares of
stock to Rovels as construction fee. This Resolution could have vested in
Rovels a right to be declared a stockholder of TTTDC. However, the same
petition (paragraphs 9 and 10) concedes that the December 29, 1975
likewise alleges (paragraphs 12 and 19) that there were prior "interrelated
cases" filed with the SEC between the SILVA and SANTOS GROUPS,
namely: (1) SEC Case No. 1322(wherein the SEC en banc in its Decision
dated September 2, 1982 nullified the TTTDC Board Resolution dated
December 29, 1975, which Decision was affirmed with finality by this
Court in G.R. No. 61863) and (2) SEC Case No. 3806 (wherein the SEC
declared the SILVA GROUP as the legitimate stockholders of TTTDC,
not Rovels' nominees [the SANTOS GROUP]). Clearly, on the face of its
petition, Rovels cannot claim to be the majority stockholder of TTTDC.
Relative to the second assigned error, Rovels contends that it is not bound
by the SEC Decision in SEC Case Nos. 1322 and 3806 and in G.R. No.
61863 as it was "never a party in any of these cases." This contention
brings us to the issue of res judicata.
The requisites of res judicata,[34] also known as the rule on bar by prior
judgment, are:
1) the former judgment must be final;
2) the court which rendered it had jurisdiction over the subject matter and
the parties;
3) the judgment must be on the merits; and
4) there must be between the first and the second actions, identity of
parties, subject matter and causes of action.
The first three (3) requisites of res judicata are present in this case. This is
not disputed by the parties and is, in fact, established by the record. The
controversy arises as to whether there is identity of the parties in the
present SEC Case No. 09-95-5135, on the one hand, and in prior SEC
Case Nos. 1322 and 3806, on the other.
Contrary to its claim, Rovels is bound by the previous SEC Decisions. It
must be noted that Eduardo Santos, President of Rovels, was one of the
respondents in both SEC Case Nos. 1322 and 3806. Clearly, Rovels and
Eduardo Santos, being its President, share an identity of
interests sufficient to make them privies-in-law, as correctly found by
the Court of Appeals in its assailed Decision, thus:
"In the case at bench, there can be no question that the rights claimed by
petitioner and its stockholders/directors/officers who were parties in SEC
Case Nos. 1322 and 3806 are identical in that they are both based on the
December 29, 1975 Resolution. Stated differently, they shared an
identity of interest from which flowed an identity of relief sought,
namely, to be declared owners of the stocks of TTTDC, premised on the
same December 29, 1975 Resolution. x x x. This 'identity of interest is
sufficient to make them privies-in-law, one to the other, and meets the
requisite of substantial identity of parties.'"[35]
It bears stressing that absolute identity of parties is not required for the
principle of res judicata, or the rule on bar by prior judgment, to apply.
Mere substantial identity of parties, or a community of interests between
a party in the first case and a party in the subsequent case even if the latter
was not impleaded in the first case, is sufficient.[36]
Rovels cannot take refuge in the argument that, as a corporation, it is
imbued with personality separate and distinct from that of the respondents
in SEC Case Nos. 1322 and 3806. The legal fiction of separate corporate
existence is not at all times invincible and the same may be pierced when
employed as a means to perpetrate a fraud, confuse legitimate issues, or
used as a vehicle to promote unfair objectives or to shield an otherwise
blatant violation of the prohibition against forum-shopping. While it
is settled that the piercing of the corporate veil has to be done with
caution, this corporate fiction may be disregarded when necessary in the
interest of justice.[37]
The doctrine of res judicata states that a final judgment on the merits
rendered by a court of competent jurisdiction is conclusive as to the rights
of the parties and their privies, and constitutes an absolute bar to
subsequent actions involving the same claim, demand or cause of
action.[38] This is founded on public policy and necessity, which makes it
to the interest of the State that there should be an end to litigations, and on
the principle that an individual should not be vexed twice for the same
cause.[39]
Just recently, we emphatically declared in In Re: Petition Seeking for
Clarification as to the Validity and Forceful Effect of Two (2) Final and
Executory but Conflicting Decisions of the Honorable Supreme
Court:[40] "Every litigation must come to an end once a judgment
becomes final, executory and unappealable. This is a fundamental and
immutable legal principle. For '(j)ust as a losing party has the right to file
an appeal within the prescribed period, the winning party also has the
correlative right to enjoy the finality of the resolution of his case' by the
execution and satisfaction of the judgment, which is the 'life of the law.'
Any attempt to thwart this rigid rule and deny the prevailing litigant his
right to savour the fruit of his victory, must immediately be struck down."
Finally, this Court sustains the Appellate Court's finding that the filing of
Rovels petition in the instant SEC Case No. 09-95-5135 is barred by
estoppel, prescription and laches. There is no merit to Rovels' claim that it
was only in June of 1995[41] when it became aware of the repeal of the
December 29, 1975 TTTDC Resolution and of the consequent
nullification of the transfer of its shares of stock.
It is undisputed that Eduardo Santos was present in the March 1, 1976
TTTDC Board meeting wherein the December 29, 1975 Resolution was
repealed. We hold that Eduardo Santos, being the President of Rovels, is
considered as its (Rovels') agent. As such, his knowledge of the repeal of
the December 29, 1975 Resolution, under the theory of imputed
knowledge, is ascribed to his principal (Rovels).
It was only on September 6, 1995, or almost twenty (20) years from the
time Eduardo Santos learned of the March 1, 1976 Resolution, that Rovels
filed its petition in SEC Case No. 09-95-5135. Within that long period of
time, Rovels did nothing to contest the March 1, 1976 TTTDC Resolution
to protect its rights, if any. Obviously, such inaction constitutes estoppel,
prescription and laches. As stated by Rovels itself, Article 1149 of the
New Civil Code limits the filing of actions, whose periods are not fixed
therein or in any other laws, to only five (5) years. In addition, the
principle of laches or "stale demands" provides that the failure or neglect,
for an unreasonable and unexplained length of time, to do that which by
exercising due diligence could or should have been done earlier, or the
negligence or omission to assert a right within a reasonable time, warrants
a presumption that the party entitled to assert it either has abandoned it or
declined to assert it.[42]
In sum, this Court finds that the Court of Appeals did not commit any
reversible error in its challenged Decision.
WHEREFORE, the petition is DENIED. The assailed Decision of the
Court of Appeals dated June 5, 1998 and its Resolution dated December
21, 1998 in CA-G.R. SP. No. 43260, are AFFIRMED.
SO ORDERED.
Rosita Peña vs Court of Appeals
193 SCRA 717 – Business Organization – Corporation Law – Board
resolutions may be questioned by third persons – Board Meetings –
Quorum – Sale of Corporate Properties
In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from
the Development Bank of the Philippines (DBP). PAMBUSCO used the
parcels of land it owns to secure the loan. In October 1974, due to
PAMBUSCO’s nonpayment, DBP foreclosed the parcels of land. Rosita
Peña was the highest bidder. Meanwhile, in November 1974, the Board of
Directors of PAMBUSCO had a meeting. The meeting was attended by
only 3 out of the 5 Directors. In the said meeting, the Board, through a
resolution, authorized one of the directors, Atty. Joaquin Briones, to
assign the properties of PAMBUSCO. Pursuant to the resolution, Briones
assigned PAMBUSCO’s assets to Marcelino Enriquez. Enriquez, knowing
that the properties were previously mortgaged and foreclosed, exercised
PAMBUSCO’s right to redeem. So in August 1975, he redeemed the said
properties and thereafter he sold them to Rising Yap.
Yap then registered the properties under his name. He then demanded
Peña to vacate the properties. Peña refused to do hence Yap filed a
complaint. In her defense, Peña averred that Yap acquired no legal title
over the property because the board resolution issued by PAMBUSCO in
November 1974 is void; that it is void because the resolution was issued
without a quorum; that there was no quorum because under the by-laws of
PAMBUSCO, a quorum constitutes the presence of 4 out of 5 directors yet
the meeting was only attended by three directors. As such, the authority
granted to Briones to assign the properties is void; that the subsequent
assignment by Briones to Enriquez is void; that Enriquez acquired no title
hence, likewise, Yap acquired no title. Yap insists that Peña has no legal
standing to question the board resolution because she is not a stockholder.
ISSUE: Whether or not the board resolution is valid.
HELD: No, it is void. The by-laws are the laws of the corporation.
PAMBUSCO’s by-laws provides that a quorum consists of at least four
directors. Hence, the meeting attended by only three directors did not
comply with the required quorum. As such, the three directors were not
able to come up with a valid resolution which could bind the corporation.
Anent the issue of Peña being a third person, she can question the board
resolution. The resolution here is liken to a contract. Under the law, a
person who is not a party obliged principally or subsidiarily in a contract
may exercise an action for nullity of the contract if he or she is prejudiced
in his or her rights with respect to one of the contracting parties, and can
show the detriment which would positively result to him or her from the
contract in which he or she had no intervention.
Further, the sale of the properties of PAMBUSCO did not comply with the
procedure laid down by the Corporation Law. Under the law, the sale or
disposition of an and/or substantially all properties of the corporation
requires, in addition to a proper board resolution, the affirmative votes of
the stockholders holding at least two-thirds (2/3) of the voting power in
the corporation in a meeting duly called for that purpose. No doubt, the
questioned resolution was not confirmed at a subsequent stockholders
meeting duly called for the purpose by the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the voting power in the
corporation.
Further still, the Supreme Court discovers a few other anomalies with
PAMBUSCO. One is that PAMBUSCO has been inactive since 1949 as
per the records provided by the Securities and Exchange Commission. Its
general information sheet with the SEC has not been updated regularly
even. And the three directors present were not even listed as current
directors of PAMBUSCO.
Strong and Strong vs. Repide
41 Phil. 947 3 May 1909
PONENTE: Justice Peckham
FACTS:
Among the lands comprising the friar lands are the Dominican
lands, the only valuable asset owned by the corporation Philippine Sugar
Estates Development Company Limited (Philippine Sugar Estates).
Francisco Gutierrez Repide (Repide), defendant, was the majority
stockholder and one of the five directors of Philippine Sugar Estates. He
was likewise elected by the board as the agent and administrator general of
such company.
The factual backdrop being during US occupation, the US
Government wanted to secure title over the friar lands. To accomplish this
objective, Governor for the Philippines entered into negotiations for the
purchase of the Dominican lands, during which Repide represented
Philippine Sugar Estates. The first offer of the Governor was to purchase
the subject lands in the amount of $6,043,219.47. As the majority
stockholder of Philippine Sugar Estates and without prior consultation
with the other stockholders, Repide rejected the offer. For the second
offer, the purchase price was increased to $7,535,000.
While negotiations for the second offer were ongoing and while
still holding out for a higher price of the Dominican lands, Repide took
steps to purchase the 800 shares of stock of Philippine Sugar Estates.
These shares were owned by Mrs. Eleanor Strong (Strong) which were
then in the possession of her agent, F. Stuart Jones (Jones). Repide, instead
of seeing Jones, employed Kauffman who later on employed Sloan, a
broker, to purchase the shares of Strong. Jones sold the 800 shares of
Strong for 16,000 Mexican currency. For this sale transaction a check of
one Rueda Ramos was issued.
Later on, the negotiations for the purchase of the Dominican
lands were concluded and a contract of sale was subsequently executed.
This sale transaction increased the value of the shares of stocks originally
owned by Strong from 16,000 Mexican currency to 76,256 US currency.
During the negotiations regarding the purchase of the shares of stock of
Strong, not one word of the facts affecting the value of this stock was
made known to her nor her agent, Jones. After the sale of Dominican lands
and after the purchase of the 800 shares of Strong, Repide became the
owner of 30,400 out of the 42,030 shares of Philippine Sugar Estates.
Strong filed a complaint for the recovery of her 800 shares. She
argued that her agent Jones had no authority to sell her shares and that
Repide fraudulently concealed the facts affecting their value.
ISSUE:
Was there fraud in effecting the purchase of Strong’s shares?
RULING:
Yes. With the factual circumstances of this case, it became the
duty of Repide, acting in good faith, to state the facts before making the
purchase of Strong’s shares. That Repide was one of the directors of
Philippine Sugar Estates was but one of the facts upon which liability is
asserted. He was not only a director, but he owned three-fourths of the
shares of its stock, and was, at the time of the purchase of the stock,
administrator general of the company with large powers and engaged in
the negotiations which finally led to the sale of the company’s lands at a
price which greatly enhanced the value of the stock. He was the negotiator
for the sale of the Dominican lands and was acting substantially as the
agent of the shareholders of Philippine Sugar Estates by reason of his
ownership of the shares in the company. Because of such ownership and
agency, no one knew as well as he does about the exact condition of the
negotiations. He was the only one who knew of the probability of the sale
of the Dominican lands to the government and of the probable purchase
price. Under these circumstances, Repide employed an agent to purchase
the stock of Strong, concealed his own identity and his knowledge of the
state of negotiations and their probable result. The concealment of his
identity while procuring the purchase of the stock, by his agent, was in
itself strong evidence of fraud on the part of Repide. By such means, the
more easily was he able to avoid questions relative to the negotiations for
the sale of Dominican lands and actual misrepresentations regarding that
subject. He kept up the concealment as long as he could by giving the
check of a third person Rueda Ramos, for the purchase money. This move
of Repide was a studied and intentional omission to be characterized as
part of the deceitful machinations to obtain the purchase without giving
any information whatever as to the state and probable result of the
negotiations and to obtain a lower price for the shares of Strong. After the
purchase of stock, he continued negotiations for the sale of the Dominican
lands as the administrator general and eventually entered into a contract of
sale. The whole transaction gives conclusive evidence of the
overwhelming influence Repide had in the negotiations and it is clear that Following a pre-trial conference which failed to bring the parties to an
the final consummation was in his hands at all times. amicable settlement, a Request for Admission[6] of material and relevant
facts therein stated was served by the petitioner on the respondent. In its
OBITER DICTUM: Reply[7] thereto, the respondent denied the alleged facts sought to be
The directors are declared to be mandatories of the society and admitted, claiming that the same are irrelevant and immaterial to the suit
that they are prohibited from acquiring by purchase, even at public or filed against it.
judicial auction, the property the administration or sale of which, may In the ensuing trial on the merits, the parties adduced their respective
have been entrusted to them, and that this is the extent of the prohibition. testimonial and documentary evidence.
SECOND DIVISION To buttress her allegation that the respondent as defendant in the case is
liable to her under the subject promissory note, petitioner, as plaintiff,
[ G.R. No. 146535, August 18, 2006 ] proffered in evidence the promissory note itself and her oral testimonies
NATIVIDAD G. REYES,PETITIONER, VS. RCPI EMPLOYEES that when the respondent credit union defaulted in the payment of its
CREDIT UNION, INC., RESPONDENT. obligation under said promissory note, David F. Halican, respondent's
President and Chairman of its Board, issued four (4) postdated PCIB
DECISION checks in her favor, which checks were all dishonored by the drawee bank
GARCIA, J.: when presented for payment; that when requested to make good the
Assailed and sought to be set aside in this petition for review dishonored checks, the respondent instead filed a complaint for estafa
on certiorari is the Decision[1] dated December 27, 2000 of the Court of against her before the City Prosecutor's Office of Quezon City (I.S. No.
Appeals (CA) in CA-G.R. CV No. 49720, reversing an earlier decision of 88-2693), thereunder alleging her misappropriation of corporate funds
the Regional Trial Court (RTC) of Caloocan City, Branch 125, in an while still treasurer of the respondent, which complaint was recommended
action for a sum of money with damages thereat commenced by petitioner for dismissal by the investigating fiscal for insufficiency of evidence, a
Natividad Reyes against the respondent, RCPI Employees Credit Union, recommendation duly approved by the City Prosecutor and against which
Inc., a duly registered credit union of RCPI employees organized and a petition for review was dismissed by the Department of Justice; that
existing under Philippine laws. thereafter, the respondent filed another estafa case against her (I.S. No. 90-
The facts: 108555) which was likewise dismissed by the City Prosecutor; that she
On December 8, 1986, David F. Halican, President and Chairman of the filed with the same office a criminal complaint for violation of Batas
Board of Directors of the respondent credit union, together with Nestor Pambansa Big. 22 (I.S. No. 91-7502) against David Halican in connection
Estremera, respondent's Accounting Officer, executed in favor of with the same dishonored postdated PCIB checks, but her complaint was
petitioner Natividad Reyes a promissory note[2] purportedly for and in dismissed because she, as the payee in those checks, is also a signatory
behaif of the respondent. In full, the note reads: thereto; and that the respondent's board of directors was informed of the
PROMISSORY NOTE loan covered by the promissory note in question.
P 162. 338.52 Anent the respondent's counterclaim, which is for the same amount
For value received, we promise to pay Mrs. Natividad G. Reyes the sum of allegedly misappropriated by her. the petitioner testified that it is the
ONE HUNDRED SIXTY-TWO THOUSAND THREE HUNDRED respondent which has an account payable to her since 1987 as shown by
THIRTY-EIGHT & 52/100 (P162,338.52) only payable on or before the very same Financial Audit Report[8] referred to by the respondent in its
March 8, 1987. Answer.
In case of default, interest at the rate of 2% a month will be charged and For its part, the respondent credit union, maintaining its main defense that
liquidated damages in the amount of P15,000.00 will be paid by the David F. Halican had no authority to sign the subject promissory note for
maker/s plus 10% of the entire amount as and for attorney's fees, should and in its behalf, adduced in evidence the testimonies of two (2) of the
the matter be referred to a members of its board of directors, namely Rolando Babar and Hector
lawyer. Bolano. to disprove petitioner's claim that its board knew of the loan
contracted by Halican and of the latter's execution of the subject
RCPI promissory note. In support of its counterclaim, the respondent presented
Building, the four (4) postdated PCIB checks drawn and signed by Halican and
Cubao, payable to the petitioner, as well as the Financial Audit Report earlier
Quezon City. adverted to, showing that the petitioner incurred an accountability in the
December 8, amount of P-l,049,515.70 while still the respondent's treasurer in custody
1986. of its funds and checks and herself a signatory to its checks together with
Halican as the respondent's former president.
RCPI On November 2, 1994, the trial court came out with its
EMPLOYEES decision[9] rendering judgment for the petitioner, thus:
CREDIT WHEREFORE, premises considered, judgment is hereby rendered as
UNION, INC. follows:
By: Ordering defendant [respondent] to pay plaintiff [petitioner] the sum of
P162,338.52 representing the principal obligation;
(SIGNED)
DAVID Ordering defendant to pay plaintiff the sum of P1 84,680.00 representing
F.HALICAN stipulated interest from April 1987 to. December 1991, plus the sum
President & equivalent to 2% monthly interest from January. 1992 until the entire
Chairman of the amount is fully paid;
Board
Ordering the defendant to pay plaintiff the sum of P15,000.00 as
ROLANDO O. liquidated damages;
BABAR
Vice Chairman Ordering the defendant to pay plaintiff the sum of P36,2]0.00 as attorney's
fees; and
(SIGNED)
NESTOR Costs of suit.
E.ESTREMERA SO ORDERED. (Words in brackets added).
Accounting In its decision, the trial court ruled that Halican's authority to execute the
Officer same promissory note for and in behalf of the respondent was impliedly
Unable to collect the amount of the note on its due date despite repeated admitted by the latter when it failed to deny under oath the matters alleged
demands therefor, the petitioner filed with the RTC of Caloocan City a in the petitioner's Request for Admission, supra, particularly paragraph B
complaint[3] for a sum of money with damages against the respondent thereof, reading as follows:
credit union. xxx xxx xxx
In its Answer,[4] the respondent, as defendant, denied any obligation to the
petitioner asserting that it "did not authorize" the signatories to the
promissory note sued upon "to act for and in behalf of the association," On December 8, 1986, the RCPI Employees Credit
hence the plaintiff has no cause of action against it. In the same Answer, Union, Inc. through Mr. David F. Halican and Nestor
the respondent interposed a counterclaim in the sum of P1,049,51 Estremera, executed a Promissory Note wherein they
5.70,[5] representing the amount allegedly misappropriated by the latter B. promised to pay Mrs. Natividad G. Reyes the sum of
while serving as respondent's treasurer from 1981 to 1987, as allegedly P162,338.00 on or before March 8, 1987. (The copy
shown in the Financial Audit Report prepared and submitted by the of this document is attached to the complaint as
Philippine Federation of Credit Cooperatives, inc., which conducted an Annex "A").
audit of respondent's financial condition.
In the same decision, the trial court virtually dismissed the respondent's
counterclaim for lack of factual and legal bases.
From the adverse decision of the trial court, the respondent credit union
went on appeal to the CA in CA-G.R. CV No. 49720.
As stated at the threshold hereof, the CA, in its Decision [10] dated
December 27, 2000, reversed that of the trial court and ordered the
dismissal of the petitioner's complaint, and likewise adjudged the
petitioner liable to the respondent on the latter's counterclaim. TotheCA,
the petitioner failed (l)to prove that David F. Halican was authorized by
the board of directors of the respondent credit union to borrow money,
much less execute the disputed promissory note in its behalf; and (2) to
refute by convincing evidence the existence of her liability to the
respondent by way of counterclaim which the latter has proven by
preponderance of evidence. Specifically, the CA decision dispositively
reads:
WHEREFORE, premises considered, the appealed decision of the
Regional Trial Court of Calookan City, Branch 125 in Civil Case No.
15427 is hereby REVERSED AND SET ASIDE and a new one entered
DISMISSING the Complaint against the defendant-appellant and finding
the plaintiff-appellee LIABLE to pay to the former the amount of
P1,041,595.70 plus legal interest at the rate of 6% per annum to be
computed from judicial demand, i.e., September 11, 1992 until the same
shall have been fully paid.
Costs against the plaintiff-appellee.
SO ORDERED.
Hence, petitioner's present recourse on her main submission that the
challengedCA decision is contrary to law and the evidence on record.
The petition is partly meritorious.
To the mind of the Court, two (2) issues commend themselves for its
resolution, to wit: (1) whether or not the respondent credit union is liable
to the petitioner on the subject promissory note executed and signed by its
officers, namely, its president, David F. Halican and its accounting officer,
Nestor F. Estremera; and (2) whether or not the petitioner is liable to the
respondent on the latter's counterclaim.
The Court resolves both issues in the negative.
Indisputably, the respondent is a credit cooperative duly organized and
existing under Philippine laws. As such corporate entity, it has its own acts
and liabilities and exercises corporate powers, including the power to enter
into all contracts, through its board of directors pursuant to Section 23 of
the Corporation Code.[11]
Hornbook is the rule that a corporation, like the respondent, may act only
through its board of directors or, when authorized either by its by-laws or
by board resolution, through its officers or agents in the normal course of
business.[12] It is important, however, that for such corporate officers or
agents to be deemed fully clothed by the corporation to exercise a power
of the board, the latter must specially authorize them to do so. [13]
Here, the respondent denies that it ever authorized its officers, in
particular, its president, David Halican, to contract a loan with the
petitioner and execute a promissory note in connection therewith. With
that denial, it behooves upon the petitioner to establish by the requisite
quantum of proof that Halican was in fact authorized by the respondent to
represent and bind it in the questioned transaction. Unfortunately for the
petitioner, she failed to discharge her burden. As it is, the evidence
adduced by her is bereft of any proof of authority on the part of Halican
and Estremera, either by way a provision on the respondent's by-laws or a
board resolution, to contract the alleged loan and to execute relative
thereto the promissory note in dispute. This being so, Halican's act of
executing and signing the subject promissory note cannot bind the
respondent credit union. So it is that in People's Aircargo and
Warehousing Co., Inc. v. CA,[14]the Court made it clear that in the absence
of authority from the board of directors, no person, not even its officers,
can validly bind a corporation. We thus lend concurrence to the CA's apt
observations in the decision under review, thus:
Indeed, the evidence submitted by the [petitioner] to prove her claim is
insufficient to establish the fact that [respondent] is indebted to it for x x x
it has been held that the power to borrow money is one of those cases
where even a special power of attorney is required. Such being the case,
there is invariably a need of an enabling act of the corporation to be
approved by its Board of Directors. This fact is what the trial court omitted
to consider. It failed to recognize the fact that while [petitioner]
sufficiently established the fact that the President and Chairman of the
Board of Directors of the [respondent] as well as its Accounting Officer,
had signed the promissory note, she however dismally failed to prove that
Halican was, in the first place, authorized to borrow money by the Board
of Directors of the defendant corporation. Much less, execute a promissory
note in behalf of the said corporation promising to pay the loaned amount
at a stipulated date. We note that [petitioner] was also a member of the
Board of Directors which allegedly resolved to allow the corporation to
borrow money from outside sources and such being the case, she could
have just presented said board resolution to prove that Halican was
authorized to borrow money as it can be fairly presumed that she had
access to copies of the defendant corporation's board resolution. Failing in
this respect, [petitioner's] action was left without any leg to stand on
insofar as the claimed liability of the [respondent] is concerned. (Words in
brackets added).
Petitioner insists, however, that the respondent credit union is in estoppel
to disclaim Halican's authority to secure the loan and execute the
promissory note evidencing it. In this respect, petitioner would want us to
take into account the following: (1) the respondent's admission that at the
time of the execution of the note,-David Halican was its president and
chairman of its board of directors; (2) the undisputed fact that Halican
signed the four (4) dishonored postdated PCIB checks as payment for the
promissory note; and (3) that in the case for violation of B.P. Big. 22 filed
by her against Halican, the latter did not state by way of defense that he
was not authorized to sign the dishonored checks therein involved but
merely relied on the fact that petitioner cannot sue him under B.P. Big. 22
because she herself is also a signatory to those checks.[15]
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation, but when these officers exceeded
their authority, their actions cannot bind the corporation, unless it has
ratified such acts or is estopped from disclaiming them.[16]
Again, petitioner has not shown that the respondent credit union ratified,
expressly or impliedly, the act of Halican in executing and signing in its
behalf the promissory note in dispute. Indeed, such ratification cannot be
inferred from the aforementioned circumstances proffered by the
petitioner. The fact that the respondent admitted Halican to be its president
at the time the promissory note was executed; that Halican signed the
postdated PCIB checks as payment for the note; that the said checks were
dishonored by the drawee bank upon presentment for payment; and that
Halican failed to raise as a defense his lack of authority to sign the note in
the B.P. Big. 22 case filed against him, does not necessarily mean that the
respondent credit union has thereby already ratified Halican's act of
contracting the obligation under the same promissory note.
Stressing her posture of implied ratification, petitioner argues that the
respondent is deemed to have impliedly admitted Halican's authority when
it did not deny under oath the matters sought to be admitted in her Request
for Admission, supra.
The argument does not persuade.
A perusal of the pertinent paragraph of the petitioner's aforementioned
pleading reveals that the same is a mere reiteration of that alleged in
paragraph B of her complaint[17] which the respondent credit union has
already traversed and denied in its Answer. Thus, the rule laid down in Po
v. Court of Appeals[18] is apropos, viz:
"A party should not be compelled to admit matters of fact already
admitted by his pleading and concerning which there is no issue (Sherr vs.
East, 71 A2d, 752, Terry 260, cited in 27 C.J.S. 91), nor should he be
required to make a second denial of those already denied in his
answer to the complaint. A request for admission is not intended to
merely reproduce or reiterate the allegations of the requesting party's
pleading but should set forth relevant evidentiary matters of fact, or
documents described in and exhibited with the request, whose purpose is
to establish said party's cause of action or defense. Unless it serves that
purpose, it is, as correctly observed by the Court of Appeals, "pointless,
useless," and "a mere redundancy."' (Emphasis supplied.)
We are, however, with the petitioner insofar as the CA adjudged her liable
to the respondent on the latter's counterclaim. In this respect, the Court
finds the trial court's evaluation of the evidence more in accord with those
extant on record. Says the trial court in its decision:
A review of the evidence submitted by the [respondent] revealed that the
conclusion of the Auditors who examined the documents were based
mainly on conjectures and inferences and stripped of factual and legal
basis as correctly established by the investigating fiscal m his resolution
Exhibit "F", taking into account the procedures adopted and followed by
the credit cooperative in the conduct of its business and the relevant
evidence submitted in this case notably those reports of the supervisory
committee, the internal auditor who conducted regular monthly audit. The
conclusion of the Auditors that the [petitioner] has incurred deficiencies
because from their audit there are no records which supports some of the
disbursements are not worthy of credence because if the reco'rds were not
sufficient it should not have passed unnoticed by the credit committee, the
supervisory committee, the accounting officer and the Chairman, unless a
conspiracy existed between them. Indeed, it will not be unnoticed by the
internal auditor of the [respondent] who has conducted regular monthly
and at times on the spot audit.
Finally, assuming without conceding that the records of the transaction of
the business of the [respondent] was not sufficient to support some
disbursements at the time the External Auditor conducted its audit, but
were found sufficient at the time the Internal Auditor (Supervisory
Committee) has conducted its own audit no blame much less liability
maybe imputed to the [petitioner] inasmuch as she is not the record
custodian of the [respondent].[19] (Words in brackets supplied.)
WHEREFORE, with the MODIFICATION that the petitioner
is ABSOLVED of any liability to the respondent as regards the latter s
counterclaim, the challenged CA decision is hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
RANIEL VS. JOCHICO
(G.R. No. 153413, March 2, 2007)
DOCTRINE: The directors may appoint officers and agents and as
incident to this power of appointment, they may discharge those
appointed.
FACTS
• Nectarina Raniel and Victoria Pag-ong, are 2 out of the 5
directors of Nephro Systems Dialysis Center.
Note: Raniel was Corporate Secretary, Treasurer, and Administrator of the
Dialysis Clinic.
• Petitioners questioned respondents’ plan to enter into a joint
venture with the Butuan Doctors’ Hospital and College. Respondents
allegedly tried to compel them to waive and assign their shares with
Nephro but petitioners refused.
• Raniel sought an indefinite leave of absence. Paul Jochico
disapproved the request, but Raniel nonetheless stopped reporting for
work. When asked for an explanation for her absence, Raniel expressed
her sentiments over the disapproval of leave, and the joint venture with
Butuan.
Note: Without Raniel, holding three important positions, the company’s
operations were disrupted. Such also warranted loss of the Board’s
confidence in her. - SC
• Jochico issued a Notice of Special Board Meeting. Petitioners
were notified, but they did not attend. The board passed several
resolutions ratifying the disapproval of Raniel’s request for leave,
dismissing her as Administrator of Nephro, declaring the position of
Corporate Secretary vacant.
• Otelio Jochico was appointed as the new Corporate Secretary,
and a Special Stockholders’ Meeting was held.
• Again, petitioners did not attend. The stockholders that were
present removed the petitioners as directors of Nephro.
Note: Raniel could have explained herself during these meetings, but she
chose not to attend. - SC
• Side-note: the ownership of the outstanding capital stock is
distributed in this manner;
Jochico – 200 Shares
Steffens – 100 Shares
Viriya – 100 Shares
Raniel – 25 Shares
Pag-ong – 75 Shares
= 500 Shares
2/3 of OCS is 333.33 Shares
400 Shares voted for petitioners’ removal
• Petitioners filed a case with the SEC, which held that the
removal of petitioners was valid. Appeal made to the CA, which affirmed
the SEC decision.
ISSUE
WON the petitioners’ removal was valid? YES.
HELD
• The SC ruled in favor of Jochico.
• The directors may appoint officers and agents and as incident to
this power of appointment, they may discharge those appointed.
Note: Raniel was removed from her positions before she was ousted from
her status as a director.
• The unanimous resolutions carried by the board during such
meetings are valid and binding against complainants.
Note: There was quorum, given that there were only 5 directors, 3 voted to
remove petitioners.
PETITION DENIED
Ramirez v. Orientalist Co. and Fernandez (1918) – Street, J.
Concept: Control and Management of Corporation
FACTS:
Orientalist Company (Orientalist for brevity) exhibited films in a theatre in
Manila. Plaintiff JF Ramirez, a resident of Paris and represented in Manila
by his son Jose Ramirez, was engaged in business of marketing films for
manufacturers and in the production or distribution of cinematographic
material. In 1913, there were negotiations between the officials of
Orientalist and Jose Ramirez, as agent of JF Ramirez, for the exclusive
agency of two films in the hands of Orientalist. Jose Ramirez placed a
formal offer stating in detail the terms upon which Ramirez would
undertake to supply from Paris the films. The board of directors approved
and accepted the offer. The most important portion of the two letters of
acceptance written by Fernandez to Ramirez is in the following terms:
“These communications were signed in the following form, in which it
will be noted the separate signature of RJ Fernandez, as an individual, is
placed somewhat below and to the left of the signature of the Orientalist
Company, as signed by RJ Fernandez, in the capacity of treasurer:
THE
ORIENTALIST COMPANY,
By RJ
Fernandez
Treasurer.
RJ Fernandez”
The record showed that JF Ramirez himself procured the films upon his
own responsibility. Thus, the only contracting parties in this case are JF
Ramirez (first party), and Orientalist with RJ Fernandez (second party).
The films arrived in Manila but Orientalist had no funds to meet its
obligations. Hence, the first few drafts were accepted in the name of
Orientalist by its president B Hernandez, and were taken up by him with
his own funds. As the drafts had been paid by Hernandez, he treated the
films as his own property, and they never came into the actual possession
of Orientalist as owner at all. Hernandez rented the films to Orientalist and
they were exhibited by it in the Oriental Theater under an arrangement
made between him and the theater’s manager. Several remittances of films
from Paris arrived. All of the drafts accompanying these films were drawn
upon the Orientalist Company; and all were accepted in the name of
Orientalist by its president, B Hernandez, except the last which was
accepted by Hernandez individually. None of the drafts thus accepted
were taken up by the drawee or by Hernandez when they fell due; and it
was finally necessary for Ramirez to take them up as dishonoured by non-
payment.
Ramirez instituted an action against Orientalist and RJ Fernandez. Upon
application of Ramirez, the films were sold and the amount realized from
the sale was applied to the satisfaction of the plaintiff’s claim. Judgment
was given for the balance due to Ramiez. Orientalist was declared to be a
principal debtor and Fernandez was declared to be subsidiarily liable as
guarantor. Defendants appealed. The Court noted that the action is
primarily founded upon the liability created by the two acceptance letters.
ISSUES:
1. WON Fernandez’s actions bound the company .
2. WON the company is still liable, assuming that the company
was able to deny the authority of Fernandez.
3. What is the character of liability assumed by Fernandez?
HELD:
1. YES. The corporation was not able to deny the genuineness and due
execution of the contracts in question and the authority of Fernandez
to bind the Orientalist Company. Sec. 103 of the Code of Civil
Procedure requires that the Answer setting up the defense of lack of
authority of an officer of a corporation to bind it by a contract should
be verified and the denial contemplated must be specific. In this case,
the failure of the corporation to make any issue in its answer with
regard to the authority of Fernandez to bind it, and particularly its
failure to deny specifically under oath the genuineness and due
execution of the contracts sued upon, have the effect of eliminating
the question of his authority from the case.
Whether a particular officer actually possesses the authority which he
assumes to exercise is frequently known to very, very few and the proof of
it usually is not readily accessible to the stranger who deals with the
corporation on the faith of the ostensible authority exercised by some of
the corporate officers.
2. YES. If a corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent authority and
thus holds him out to the public as possessing power to do those acts,
the corporation will, as against anyone who has in good faith dealt
with the corporation through such agent, be estopped from denying
his authority; and where it is said “if the corporation permits” this
means the same as “if the thing is permitted by the directing power of
the corporation.”
The stockholders adopted a resolution to the effect that the agencies of the
two films should be accepted if the corporation could obtain the money
with which to meet the expenditure involved, and to this end appointed a
committee to apply to the bank for a credit. An attempt to obtain credit
was made, but failed. Another special meeting of stockholders was held
and a resolution was passed to the effect that the company should pay to
Hernandez, Fernandez, Monroy and Papa an amount equal to 10% of their
outlay in importing the films, said payment to be made in shares of the
company. At the time this meeting was held three shipments of the film
had already been received in Manila. Therefore, the body was then
cognizant that the offer had already been accepted in the name of
Orientalist Company and that the films which were then expected to arrive
were being imported by virtue of such acceptance.
3. In affixing his signature to the contracts, Fernandez was a guarantor.
From the testimony of both Ramirez and Fernandez, the Court was
convinced that the responsibility of the later was that of a guarantor.
Fernandez said that his name was signed as a guaranty that the
contract would be approved by the corporation, while Ramirez said
that the name was put on the contract for the purpose of guaranteeing
its performance. The Court believed that the latter was the real
intention of the parties.
PSE v. Court of Appeals
G.R. No. 125469 281 SCRA 232
October 27, 1997
By: Karen P. Lustica
Facts: The Puerto Azul Land, Inc. (PALI) is a domestic real estate
corporation. PALI sought to offer its shares to the public in order to raise
funds allegedly to develop its properties and pay its loans with several
banking institutions.
PALI was issued a Permit to Sell its shares to the public by the Securities
and Exchange Commission (SEC). To facilitate the trading of its shares
among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with
the said stock exchange an application to list its shares, with supporting
documents attached.
The Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's
listing application.
Before it could act upon PALI's application, the Board of Governors of the
PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that
the late President Marcos was the legal and beneficial owner of certain
assets of PALI which likewise appears to have been held and continue to
be held in trust by one Rebecco Panlilio for then President Marcos.
PALI wrote a letter to the SEC addressed to the then Acting Chairman,
Perfecto R. Yasay, Jr., bringing to the SEC's attention the action taken by
the PSE. SEC rendered its Order, reversing the PSE's decision. SEC
ordered to immediately cause the listing of the PALI shares in the
Exchange.
The CA rendered the decision that SEC had both jurisdiction and authority
to look into the decision of the petitioner PSE, for the purpose of ensuring
fair administration of the exchange. Both as a corporation and as a stock
exchange, the petitioner is subject to public respondent's jurisdiction,
regulation and control. PALI complied with all the requirements for
public listing, affirming the SEC's ruling.
Issue: WON SEC has the authority to order the PSE to list the shares of
PALI in the stock exchange.
Held: YES.
Ratio: A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such a body.
Section 3 of Presidential Decree 902-A, standing alone, is enough
authority to uphold the SECs challenged control authority over the
petitioner PSE even as it provides that the Commission shall have absolute
jurisdiction, supervision, and control over all corporations, partnerships or
associations, who are the grantees of primary franchises and/or a license or
permit issued by the government to operate in the Philippines.
The SECs power to look into the subject ruling of the PSE, therefore, may
be implied from or be considered as necessary or incidental to the carrying
out of the SECs express power to insure fair dealing in securities traded
upon a stock exchange or to ensure the fair administration of such
exchange.
However, in the present case, the Court finds that the SEC had acted
arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since
this is a matter addressed to the sound discretion of the PSE, a corporation
entity, whose business judgments are respected in the absence of bad faith.
The Court also finds that the private respondent PALI, on at least two
points (nos. 1 and 5) has failed to support the propriety of the issue of its
shares with unfailing clarity, thereby lending support to the conclusion
that the PSE acted correctly in refusing the listing of PALI in its stock
exchange.
(1) The registration statement is on its face incomplete or inaccurate
in any material respect or includes any untrue statement of a material fact
or omits to state a material facts required to be stated therein or necessary
to make the statements therein not misleading;
(5) The issuer or registrant has not shown to the satisfaction of the
Commission that the sale of its security would not work to the prejudice to
the public interest or as a fraud upon the purchaser or investors.
Dispositive: The decisions of the Court of Appeals and the Securities and
Exchage Commission dated July 27, 1996 and April 24, 1996,
respectively, are hereby REVERSED and SET ASIDE, and a new
Judgment is hereby ENTERED, affirming the decision of the Philippine
Stock Exchange to deny the application for listing of the private
respondent Puerto Azul Land, Inc.
Prime White Cement Corporation vs Intermediate Appellate Court
220 SCRA 103 – Commercial Law – Corporation Code – Award of
Moral Damages to Corporations – Self-Dealing Director
In July 1969, Zosimo Falcon and Justo Trazo entered into an agreement
with Alejandro Te whereby it was agreed that from 1970 to 1976, Te shall
be the sole dealer of 20,000 bags Prime White cement in Mindanao.
Falcon was the president of Prime White Cement Corporation (PWCC)
and Trazo was a board member thereof. Te was likewise a board member
of PWCC. It was agreed that the selling price for a bag of cement shall be
P9.70.
Before the bags of cement can be delivered, Te already made known to the
public that he is the sole dealer of cements in Mindanao. Various
hardwares then approached him to be his sub-dealers, hence, Te entered
into various contracts with them.
But then apparently, Falcon and Trazo were not authorized by the Board
of PWCC to enter into such contract. Nevertheless, the Board wished to
retain the contract but they wanted some amendment which includes the
increase of the selling price per bag to P13.30 and the decrease of the total
amount of cement bags from 20k to 8k only plus the contract shall only be
effective for a period of three months and not 6 years.
Te refused the counter-offer. PWCC then awarded the contract to someone
else.
Te then sued PWCC for damages. PWCC filed a counterclaim and in said
counterclaim, it is claiming for moral damages the basis of which is the
claim that Te’s filing of a civil case against PWCC destroyed the
company’s goodwill. The lower court ruled in favor Te.
ISSUE: Whether or not the ruling of the lower court is correct.
HELD: No. Te is what can be called as a self-dealing director – he deals
business with the same corporation in which he is a director. There is
nothing wrong per se with that. However, Sec. 32 provides that:
SEC. 32. Dealings of directors, trustees or officers with the corporation.
—- A contract of the corporation with one or more of its directors or
trustees or officers is voidable, at the option of such corporation, unless all
the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a quorum
for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been
previously authorized by the Board of Directors.
In this particular case, the Supreme Court focused on the fact that the
contract between PWCC and Te through Falcon and Trazo was not
reasonable. Hence, PWCC has all the rights to void the contract and look
for someone else, which it did. The contract is unreasonable because of the
very low selling price. The Price at that time was at least P13.00 per bag
and the original contract only stipulates P9.70. Also, the original contract
was for 6 years and there’s no clause in the contract which protects PWCC
from inflation. As a director, Te in this transaction should protect the
corporation’s interest more than his personal interest. His failure to do so
is disloyalty to the corporation.
Anent the issue of moral damages, there is no question that PWCC’s
goodwill and reputation had been prejudiced due to the filing of this case.
However, there can be no award for moral damages under Article 2217 of
the Civil Code in favor of a corporation.
NOTE: In a later case, Coastal Pacific Trading, Inc. vs Southern Rolling
Mills Co., Inc. (July 28, 2006), it was ruled that a corporation may be
entitled to moral damages provided that its good reputation was debased
resulting in its humiliation in the business realm.
Premium Marble Resources Inc. v. Court of Appeals
GR NO 96551 November 4, 1996
Facts:
Premium Marble Resources, Inc. (PREMIUM for brevity), assisted by
Atty. Dumadag as counsel, filed an action for damages against
International Corporate Bank (ICB).
Meantime, the same corporation, i.e., PREMIUM, but this time
represented by Siguion Reyna, Montecillio and Ongsiako Law Office as
counsel, filed a motion to dismiss (MTD) on the ground that the filing of
the case was without authority from its duly constituted board of directors
as shown by the excerpt of the minutes of PREMIUM’s board of directors’
meeting. In its opposition to the MTD, PREMIUM thru Atty. Dumadag
contended that the persons who signed the board resolution are not
directors of the corporation and were allegedly former officers and
stockholders of PREMIUM who were dismissed for various irregularities
and fraudulent acts;
On the other hand, Siguion Reyna Law firm as counsel of PREMIUM in a
rejoinder, asserted that it is the general information sheet filed with the
SEC, among others, that is the best evidence that would show who are the
stockholders of a corporation and not the AOI since the latter does not
keep track of the many changes that take place after new stockholders
subscribe to corporate shares of stocks.
Issue:
Whether the filing of the action was with authorization from the BOD
Held:
NO. By express mandate of the Corporation Code, all corporations duly
organized pursuant thereof are required to file with SEC the names,
nationalities and residence of the directors and officers elected. In
determining whether the filing of an action was authorized by the board, it
is the list of directors in the latest general information sheet as filed with
the SEC which is controlling.
[ GR No. 159352, Apr 14, 2004 ]
PREMIERE DEVELOPMENT BANK v. CA
471 Phil. 704
YNARES-SATIAGO, J.:
This is a petition for review under Rule 45 of the 1997 Rules on Civil
Procedure seeking the annulment of the Decision dated June 18, 2003 of
the Court of Appeals[1] which affirmed the Decision of the Regional Trial
Court[2] in Civil Case No. 65577.
The undisputed facts show that on or about October 1994, Panacor
Marketing Corporation (Panacor for brevity), a newly formed corporation,
acquired an exclusive distributorship of products manufactured by Colgate
Palmolive Philippines, Inc. (Colgate for short). To meet the capital
requirements of the exclusive distributorship, which required an initial
inventory level of P7.5 million, Panacor applied for a loan of P4.1 million
with Premiere Development Bank. After an extensive study of Panacor's
creditworthiness, Premiere Bank rejected the loan application and
suggested that its affiliate company, Arizona Transport Corporation
(Arizona for short),[3] should instead apply for the loan on condition that
the proceeds thereof shall be made available to Panacor. Eventually,
Panacor was granted a P4.1 million credit line as evidenced by a Credit
Line Agreement.[4] As suggested, Arizona, which was an existing loan
client, applied for and was granted a loan of P6.1 million, P3.4 million of
which would be used to pay-off its existing loan accounts and the
remaining P2.7 million as credit line of Panacor. As security for the P6.1
million loan, Arizona, represented by its Chief Executive Officer Pedro
Panaligan and spouses Pedro and Marietta Panaligan in their personal
capacities, executed a Real Estate Mortgage against a parcel of land
covered by TCT No. T-3475 as per Entry No. 49507 dated October 2,
1995.[5]
Since the P2.7 million released by Premiere Bank fell short of the P4.1
million credit line which was previously approved, Panacor negotiated for
a take-out loan with Iba Finance Corporation (hereinafter referred to as
Iba-Finance) in the sum of P10 million, P7.5 million of which will be
released outright in order to take-out the loan from Premiere Bank and the
balance of P2.5 million (to complete the needed capital of P4.1 million
with Colgate) to be released after the cancellation by Premiere of the
collateral mortgage on the property covered by TCT No. T-3475. Pursuant
to the said take-out agreement, Iba-Finance was authorized to pay
Premiere Bank the prior existing loan obligations of Arizona in an amount
not to exceed P6 million.
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano,
officer-in-charge of Premiere Bank's San Juan Branch, informing her of
the approved loan in favor of Panacor and Arizona, and requesting for the
release of TCT No. T-3475. Martillano, after reading the letter, affixed her
signature of conformity thereto and sent the original copy to Premiere
Bank's legal office. The full text of the letter reads:[6]
Please be informed that we have approved the loan application of
ARIZONA TRANSPORT CORP. and PANACOR MARKETING
CORPORATION. Both represented by MR. PEDRO P. PANALIGAN
(hereinafter the BORROWERS) in the principal amount of PESOS:
SEVEN MILLION FIVE HUNDRED THOUSAND ONLY
(P7,500,000.00) Philippine Currency. The loan shall be secured by a Real
Estate Mortgage over a parcel of land located at #777 Nueve de Pebrero
St. Bo. Mauway, Mandaluyong City, Metro Manila covered by TCT No.
3475 and registered under the name of Arizona Haulers, Inc. which is
presently mortgaged with your bank.
The borrowers have authorized IBA FINANCE CORP. to pay Premiere
Bank from the proceeds of their loan. The disbursement of the loan,
however is subject to the annotation of our mortgage lien on the said
property and final verification that said title is free from any other lien or
encumbrance other than that of your company and IBA Finance
Corporation.
In order to register the mortgage, please entrust to us the owner's duplicate
copy of TCT No. 3475, current tax declaration, realty tax receipts for the
current year and other documents necessary to affect annotation thereof.
Upon registration of our mortgage, we undertake to remit directly to you
or your authorized representative the amount equivalent to the Borrower's
outstanding indebtedness to Premiere Bank as duly certified by your
goodselves provided such an amount shall not exceed PESOS: SIX
MILLION ONLY (P6,000,000.00) and any amount in excess of the
aforestated shall be for the account of the borrowers. It is understood that
upon receipt of payment, you will release to us the corresponding
cancellation of your mortgage within five (5) banking days therefrom.
If the foregoing terms and conditions are acceptable to you, please affix
your signature provided below and furnish us a copy of the Statement of
Account of said borrowers.
On October 12, 1995, Premiere Bank sent a letter-reply[7] to Iba-Finance,
informing the latter of its refusal to turn over the requested documents on
the ground that Arizona had existing unpaid loan obligations and that it
was the bank's policy to require full payment of all outstanding loan
obligations prior to the release of mortgage documents. Thereafter,
Premiere Bank issued to Iba-Finance a Final Statement of
Account[8] showing Arizona's total loan indebtedness. On October 19,
1995, Panacor and Arizona executed in favor of Iba-Finance a promissory
note in the amount of 7.5 million. Thereafter, Iba-Finance paid to Premiere
Bank the amount of P6,235,754.79 representing the full outstanding loan
account of Arizona. Despite such payment, Premiere Bank still refused to
release the requested mortgage documents specifically, the owner's
duplicate copy of TCT No. T-3475.[9]
On November 2, 1995, Panacor requested Iba-Finance for the immediate
approval and release of the remaining P2.5 million loan to meet the
required monthly purchases from Colgate. Iba-Finance explained
however, that the processing of the P2.5 million loan application was
conditioned, among others, on the submission of the owner's duplicate
copy of TCT No. 3475 and the cancellation by Premiere Bank of Arizona's
mortgage. Occasioned by Premiere Bank's adamant refusal to release the
mortgage cancellation document, Panacor failed to generate the required
capital to meet its distribution and sales targets. On December 7, 1995,
Colgate informed Panacor of its decision to terminate their distribution
agreement.
On March 13, 1996, Panacor and Arizona filed a complaint for specific
performance and damages against Premiere Bank before the Regional
Trial Court of Pasig City, docketed as Civil Case No. 65577.
On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying
that judgment be rendered ordering Premiere Bank to pay damages in its
favor.
On May 26, 1998, the trial court rendered a decision in favor of Panacor
and Iba-Finance, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
Panacor Marketing Corporation and against the defendant Premiere Bank,
ordering the latter to pay the former the following sums, namely:
P4,520,000.00 in addition to legal interest from the time of filing of
1)
the complaint until full payment;
2) P1,000,000.00 as and for exemplary damages;
3) P100,000.00 as and for reasonable attorney's fees; and
4) Costs of suit.
Similarly, judgment is hereby rendered in favor of plaintiff-in-intervention
IBA-Finance Corporation as against defendant Premiere bank, as follows,
namely:
Ordering defendant Premiere Bank to release to plaintiff-intervenor
1)
IBA-Finance Corporation the owner's duplicate copy of Transfer
 Certificate of Title No. 3475 registered in the name of Arizona
Haulers, Inc. including the deed of cancellation of the mortgage
constituted thereon;
Ordering the defendant Premiere Bank to pay to Intervenor IBA-
2)
Finance, the following sums, to wit:
3) P1,000,000.00 as and by way of exemplary damages; and
4) P100,000.00 as and for reasonable attorney's fees; and
5) Costs of suit.
For lack of sufficient legal and factual basis, the counterclaim of defendant
Premiere Bank is DISMISSED.
SO ORDERED.
Premiere Bank appealed to the Court of Appeals contending that the trial
court erred in finding, inter alia, that it had maliciously downgraded the
credit-line of Panacor from P4.1 million to P2.7 million.
In the meantime, a compromise agreement was entered into between Iba-
Finance and Premiere Bank whereby the latter agreed to return without
interest the amount of P6,235,754.79 which Iba-Finance earlier remitted to
Premiere Bank to pay off the unpaid loans of Arizona. On March 11,
1999, the compromise agreement was approved.
On June 18, 2003, a decision was rendered by the Court of Appeals which
affirmed with modification the decision of the trial court, the dispositive
portion of which reads:
WHEREFORE, premises considered, the present appeal is hereby
DISMISSED, and the decision appealed from in Civil Case No. 65577 is
hereby AFFIRMED with MODIFICATION in that the award of
exemplary damages in favor of the appellees is hereby reduced to
P500,000.00. Needless to add, in view of the Compromise Agreement
plaintiff-intervenor IBA-Finance and defendant-appellant PREMIERE
between plaintiff-intervenor IBA-Finance and defendant-appellant
PREMIERE as approved by this Court per Resolution dated March 11,
1999, Our dispositive of the present appeal is only with respect to the
liability of appellant PREMIERE to the plaintiff-appellees.
With costs against the defendant-appellant.
SO ORDERED.[10]
Hence the present petition for review, which raises the following issues:[11]
I
WHETHER OR NOT THE DECISION OF HONORABLE COURT OF
APPEALS EXCEEDED AND WENT BEYOND THE FACTS, THE
ISSUES AND EVIDENCE PRESENTED IN THE APPEAL TAKING
INTO CONSIDERATION THE ARGUMENT OF PETITIONER BANK
AND ADVENT OF THE DULY APPROVED COMPROMISE
AGREEMENT BETWEEN THE PETITIONER BANK AND IBA
FINANCE CORPORATION.
II
WHETHER OR NOT THE ISSUES THAT SHOULD HAVE BEEN
RESOLVED BY THE HONORABLE COURT OF APPEALS, BY
REASON OF THE EXISTENCE OF THE COMPROMISE
AGREEMENT, IS LIMITED TO THE ISSUE OF ALLEGED BAD
FAITH OF PETITIONER BANK IN THE DOWNGRADING OF THE
LOAN AND SHOULD NOT INCLUDE THE RENDITION OF AN
ADVERSE PRONOUNCEMENT TO AN ALREADY FAIT
ACCOMPLI- ISSUE ON THE REFUSAL OF THE BANK TO
RECOGNIZE THE TAKE-OUT OF THE LOAN AND THE RELEASE
OF TCT NO. 3475.
III
WHETHER OR NOT PETITIONER ACTED IN BAD FAITH IN THE
DOWNGRADING OF THE LOAN OF RESPONDENTS TO SUPPORT
AN AWARD OF ACTUAL AND EXEMPLARY DAMAGES NOW
REDUCED TO P500,000.00.
IV
WHETHER OR NOT THERE IS BASIS OR COMPETENT PIECE OF
EVIDENCE PRESENTED DURING THE TRIAL TO SUPPORT AN
AWARD OF ACTUAL DAMAGES OF P4,520,000.00.
Firstly, Premiere Bank argues that considering the compromise agreement
it entered with Iba-Finance, the Court of Appeals should have ruled only
on the issue of its alleged bad faith in downgrading Panacor's credit line. It
further contends that the Court of Appeals should have refrained from
making any adverse pronouncement on the refusal of Premiere Bank to
recognize the take-out and its subsequent failure to release the cancellation
of the mortgage because they were rendered fait accompli by the
compromise agreement.
We are not persuaded.
In a letter-agreement[12] dated October 5, 1995, Iba-Finance informed
Premiere Bank of its approval of Panacor's loan application in the amount
of P10 million to be secured by a real estate mortgage over a parcel of
land covered by TCT No. T-3475. It was agreed that Premiere Bank shall
entrust to Iba-Finance the owner's duplicate copy of TCT No. T-3475 in
order to register its mortgage, after which Iba-Finance shall pay off
Arizona's outstanding indebtedness. Accordingly, Iba-Finance remitted
P6,235,754.79 to Premiere Bank on the understanding that said amount
represented the full payment of Arizona's loan obligations. Despite
performance by Iba-Finance of its end of the bargain, Premiere Bank
refused to deliver the mortgage document. As a consequence, Iba-Finance
failed to release the remaining P2.5 million loan it earlier pledged to
Panacor, which finally led to the revocation of its distributorship
agreement with Colgate.
Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings
with respondent corporations caused damage to Panacor and Iba-Finance.
It is error for Premiere Bank to assume that the compromise agreement it
entered with Iba-Finance extinguished all direct and collateral incidents to
the aborted take-out such that it also cancelled its obligations to Panacor.
The unjustified refusal by Premiere Bank to release the mortgage
document prompted Iba-Finance to withhold the release of the P2.5
million earmarked for Panacor which eventually terminated the
distributorship agreement. Both Iba-Finance and Panacor, which are two
separate and distinct juridical entities, suffered damages due to the fault of
Premiere Bank. Hence, it should be held liable to each of them.
While the compromise agreement may have resulted in the satisfaction of
Iba-Finance's legal claims, Premiere Bank's liability to Panacor remains.
We agree with the Court of Appeals that the "present appeal is only with
respect to the liability of appellant Premiere Bank to the plaintiffs-
appellees (Panacor and Arizona)"[13] taking into account the compromise
agreement.
For the foregoing reasons, we find that the Court of Appeals did not err in
discussing in the assailed decision the abortive take-out and the refusal by
Premiere Bank to release the cancellation of the mortgage document.
Secondly, Premiere Bank asserts that it acted in good faith when it
downgraded the credit line of Panacor from P4.1 million to P2.7 million. It
cites the decision of the trial court which, albeit inconsistent with its final
disposition, expressly recognized that the downgrading of the loan was not
the proximate cause of the damages suffered by respondents.
Under the Credit Line Agreement[14] dated September 1995, Premiere
Bank agreed to extend a loan of P4.1 million to Arizona to be used by its
affiliate, Panacor, in its operations. Eventually, Premiere approved in
favor of Arizona a loan equivalent to P6.1 million, P3.4 million of which
was allotted for the payment of Arizona's existing loan obligations and
P2.7 million as credit line of Panacor. Since only P2.7 million was made
available to Panacor, instead of P4.1 million as previously approved,
Panacor applied for a P2.5 loan from Iba-Finance, which, as earlier
mentioned, was not released because of Premiere Bank's refusal to issue
the mortgage cancellation.
It is clear that Premiere Bank deviated from the terms of the credit line
agreement when it unilaterally and arbitrarily downgraded the credit line
of Panacor from P4.1 million to P2.7 million. Having entered into a well-
defined contractual relationship, it is imperative that the parties should
honor and adhere to their respective rights and obligations thereunder.
Law and jurisprudence dictate that obligations arising from contracts have
the force of law between the contracting parties and should be complied
with in good faith.[15] The appellate court correctly observed, and we
agree, that:
Appellant's actuations, considering the actual knowledge of its officers of
the tight financial situation of appellee PANACOR brought about
primarily by the appellant bank's considerable reduction of the credit line
portion of the loan, in relation to the "bail-out" efforts of IBA Finance,
whose payment of the outstanding loan account of appellee ARIZONA
with appellant was readily accepted by the appellant, were truly marked by
bad faith and lack of due regard to the urgency of its compliance by
immediately releasing the mortgage cancellation document and delivery of
the title to IBA Finance. That time is of the essence in the requested
release of the mortgage cancellation and delivery of the subject title was
only too well-known to appellant, having only belatedly invoked the
cross-default provision in the Real Estate Mortgage executed in its favor
by appellee ARIZONA to resist the plain valid and just demand of IBA
Finance for such compliance by appellant bank. [16]
Premiere Bank cannot justify its arbitrary act of downgrading the credit
line on the alleged finding by its project analyst that the distributorship
was not financially feasible. Notwithstanding the alleged forewarning,
Premiere Bank still extended Arizona the loan of P6.1 million, albeit in
contravention of the credit line agreement. This indubitably indicates that
Premiere Bank had deliberately and voluntarily granted the said loan
despite its claim that the distributorship contract was not viable.
Neither can Premiere Bank rely on the puerile excuse that it was the bank's
policy not to release the mortgage cancellation prior to the settlement of
outstanding loan obligations. Needless to say, the Final Statement of
Account dated October 17, 1995 showing in no uncertain terms Arizona's
outstanding indebtedness, which was subsequently paid by Iba-Finance,
was the full payment of Arizona's loan obligations. Equity demands that a
party cannot disown it previous declaration to the prejudice of the other
party who relied reasonably and justifiably on such declaration.
Thirdly, Premiere Bank avers that the appellate court's reliance on the
credit line agreement as the basis of bad faith on its part was inadmissible
or self-serving for not being duly notarized, being unsigned in all of its left
margins, and undated. According to Premiere Bank, the irregularities in
the execution of the credit line agreement bolsters the theory that the same
was the product of manipulation orchestrated by respondent corporations
through undue influence and pressure exerted by its officers on Martillano.
Premiere Bank's posture deserves scant consideration. As found by the
lower court, there are sufficient indicia that demonstrate that the alleged
unjust pressure exerted on Martillano was more imagined than real. In her
testimony, Martillano claims that she was persuaded and coaxed by Caday
of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who
provided Iba-Finance with the Final Statement of Account and accepted its
payment without objection or qualification. These acts show that she was
vested by Premiere Bank with sufficient authority to enter into the said
transactions.
If a private corporation intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the corporation will be
estopped to deny that the apparent authority is real as to innocent third
persons dealing in good faith with such officers or agents.[17] As testified
to by Martillano, after she received a copy of the credit line agreement and
affixed her signature in conformity thereto, she forwarded the same to the
legal department of the Bank at its Head Office. Despite its knowledge,
Premiere Bank failed to disaffirm the contract. When the officers or agents
of a corporation exceed their powers in entering into contracts or doing
other acts, the corporation, when it has knowledge thereof, must promptly
disaffirm the contract or act and allow the other party or third persons to
act in the belief that it was authorized or has been ratified. If it acquiesces,
with knowledge of the facts, or fails to disaffirm, ratification will be
implied or else it will be estopped to deny ratification.[18]
Finally, Premiere Bank argues that the finding by the appellate court that it
was liable for actual damages in the amount of P4,520,000.00 is without
basis. It contends that the evidence presented by Panacor in support of its
claim for actual damages are not official receipts but self-serving
declarations.
To justify an award for actual damages, there must be competent proof of
the actual amount of loss. Credence can be given only to claims, which are
duly supported by receipts.[19] The burden of proof is on the party who will
be defeated if no evidence is presented on either side. He must establish
his case by a preponderance of evidence which means that the evidence, as
a whole, adduced by one side is superior to that of the other. In other
words, damages cannot be presumed and courts, in making an award, must
point out specific facts that can afford a basis for measuring whatever
compensatory or actual damages are borne.
Under Article 2199 of the Civil Code, actual or compensatory damages are
those awarded in satisfaction of, or in recompense for, loss or injury
sustained. They proceed from a sense of natural justice and are designed to
repair the wrong that has been done, to compensate for the injury inflicted
and not to impose a penalty.
In the instant case, the actual damages were proven through the sole
testimony of Themistocles Ruguero, the vice president for administration
of Panacor. In his testimony, the witness affirmed that Panacor incurred
losses, specifically, in terms of training and seminars, leasehold
acquisition, procurement of vehicles and office equipment without,
however, adducing receipts to substantiate the same. The documentary
evidence marked as exhibit "W", which was an ordinary private writing
allegedly itemizing the capital expenditures and losses from the failed
operation of Panacor, was not testified to by any witness to ascertain the
veracity of its contents. Although the lower court fixed the sum of
P4,520,000.00 as the total expenditures incurred by Panacor, it failed to
show how and in what manner the same were substantiated by the
claimant with reasonable certainty. Hence, the claim for actual damages
should be admitted with extreme caution since it is only based on bare
assertion without support from independent evidence. Premiere's failure to
prove actual expenditure consequently conduces to a failure of its claim.
In determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of
loss.[20]
Even if not recoverable as compensatory damages, Panacor may still be
awarded damages in the concept of temperate or moderate damages. When
the court finds that some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with certainty, temperate
damages may be recovered. Temperate damages may be allowed in cases
where from the nature of the case, definite proof of pecuniary loss cannot
be adduced, although the court is convinced that the aggrieved party
suffered some pecuniary loss.
The Code Commission, in explaining the concept of temperate damages
under Article 2224, makes the following comment:[21]
In some States of the American Union, temperate damages are allowed.
There are cases where from the nature of the case, definite proof of
pecuniary loss cannot be offered, although the court is convinced that
there has been such loss. For instance, injury to ones commercial credit or
to the goodwill of a business firm is often hard to show with certainty in
terms of money. Should damages be denied for that reason? The judge
should be empowered to calculate moderate damages in such cases, rather
than that the plaintiff should suffer, without redress from the defendant's
wrongful act.
It is obvious that the wrongful acts of Premiere Bank adversely affected,
in one way or another, the commercial credit[22] of Panacor, greatly
contributed to, if not, decisively caused the premature stoppage of its
business operations and the consequent loss of business opportunity. Since
these losses are not susceptible to pecuniary estimation, temperate
damages may be awarded. Article 2216 of the Civil Code:
No proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. The
assessment of such damages, except liquidated ones, is left to the
discretion of the Court, according to the circumstances of each case.
Under the circumstances, the sum of P200,000.00 as temperate damages is
reasonable.
WHEREFORE, the petition is DENIED. The Decision dated June 18,
2003 of the Court of Appeals in CA-G.R. CV No. 60750, ordering
Premiere Bank to pay Panacor Marketing Corporation P500,000.00 as
exemplary damages, P100,000.00 as attorney's fees, and costs,
isAFFIRMED, with the MODIFICATION that the award of
P4,520,000.00 as actual damages is DELETED for lack of factual basis. In
lieu thereof, Premiere Bank is ordered to pay Panacor P200,000.00 as
temperate damages.
SO ORDERED.
G.R. No. L-5883 November 28, 1953
DOMINGO PONCE AND BUHAY L. PONCE, petitioners,
vs.
DEMETRIO B. ENCARNACION, Judge of the Court of First
Instance of Manila, Branch I, and POTENCIANO GAPOL,
respondents.
Marcelino Lontok for petitioners.
Zavalla, Bautista and Nuevas for respondents.
PADILLA, J.:
This is a petition for a writ of certiorari to annul an order of the respondent
court granting Potenciano Gapol authority, pursuant to section 26, Act No.
1459, otherwise known as the Corporation Law, to call a meeting of the
stockholders of the Dagunoy Enterprises, Inc. and to preside at such
meeting by giving proper notice to the stockholders, as required by law or
by laws of the corporation, until after the majority of the stockholders
present and qualified to vote shall have chosen one of them to act as
presiding officer of the meeting; another order denying a motion of the
petitioners to have the previous order set aside; and a third order denying a
motion to the same effect as the one previously filed.
The petitioners aver that the Daguhoy Enterprises, Inc., was duly
registered as such on 24 June 1948; that on 16 April 1951 at a meeting
duly called, the voluntary dissolution of the corporation and the
appointment of Potenciano Gapol as receiver were agreed upon and to that
end a petitioner Domingo Ponce; that instead of filing the petition for
voluntary dissolution of the of the corporation as agreed upon, the
respondent Potenciano Gapol, who is the largest stockholder, charged his
mind and filed a complaint in the Court of First Instance of Manila (civil
No. 13753) to compel the petitioners to render an accounting of the funds
and assets of the corporation, to reimburse it, jointly and severally, in the
sum of P4,500, the purchase price of a parcel of land acquired by the
corporation; P6,190 loaned to the wife of petitioner Domingo Ponce; and
P8,000 spent by the latter in his trip to the United States, or a total sum of
P18,690, plus interest, or such sum as may be found after the accounting
shall have been rendered to have been misspent, misapplied,
missappropriated and converted by the petitioner Domingo Ponce to his
own use and benefit; that on 18 May 1951 the plaintiff in that case, the
respondent Potenciano Gapol in this case, filed a motion praying that the
petitioners be removed as members of the board of directors which was
denied by the court; that on 3 January 1952 respondent Potenciano Gapol
filed a petition (civil No. 15445, Exhibit L), praying for an order directing
him to a call a meeting of the stockholders of the corporation and to
preside at such meeting in accordance with section 26 of the Corporation
law; that two days later, without notice to the petitioners and to the other
members of the board of directors and in violation of the Rules of Court
which require that the adverse parties be notified of the hearing of the
motion three days in advance, the respondent court issued the order as
prayed for (Exhibit M); that the petitioners learned only of this order of
the court on 27 February, when the Bank of America refused to recognize
the new board of directors elected at such meeting and returned the checks
drawn upon it by the said board of directors; that the election of Juanito R.
Tianzon as member of the board of directors of the corporation he must be
a member of the Legionarios del Trabajo, as required and provided for in
article 7 of the by-laws of the corporation; that on 5 March the petitioners
filed a petition in the respondent court to have the order of 5 January set
aside but on April, the date set for the hearing of the petition, as the
respondent judge was on leave vacation judge directed its transfer to the
branch of the respondent judge; that without having set the motion for
hearing, the respondent court denied the motion of 5 March in its order of
7 May; that on 14 May the petitioners filed another motion inviting the
attention of the respondent court to the irregularity and illegality of its
procedure and setting the motion for hearing on 21 May, but the court
denied the motion by its order of 13 June.
The only question to determine in this case is whether under and pursuant
to section 26 of Act No. 1459, known as the Corporation law, the
respondent court may issue the order complained of. Said section
provides: —
Whenever, from any cause, there is no person authorized to call a meeting,
or when the officer authorized to do so refuses, fails or neglects to call a
meeting, any judge of a Court of First Instance on the showing of good
cause therefor, may issue an order to any stockholder or member of a
corporation, directing him to call a meeting of the corporation by giving
the proper notice required by this Act or by-laws; and if there be no person
legally authorized to preside at such meeting, the judge of the Court of
First Instance may direct the person calling the meeting to preside at the
same until a majority of the members or stockholders representing a
majority of the stock members or stockholders presenting a majority of the
stock present and permitted by law to be voted have chosen one of their
number to act as presiding officer for the purposes of the meeting.
On the showing of good cause therefor, the court may authorize a
stockholder to call a meeting and to preside threat until the majority
stockholders representing a majority strockholders representing a majority
of the stock present and permitted to be voted shall have chosen one
among them to preside it. And this showing of good cause therefor exists
when the court is apprised of the fact that the by-laws of the corporation
require the calling of a general meeting of the stockholders to elect the
board of directors but call for such meeting has not been done.
Article 9 of the by-laws of the Daguhoy Enterprises, Inc., provides:
The Board of Directors shall compose of five (5) members who shall be
elected by the stockholders in a general meeting called for that purpose
which shall be held every even year during the month of January.
Article 20 of the by-laws in part provides:
. . . Regular general meetings are those which shall be called for every
even year, . . . .
The requirement that "on the showing of good cause therefor," the court
may grant to a stockholder the authority to call such meeting and to
preside thereat does not mean that the petition must be set for hearing with
notice served upon the board of directors. The respondent court was
satisfied that there was a showing of good cause for authorizing the
respondent Potenciano Gapol to call a meeting of the stockholders for the
purpose of electing the board of directors as required and provided for in
the by-laws, because the chairman of the board of directors called upon to
do so had failed, neglected, or refused to perform his duty. It may be
likened to a writ of preliminary injunction or of attachment which may be
issued ex-parte upon compliance with the requirements of the rules and
upon the court being satisfied that the same should be issue. Such
provisional reliefs have not been deemed and held as violative of the due
process of law clause of the Constitution.
In several state of the Union1 the remedy which may be availed of our
resorted to in a situation such as the one brought about in this case is
mandamus to compel the officer or incumbent board of directors to
perform a duties specifically enjoined by law or by-laws, to wit: to call a
meeting of the stockholders. Dela ware is the estate that has a law similar
to ours and there the chancellor of a chancery court may summarily issue
or enter an order authorizing a stockholder to call a meeting of the
stockholders of the corporation and preside thereat.2 It means that the
chancellor may issue such order without notice and hearing.
That the relief granted by the respondent court lies within its jurisdiction is
not disputed. Having the authority to grant the relief, the respondent court
did not exceed its jurisdiction; nor did it abuse its discretion in granting it.
With persistency petitioners claim that they have been deprived of their
right without due process of law. They had no right to continue as
directors of the corporation unless reflected by the stockholders in a
meeting called for that purpose every even year. They had no right to a
hold-over brought about by the failure to perform the duty incumbent
upon one of them. If they felt that they were sure to be reelected, why did
they fail, neglect, or refuse to call the meeting to elect the members of the
board? Or, why did they not seek their reelection at the meeting called to
elect the directors pursuant to the order of the respondent court.
The alleged illegality of the election of one member of the board of
directors at the meeting called by the respondent Potenciano Gapol as
authorized by the court being subsequent to the order complained of
cannot affect the validity and legality of the order. If it be true that one of
the directors elected at the meting called by the respondent Potenciano
Gapol, as authorized by the order of the court complained of, was not
qualified in accordance with the provisions of the by-laws, the remedy of
an aggrieved party would be quo a warranto. Also, the alleged previous
agreement to dissolve the corporation does not affect or render illegal the
order issued by the respondent court.
The petition is denied, with costs against the petitioners.
G.R. No. L-5377 December 29, 1954
MARIA CLARA PIROVANA ET AL., plaintiffs-appellees,
vs.
THE DE LA RAMA STEAMSHIP CO., defendant-appellant.
Facts:
Plaintiffs herein are the minor children of the late Enrico Pirovano
represented by their mother and judicial guardian Estefania R. Pirovano.
They seek to enforce certain resolutions adopted by the Board of Directors
and stockholders of the defendant company giving to said minor children
of the proceeds of the insurance policies taken on the life of their deceased
father Enrico Pirovano with the company as beneficiary. Defendant is a
corporation duly organized in accordance with law with an authorized
capital of P500,000, divided into 5,000 shares, with a par value of P100
each share. Enrico Pirovano became the president of the defendant
company and under his management the company grew and progressed
until it became a multi-million corporation by the time Pirovano was
executed by the Japanese during the occupation.
In the meantime, Don Esteban de la Rama, who practically owned and
controlled the stock of the defendant corporation, distributed his
shareholding among his five daughters. One of the daughters was married
to Enrico Pirovano. Meanwhile, a grant was made in favour of the
Pirovano children which constitutes the proceeds of the insurance policies
taken on his life by the defendant company. Out of the proceeds of these
policies the sum of P400,000 be set aside for the minor children of the
deceased, said sum of money to be convertible into 4,000 shares of the
stock of the Company, at par, or 1,000 shares for each child. However,
members of the family and Don Esteban did not realize that they would be
actually giving to the Pirovano children more than what they intended to
give. If the Pirovano children would be given shares of stock in lieu of the
amount to be donated, the voting strength of the five daughters of Don
Esteban in the company would be adversely affected in the sense that Mrs.
Pirovano would have a voting power twice as much as that of her sisters.
The Board of Directors of the De la Rama company, as a consequence of
the change of attitude of Don Esteban, adopted a resolution changing the
form of the donation to the Pirovano children from a donation of 4,000
shares of stock as originally planned into a renunciation in favor of the
children of all the company's "right, title, and interest as beneficiary in and
to the proceeds of the abovementioned life insurance policies", subject to
the express condition that said proceeds should be retained by the
company as a loan.
On March 8, 1951, at a stockholders' meeting convened and majority of
the stockholders' voted to revoke the resolution approving the donation to
the Pirovano children.
Issues:
1. Whether or the donation has been perfected such that the corporation
can no longer rescind it even if it wanted to.
2. Can defendant corporation give by way of donation the proceeds of said
insurance policies to the minor children of the late Enrico Pirovano under
the law or its articles of corporation, or is that donation an ultra vires act?
Ruling:
1. Yes. The donation was a corporate act carried out by the corporation not
only with the sanction of its Board of Directors but also of its
stockholders. It is evident that the donation has reached the stage of
perfection which is valid and binding upon the corporation and as such
cannot be rescinded unless there is exists legal grounds for doing so. In
this case, we see none. The two reasons given for the rescission of said
donation in the resolution of the corporation adopted on March 8, 1951, to
wit: that the corporation failed to comply with the conditions and that in
the opinion of the Securities and Exchange Commission said donation is
ultra vires, are not, in our opinion, valid and legal as to justify the
rescission of a perfected donation. These reasons cannot be invoked by the
corporation to rescind or set at naught the donation, and the only way by
which this can be done is to show that the donee has been in default, or
that the donation has not been validly executed, or is illegal or ultra vires,
and such is not the case as we will see hereafter. We therefore declare that
the resolution approved by the stockholders of the defendant corporation
on March 8, 1951 did not and cannot have the effect of nullifying the
donation in question.
2. We find that the corporation was given broad and almost unlimited
powers to carry out the purposes for which it was organized among them,
(1) "To invest and deal with the moneys of the company not immediately
required, in such manner as from time to time may be determined" and, (2)
"to aid in any other manner any person, association, or corporation of
which any obligation or in which any interest is held by this corporation or
in the affairs or prosperity of which this corporation has a lawful interest."
The world deal is broad enough to include any manner of disposition, and
refers to moneys not immediately required by the corporation, and such
disposition may be made in such manner as from time to time may be
determined by the corporations. Under the second broad power, that is, to
aid in any other manner any person in the affairs and prosperity of whom
the corporation has a lawful interest, the record of this case is replete with
instances which clearly show that the corporation knew well its scope and
meaning so much so that, with the exception of the instant case, no one
has lifted a finger to dispute their validity.
It may perhaps be argued that the donation given to the children of the late
Enrico Pirovano is so large and disproportionate that it can hardly be
considered a pension of gratuity that can be placed on a par with the
instances above mentioned, but this argument overlooks one
consideration: the gratuity here given was not merely motivated by pure
liberality or act of generosity, but by a deep sense of recognition of the
valuable services rendered by the late Enrico Pirovano which had
immensely contributed to the growth of the corporation to the extent that
from its humble capitalization it blossomed into a multi-million
corporation that it is today. Said donation was given not only because the
company was so indebted to him that it saw fit and proper to make
provisions for his children, but it did so out of a sense of gratitude.
Another is that Enrico Pirovano was not only a high official of the
company but was at the same time a member of the De la Rama family,
and the recipients of the donation are the grandchildren of Don Esteban de
la Rama. This we, may say, is the motivating root cause behind the grant
of this bounty.
We do not see much difference between this definition of gratuity and a
remunerative donation contemplated in the Civil Code. In essence they are
the same. A distinction should be made between corporate acts or
contracts which are illegal and those which are merely ultra vires. The
former contemplates the doing of an act which is contrary to law, morals,
or public policy or public duty, and are, like similar transactions between
the individuals void. On the other hand, an ultra vires act is one outside
the scope of the power conferred by the legislature, and although the term
has been used indiscriminately, it is properly distinguishable from acts
which are illegal, in excess or abuse of power, or executed in an
unauthorized manner, or acts within corporate powers but outside the
authority of particular officers or agents.
Since it is not contended that the donation under consideration is illegal
we cannot but logically conclude, that said donation, even if ultra vires in
the supposition we have adverted to, is not void, and if voidable its
infirmity has been cured by ratification and subsequent acts of the
defendant corporation. The defendant corporation, therefore, is now
prevented or estopped from contesting the validity of the donation. To
allow the corporation to undo what it has done would only be most unfair
but would contravene the well-settled doctrine that the defense of ultra
vires cannot be set up or availed of in completed transactions.
PILIPINAS LOAN COMPANY, INC.
VS
SECURITIES AND EXCHANCE COMMISSION
GR.NO.104720, APRIL 4, 2001
FACTS OF THE CASE
Petitioner Pilipinas Loan Company Inc. is a lending Corporation registered
with the SEC, and its primary purpose base on its Articles of Incorporation
is “To act as a lending investor or to engage in the practice of lending
money or extending loans on the security of real or personal, tangible or
intangible properties whether as pledge, real or chattel mortgage, xxx
without however engaging in pawn broking as defined under P.D.114”.
Private respondent Filipinas Pawnshop, Inc. is also a corporation duly
registered with the SEC, and its primary purpose under its Articles of
Incorporation, is to extend loans on the security of either personal or real
properties, or in other words, to operate as a pawn broker, engage in
pawnshop business as defined under P.D 114.
Private respondent Filipinas Pawnshop, Inc. filed a complaint against
petitioner, Pilipinas Loan Company with the Prosecution Enforcement
Department of the SEC alleging that the petitioner contrary to its prime
purpose, has been operating and doing business as a pawn broker,
pawnshop or “sanglaan” in the same area where private respondent has
had its own pawnshop for 30 years, without permission from the Central
Bank to engage in pawnshop business, thereby causing unjust and unfair
competition with private respondent.
Petitioner denied that it is engage in the pawnshop business alleging that it
is a lending investor duly registered with the Central Bank. Petitioner also
questioned the power of the SEC to take cognizance of the complaint
involving supposed violation of the Pawnshop Regulation Act (P.D.114)
which is more properly within the jurisdiction of the Central Bank.
The SEC en banc rendered a decision ordering the petitioner to cease and
desist from further engaging in business as a “pawnshop” or “pawnbroker”
as defined in P.D.114, until proper license shall have been secured from
the Central Bank.
On appeal, the Court of Appeals affirmed the decision of the SEC en banc
hence, this petition for certiorari under Rule 45 of the Rules of Court.
ISSUE
1) Whether or not petitioner had violated its Articles of Incorporation by
engaging in pawnshop business.
2) Whether or not the SEC has jurisdiction over complaints involving
violation of Pawnshop Regulation Act (P.D.114.) 285
RULING
On the first issue, a corporation has only such power as are expressly
granted to it by the Code and by its Articles of Incorporation, those that
are incidental to such conferred powers and to its existence. In the case at
bar, the limit of the powers of petitioner as a corporation is that “it is
prohibited from engaging in pawn broking as defined in P.D.114.”
Petitioner engaged in the pawnshop business when it is not authorized to
do so by its Articles of Incorporation is an ultra vires act, which amounts
to fraud, detrimental not only to the corporation but also to the public.
On the issue of the jurisdiction, the SC ruled that the SEC has jurisdiction
to entertain complaints involving ultra vires acts of a corporation. Thus,
the complaint treats of a violation of petitioner’s primary purpose, an ultra
vires act. Moreover, by law the SEC has absolute jurisdiction, supervision
and control over all corporations that are enfranchised to act as corporate
entities and registered under it. Furthermore, petitioner cannot invoke the
jurisdiction of the Central Bank in view of its own avowal that it is not a
pawnshop and neither is it engaged in the business as a pawnshop. P.D.
114 provides that the supervisory power of the Central Bank extends
merely to pawnshop registered with it hence, the Central Bank does not
acquire jurisdiction over the petitioner.
People vs. Dumlao
G.R. No. 168918
March 2, 2009
Doctrine
The fundamental test in determining the sufficiency of the material
averments of an information is whether the facts alleged therein, which are
hypothetically admitted, would establish the essentials elements of the
crime defined by law. Evidence aliunde, or matters extrinsic of the
Information, are not be considered.
Facts
An information was filed before the Sandiganbayan charging respondents
Dumlao, La’o and others with violation of the Section 3(g) of R.A. no.
3019 or Anti-Graft and Corrupt Practices Act. The information alleged
that the respondent-members of the Board of Trustees of GSIS entered
into a contract of lease-purchase with respondent La’o, a private person
whereby GSIS agreed to sell to La’o, a GSIS-acquired property consisting
of a land and building known as the Government Counsel Centre for P2
Million on an instalment basis with annual interest and amortization and
grant La’o the right to sub-lease the ground floor during the period of
lease, from which he collected yearly rentals in excess of the yearly
amortization causing gross disadvantage to the government.
During arraignment, Dumlao pleaded not guilty, and as agreed by
prosecution and respondents, a Joint Stipulation of Facts and Admission of
Exhibits was submitted to the court. The Joint Stipulation admitted
additional facts: (1) 3 members of the Board, Dumlao being one of them,
signed the Minutes; (2) 7 members of the Board were present during the
board meeting; and (3) the documentary evidence of was authentic and
duly executed. It was further decided for the pre-trial to be terminated
limiting the course of the subsequent trial to “matters not disposed of...
unless modified by the court.”

Dumlao filed a Motion to Dismiss/Quash on the ground that the facts
charged do not constitute an offense. He stated that the prosecution’s main
thrust against him was the alleged approval by the GSIS Board of the
Lease-Purchase Agreement. He argued that the Resolution was not in fact
approved by the GSIS Board. Since the signatures of fellow respondents
did not appear in the minutes of the meeting, these people did not
participate in the Lease-Purchase Agreement. There was no quorum of the
board; thus no resolution approving the Agreement. Since the resolution
was not approved, he was innocent. He added that the person liable was
Atty. Javellana who actually executed the contract.
Sandiganbayan ruled in favor of Dumlao. It found that the minutes shows
that the Board failed to approve the Lease-Purchase Agreement in
question. As evidenced by the Joint Stipulation, of the 7 members, only 3
signed. It did not validly pass a resolution because at least a majority of 4
votes were required. Therefore prosecution had no cause of action against
Dumlao.
Hence, this petition for certiorari under Rule 45, Rules of Court.
Issue
1. WON court erred in dismissing case after pre-trial and before
prosecution could formally present its evidence
a. WON facts charged in the information actually constitute an
offense
b. WON insufficiency of evidence is a ground for Motion to
Dismiss
Held
1. Yes. The petition is granted. Resolution of Sandiganbayan is
reversed and set aside. Sandiganbayan is ordered for reception of evidence
of prosecution.
a. Yes. Facts in the information contained elements of the crime
charged.
b. No. Grounds for Motion to Dismiss/Quash are limited to those
enumerated in Sec. 3, Rule 117 of the RRCP
Ratio
The elements of the crime under Section 3(g) of Republic Act No. 3019
are as follows: (1) that the accused is a public officer; (2) that he entered
into a contract or transaction on behalf of the government; and (3) that
such contract or transaction is grossly and manifestly disadvantageous to
the government.
The ground raised by Dumlao in his Motion to Quash/Dismiss is that the
facts charged do not constitute an offense. And after examining the
information, we find that the facts alleged therein, if hypothetically
admitted, will prove all the elements of Section 3(g) as against respondent
Dumlao. Therefore, the motion to quash should not have been granted.
It can also be gathered from the resolution of the Sandiganbayan that it did
not consider the ground invoked by Dumlao (that the facts charged do not
constitute an offense); otherwise, it could have denied respondent
Dumlao’s motion. From the reasoning given by the Sandiganbayan, it is
clear that it dismissed the case because of insufficiency of evidence.
According to Sec. 3, Rule 117 of RRCP, insufficiency of evidence is not
one of the grounds of a Motion to Quash. It is only a ground for dismissal
of an action only after the prosecution rests its case as provided in Sec.
23, Rule 119 of RRCP on demurrer to evidence.
In the case at bar, Sandiganbayan dismissed the case against respondent
for insufficiency of evidence, even without giving the prosecution the
opportunity to present its evidence. In so doing, it violated the
prosecution’s right to due process. It deprived the prosecution of its
opportunity to prosecute its case and to prove the accused’s culpability.
It was therefore erroneous for the Sandiganbayan to dismiss the case under
the premises. Not only did it not consider the ground invoked by
respondent Dumlao; it even dismissed the case on a ground not raised by
him, and not at the appropriate time. The dismissal was thus without basis
and untimely.
Pedro Palting vs San Jose Petroleum, Inc.
18 SCRA 924 – Business Organization – Corporation Law – Parity Rights
– Nationality – Nationalized Areas of Activity
In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized
under the laws of Panama, was allowed by the Securities and Exchange
Commission (SEC) to sell its shares of stocks in the Philippines.
Apparently, the proceeds of such sale shall be invested in San Jose Oil
Company, Inc. (SJO), a domestic mining corporation. Pedro Palting
opposed the authorization granted to SJP because said tie up between SJP
and SJO is violative of the constitution; that SJO is 90% owned by SJP;
that the other 10% is owned by another foreign corporation; that a mining
corporation cannot be interested in another mining corporation. SJP on the
other hand invoked that under the parity rights agreement (Laurel-Langley
Agreement), SJP, a foreign corporation, is allowed to invest in a domestic
corporation.
ISSUE: Whether or not SJP is correct.
HELD: No. The parity rights agreement is not applicable to SJP. The
parity rights are only granted to American business enterprises or
enterprises directly or indirectly controlled by US citizens. SJP is a
Panamanian corporate citizen. The other owners of SJO are Venezuelan
corporations, not Americans. SJP was not able to show contrary evidence.
Further, the Supreme Court emphasized that the stocks of these
corporations are being traded in stocks exchanges abroad which renders
their foreign ownership subject to change from time to time. This fact
renders a practical impossibility to meet the requirements under the parity
rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a
domestic corporation or an American business enterprise contemplated
under the Laurel-Langley Agreement.
Ong Yong V. Tiu (2003)
G.R. No. 144476 April 8, 2003
Lessons Applicable: Pre-incorporation Subscription (Corporate Law)
FACTS:
1994: construction of the Masagana Citimall in Pasay City was
threatened with stoppage, when its owner, the First Landlink Asia
Development Corporation (FLADC), owned by the Tius, became heavily
indebted to the Philippine National Bank (PNB) for P190M
To save the 2 lots where the mall was being built from
foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong,
Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest
in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed to
maintain equal shareholdings in FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in addition to
their already existing subscription of 450,200 shares
Tius: nominate the Vice-President and the Treasurer plus 5
directors
Ongs nominate the President, the Secretary and 6 directors
(including the chairman) to the board of directors of FLADC and right to
manage and operate the mall.
Tius: contribute to FLADC a 4-storey building P20M (for 200K
shares)and 2 parcels of land P30M (for 300K shares) and P49.8M (for
49,800 shares)
Ongs: paid P190M to settle the mortgage indebtedness of
FLADC to PNB (P100M in cash for their subscription to 1M shares)
February 23, 1996: Tius rescinded the Pre-Subscription
Agreement
February 27, 1996: Tius filed at the Securities and Exchange
Commission (SEC) seeking confirmation of their rescission of the Pre-
Subscription Agreement
SEC: confirmed recission of Tius
Ongs filed reconsideration that their P70M was not a premium
on capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not
have legally entitled them to rescission) but, "for practical considerations,"
that is, their inability to work together, it was best to separate the two
groups by rescinding the Pre-Subscription Agreement, returning the
original investment of the Ongs and awarding practically everything else
to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy
HELD: YES. Ongs granted.
did not justify the rescission of the contract
providing appropriate offices for David S. Tiu and Cely Y. Tiu
as Vice-President and Treasurer, respectively, had no bearing on their
obligations under the Pre-Subscription Agreement since the obligation
pertained to FLADC itself
failure of the Ongs to credit shares of stock in favor of the Tius
for their property contributions also pertained to the corporation and not to
the Ongs
the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190 million
law requires that the breach of contract should be so "substantial
or fundamental" as to defeat the primary objective of the parties in making
the agreement
since the cash and other contributions now sought to be returned
already belong to FLADC, an innocent third party, said remedy may no
longer be availed of under the law.
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract
 allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to reduce the
authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained
earnings,25 and (3) dissolution and eventual liquidation of the corporation.
They want this Court to make a corporate decision for FLADC.
The Ongs' shortcomings were far from serious and certainly less
than substantial; they were in fact remediable and correctable under the
law. It would be totally against all rules of justice, fairness and equity to
deprive the Ongs of their interests on petty and tenuous grounds.
Nyco Sales Corporation vs BA Finance Corporation
200 SCRA 637 – Mercantile Law – Negotiable Instruments Law – Notice
of Dishonor – Assignment of Credit
Nyco Sales Corporation has discounting privileges with BA Finance
Corporation. In 1978, brothers Renato Fernandez and Santiago Renato
(officers of Sanshell Corporation) approached Nyco Sales Corporation for
a credit accommodation in order for the brothers make use of Nyco’s
discounting privileges. Nyco Sales agreed and so, on November 15, 1978,
Sanshell issued a post-dated (November 17, 1978) BPI check to Nyco
Sales in the amount of P60,000.00. Following the discounting process
agreed upon, Nyco Sales, thru its president Rufino Yao, endorsed the
check in favor of BA Finance. Thereafter, BA Finance issued a check
payable to Nyco Sales which endorsed it in favor of Sanshell. Sanshell
then made use of and/or negotiated the check. Accompanying the
exchange of checks was a Deed of Assignment executed by Nyco Sales
(assignor) in favor of BA Finance (assignee) with the conformity of
Sanshell. Under the said Deed, the subject of the discounting was P60k
BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted
the BPI check with a Security Bank and Trust Company check for P60k.
This check again bounced. BA Finance made repeated demands to Nyco
Sales and Sanshell but neither of the two settled the obligation. Hence, BA
Finance sued Nyco Sales. Nyco Sales averred that it received no notice of
dishonor when the second check was dishonored.
ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.
HELD: Yes. The relationship between Nyco Sales and BA Finance is one
of assignor-assignee. The assignor-vendor warrants both the credit itself
(its existence and legality) and the person of the debtor (his solvency), if
so stipulated, as in the case at bar. Consequently, if there be any breach of
the above warranties, the assignor-vendor should be held answerable
therefor. There is no question then that the assignor-vendor is indeed liable
for the invalidity of whatever he assigned to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco
executed a deed of assignment in favor of BA Finance with Sanshell
Corporation as the debtor-obligor. BA Finance is actually enforcing said
deed and the check covered thereby is merely an incidental or collateral
matter. This particular check merely evidenced the credit which was
actually assigned to BA Finance. Thus, the designation is immaterial as it
could be any other check. It is only what is represented by the said checks
that Nyco is being asked to pay.
Nyco Sales’ pretension that it had not been notified of the fact of dishonor
is belied not only by the formal demand letter issued by BA Finance but
also by the fact that Nyco Sales and Sanshell had frequent contacts before,
during and after the dishonor. More importantly, as long as the credit
remains outstanding, Nyco Sales shall continue to be liable to BA Finance
as its assignor. The dishonor of an assigned check simply stresses its
liability and the failure to give a notice of dishonor will not discharge it
from such liability. This is because the cause of action stems from the
breach of the warranties embodied in the Deed of Assignment, and not
from the dishonoring of the check alone.
NTC v. CA , 311 SCRA 508 (199)
FACTS:
NTC served on the PLDT the following assessment notices and demands
for payment: 1. The amount of P7,495,161.00 as supervision and
regulation fee under sec. 40(e) of the Public Service Act (PSA) of 1988,
computed at P0.50 per P100.00 of the PLDT’s outstanding capital stock as
at Dec. 31, 1987 which then consisted of Serial Preferred Stock amounting
to P1,277,934,390.00 and Common Stock of P221,097,785.00 or a total of
P1,499,032,175.00 2. The amount of P9,000,000.00 as permit fee under
Sec. 40(f) of the PSA for the approval of the PLDT increase of its
authorized capital stock from P2.7B to P4.5B; and 3. The amounts of
P12,261,600.00 and P33,472,030.00 as permit fees under sec. 40(g) of the
PSA in connection with the Commissions decisions, approving the PLDT
equity participation in the Fiber Optic Interpacific Cable systems and X-5
Service Improvement and Expansion Program. PLDT challenged the
aforesaid assessments that these were being made to 1. Raise revenues and
not as mere reimbursements 2. The assessments should only have been on
the basis of the par values PLDT’s outstanding capital stock and 3. NTC
has no authority to compel PLDT of the assessed fees under Sec. 40(f) for
the increase since NTC did not render any supervisory or regulatory
activity and incurred no expenses in relation thereto. NTC denied the
protest of PLDT for lack of merit, MR denied. PLDT appealed with the
CA, CA modified the NTC decision changing the basis of the computation
of supervision and regulation fees under sec. 40(f) of the PSA.
ISSUE:
WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT
THE COMPUTATION OF SUPERVISION AND REGULATION FEES
UNDER SECTION 40 (F) OF THE PUBLIC SERVICE ACT SHOULD
BE BASED ON THE PAR VALUE OF THE SUBSCRIBED CAPITAL
STOCK.
RULING:
The law in point is clear and categorical. The basis for computation of the
fee to be charged by NTC on PLDT is the capital stock subscribed or paid
and not the property and equipment.
It bears stressing that it is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise the State
inherent powers of Police Power, Eminent Domain and Taxation, the
distinction between police power and the power to tax, which could be
significant if the exercising authority were mere political subdivisions,
would not be of any moment when, as in the case under consideration,
Congress itself exercises the power. All that is to be done would be to
apply and enforce the law when sufficiently definitive and not
constitutional infirm.
National Power Corp. vs. Vera
G.R. No. 83558; February 27, 1989
FACTS:
Sea Lion International Port Services, private respondent, filed a
complaint for prohibition and mandamus against petitioner NPC alleging
that it had acted in bad faith in not renewing its contract for stevedoring
services for its plant and in taking over its stevedoring services.
Respondent judge issued a restraining order against NPC enjoining the
latter from undertaking stevedoring services at its pier. Consequently,
NPC filed an "Urgent Motion" to dissolve the restraining order, asserting
that respondent judge had no jurisdiction to issue the order and private
respondent, whose contract with NPC had expired prior to the
commencement of the suit, failed to establish a cause of action for a writ
of preliminary injunction. The respondent judge denied the NPC’s motion
and issued a TRO after finding that NPC was not empowered by its
Charter to engage in stevedoring and arrastre services.
ISSUE:
WON the undertaking of stevedoring services is empowered by
the NPC’s charter powers.
HELD:
YES. To carry out the national policy of total electrification of
the country, the NPC was created and empowered not only to construct,
operate and maintain power plants, reservoirs, transmission lines, and
other works, but also to exercise such powers and do such things as may
be reasonably necessary to carry out the business and purposes for which
it was organized, or which, from time to time, may be declared by the
Board to be necessary, useful, incidental or auxiliary to accomplish said
purpose.
In determining whether or not an NPC act falls within the
purview of the above provision, the Court must decide whether or not a
logical and necessary relation exists between the act questioned and the
corporate purpose expressed in the NPC charter. For if that act is one
which is lawful in itself and not otherwise prohibited, and is done for the
purpose of serving corporate ends, and reasonably contributes to the
promotion of those ends in a substantial and not in a remote and fanciful
sense, it may be fairly considered within the corporation's charter powers.
Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.
GR L-21601 December 28, 1968
By: Karen P. Lustica
FACTS: Before World War II, an operating agreement was executed
between Nielson & Co. Inc. and the Lepanto Consolidated Mining Co.
whereby the former operated and managed the mining properties owned
by the latter for a management fee of P2,500.00 a month and a 10%
participation in the net profits resulting from the operation of the mining
properties, for a period of 5 years.
Lepanto modified a pertinent provision of the contract. This time, Nielson
will receive (1) 10% of the dividends declared and paid, when and as paid,
during the period of the contract and at the end of each year, (2) 10% of
any depletion reserve that may be set up, and (3) 10% of any amount
expended during the year out of surplus earnings for capital account.
Both parties agreed to renew the contract for a period of 5 years. But the
operation of the mining properties was disrupted on account of the war.

After the mining properties were liberated from the Japanese forces, the
mine operation was under Lepanto’s exclusive management. Lepanto
declared stock dividends worth one million in 1949 and two million in
1950. This was during the period covered by an extension in the
management contract. However, a disagreement arose between the
parties.
Nielson claims his share in the stock dividends. 0n its motion for
reconsideration, Lepanto contends that the payment to Nielson of stock
dividends as compensation for its services under the management contract
is a violation of the Corporation Law, and that it was not, and it could not
be, the intention of the parties that the services of Nielson should be paid
in shares of stock taken out of stock dividends declared by Lepanto.
ISSUE: WON Nielson is entitled to his share in the stock dividends.
HELD: NO.
RATIO: Stock dividends cannot be issued to a person who is not a
stockholder in payment of services rendered.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills, notes or
other evidence of debt, for circulation as money, and no corporation shall
issue stock or bonds except in exchange for actual cash paid to the
corporation or for: (1) property actually received by it at a fair valuation
equal to the par or issued value of the stock or bonds so issued; and in case
of disagreement as to their value, the same shall be presumed to be the
assessed value or the value appearing in invoices or other commercial
documents, as the case may be; and the burden or proof that the real
present value of the property is greater than the assessed value or value
appearing in invoices or other commercial documents, as the case may be,
shall be upon the corporation, or for (2) profits earned by it but not
distributed among its stockholders or members; Provided, however, That
no stock or bond dividend shall be issued without the approval of
stockholders representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting of the corporation or
at a special meeting duly called for the purpose.
In the case at bar, Nielson cannot 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.
Moreover, from the above-quoted provision of Section 16 of the
Corporation Law, the consideration for which shares of stock may be
issued are cash, property; and undistributed profits. Shares of stock are
given the “special name,” “stock dividends,” only if they are issued in lieu
of undistributed profits. If shares of stocks are issued in exchange of cash
or property then those shares do not fall under the category of “stock
dividends”. A corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a stockholder, or in
payment of its indebtedness. But a share of stock issued to pay for
services rendered is equivalent to a stock issued in exchange of property,
because services is equivalent to property. Likewise a share of stock
issued in payment of indebtedness is equivalent to issuing a stock in
exchange for cash. But a share of stock thus issued should be part of the
original capital stock of the corporation upon its organization, or part of
the stocks issued when the increase of the capitalization of a corporation is
properly authorized. In other words, it is the shares of stock that are
originally issued by the corporation and forming part of the capital that
can be exchanged for cash or services rendered, or property; that is, if the
corporation has original shares of stock unsold or unsubscribed, either
coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not
a stockholder, or to a person already a stockholder in exchange for
services rendered or for cash or property. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
A “stock dividend” is any dividend payable in shares of stock of the
corporation declaring or authorizing such dividend.
So, a stock dividend is actually two things. - a dividend and the enforced
use of the dividend money to purchase additional shares of stock at par.
When a corporation issues stock dividends, it shows that the corporation
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer. Far from being a realization of profits for
the stockholder, it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to assets
and no longer available for actual distribution. Thus, it is apparent that
stock dividends are issued only to stockholders. This is so because only
stockholders are entitled to dividends. They are the only ones who have a
right to a proportional share in that part of the surplus which is declared as
dividends. % stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the
same. If a stockholder is deprived of his stock dividends - and this happens
if the shares of stock forming part of the stock dividends are issued to a
non-stockholder - then the proportion of the stockholder’s interest changes
radically. Stock dividends are civil fruits of the original investment, and to
the owners of the shares belong the civil fruits.
PILIPINAS LOAN COMPANY, INC.
VS
SECURITIES AND EXCHANCE COMMISSION
GR.NO.104720, APRIL 4, 2001
FACTS OF THE CASE
Petitioner Pilipinas Loan Company Inc. is a lending Corporation registered
with the SEC, and its primary purpose base on its Articles of Incorporation
is “To act as a lending investor or to engage in the practice of lending
money or extending loans on the security of real or personal, tangible or
intangible properties whether as pledge, real or chattel mortgage, xxx
without however engaging in pawn broking as defined under P.D.114”.
Private respondent Filipinas Pawnshop, Inc. is also a corporation duly
registered with the SEC, and its primary purpose under its Articles of
Incorporation, is to extend loans on the security of either personal or real
properties, or in other words, to operate as a pawn broker, engage in
pawnshop business as defined under P.D 114.
Private respondent Filipinas Pawnshop, Inc. filed a complaint against
petitioner, Pilipinas Loan Company with the Prosecution Enforcement
Department of the SEC alleging that the petitioner contrary to its prime
purpose, has been operating and doing business as a pawn broker,
pawnshop or “sanglaan” in the same area where private respondent has
had its own pawnshop for 30 years, without permission from the Central
Bank to engage in pawnshop business, thereby causing unjust and unfair
competition with private respondent.
Petitioner denied that it is engage in the pawnshop business alleging that it
is a lending investor duly registered with the Central Bank. Petitioner also
questioned the power of the SEC to take cognizance of the complaint
involving supposed violation of the Pawnshop Regulation Act (P.D.114)
which is more properly within the jurisdiction of the Central Bank.
The SEC en banc rendered a decision ordering the petitioner to cease and
desist from further engaging in business as a “pawnshop” or “pawnbroker”
as defined in P.D.114, until proper license shall have been secured from
the Central Bank.
On appeal, the Court of Appeals affirmed the decision of the SEC en banc
hence, this petition for certiorari under Rule 45 of the Rules of Court.
ISSUE
1) Whether or not petitioner had violated its Articles of Incorporation by
engaging in pawnshop business.
2) Whether or not the SEC has jurisdiction over complaints involving
violation of Pawnshop Regulation Act (P.D.114.) 285
RULING
On the first issue, a corporation has only such power as are expressly
granted to it by the Code and by its Articles of Incorporation, those that
are incidental to such conferred powers and to its existence. In the case at
bar, the limit of the powers of petitioner as a corporation is that “it is
prohibited from engaging in pawn broking as defined in P.D.114.”
Petitioner engaged in the pawnshop business when it is not authorized to
do so by its Articles of Incorporation is an ultra vires act, which amounts
to fraud, detrimental not only to the corporation but also to the public.
On the issue of the jurisdiction, the SC ruled that the SEC has jurisdiction
to entertain complaints involving ultra vires acts of a corporation. Thus,
the complaint treats of a violation of petitioner’s primary purpose, an ultra
vires act. Moreover, by law the SEC has absolute jurisdiction, supervision
and control over all corporations that are enfranchised to act as corporate
entities and registered under it. Furthermore, petitioner cannot invoke the
jurisdiction of the Central Bank in view of its own avowal that it is not a
pawnshop and neither is it engaged in the business as a pawnshop. P.D.
114 provides that the supervisory power of the Central Bank extends
merely to pawnshop registered with it hence, the Central Bank does not
acquire jurisdiction over the petitioner.
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT
CORPORATION vs ANTONIO B. MONFORT III
Facts: Monfort Hermanos Agricultural Development Corporation, a
domestic private corporation, is the registered owner of a farm, fishpond
and sugar cane plantation known as Haciendas San Antonio II, Marapara,
Pinanoag and Tinampa-an, all situated in Cadiz City. It also owns one unit
of motor vehicle and two units of tractors. The same allowed Ramon H.
Monfort, its Executive Vice President, to breed and maintain fighting
cocks in his personal capacity at Hacienda San Antonio. In 1997, the
group of Antonio Monfort III, through force and intimidation, allegedly
took possession of the 4 Haciendas, the produce thereon and the motor
vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort.
In G.R. No. 155472: The Corporation, represented by its President, Ma.
Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity,
filed against the group of Antonio Monfort III, a complaint for delivery of
motor vehicle, tractors and 378 fighting cocks, with prayer for injunction
and damages. Motion to dismiss on the ground of Ma. Antonia M.
Salvatierra's lack of capacity to sue on behalf of the Corporation was
denied.
In G.R. No. 152542: Ma. Antonia M. Salvatierra filed on behalf of the
Corporation a complaint for forcible entry, preliminary mandatory
injunction with temporary restraining order and damages against the group
of Antonio Monfort III.
The group of Antonio Monfort III alleged that they are possessing and
controlling the Haciendas and harvesting the produce therein on behalf of
the corporation and not for themselves. They likewise raised the
affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra
to sue on behalf of the Corporation.
Complaint was eventually dismissed.
Basis of claim of Salvatierra\s lack of capacity to sue: The group of
Antonio Monfort III claims that the March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to
represent the Corporation is void because the purported Members of the
Board who passed the same were not validly elected officers of the
Corporation.
Issue/ Held: WON Ma. Antonia M. Salvatierra has the legal capacity
to sue on behalf of the Corporation. -NO. Ma. Antonia M. Salvatierra
failed to prove that four of those who authorized her to represent the
Corporation were the lawfully elected Members of the Board of the
Corporation. As such, they cannot confer valid authority for her to
sue on behalf of the corporation.
Ratio:
Corporation failed to comply with Section 26 of the Corporation Code,
requiring submission to the SEC within thirty (30) days after the election
the names, nationalities and residences of the elected directors, trustees
and officers of the Corporation.
1. In the case at bar, the fact that four of the six Members of the
Board listed in the 1996 General Information Sheet are already
dead at the time the March 31, 1997 Board Resolution was
issued, does not automatically make the four signatories (i.e.,
Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and
Ester S. Monfort) to the said Board Resolution (whose name do
not appear in the 1996 General Information Sheet) as among the
incumbent Members of the Board. This is because it was not
established that they were duly elected to replace the said
deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained
accountant of the Corporation informed the SEC in its November 11, 1998
letter that the non-inclusion of the lawfully elected directors in the 1996
General Information Sheet was attributable to its oversight and not the
fault of the Corporation. This belated attempt, however, did not erase the
doubt as to whether an election was indeed held.
What further militates against the purported election of those who signed
the March 31, 1997 Board Resolution was the belated submission of the
alleged Minutes of the October 16, 1996 meeting where the questioned
officers were elected. The issue of legal capacity of Ma. Antonia M.
Salvatierra was raised before the lower court by the group of Antonio
Monfort III as early as 1997, but the Minutes of said October 16, 1996
meeting was presented by the Corporation only in its September 29,
1999 Comment before the Court of Appeals. Moreover, the Corporation
failed to prove that the same October 16, 1996 Minutes was submitted to
the SEC.
Montelibano vs Bacolod-Murcia Milling (1962)
February 14, 2013 markerwins Corporation Law, Mercantile
Lawcorpo, merc
Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano,
and the Limited co-partnership Gonzaga and Company, had been and are
sugar planters adhered to the defendant-appellee’s sugar central mill under
identical milling contracts. Originally executed in 1919, said contracts
were stipulated to be in force for 30 years starting with the 1920-21 crop,
and provided that the resulting product should be divided in the ratio of
45% for the mill and 55% for the planters. Sometime in 1936, it was
proposed to execute amended milling contracts, increasing the planters’
share to 60% of the manufactured sugar and resulting molasses, besides
other concessions, but extending the operation of the milling contract from
the original 30 years to 45 years. The Board of Directors of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further
concessions to the planters over and above those contained in the printed
Amended Milling Contract. The appellants initiated the present action,
contending that three Negros sugar centrals with a total annual production
exceeding one-third of the production of all the sugar central mills in the
province, had already granted increased participation (of 62.5%)to their
planters, and that under the resolution the appellee had become obligated
to grant similar concessions to the plaintiffs. The appellee Bacolod-Murcia
Milling Co., inc., resisted the claim, and defended by urging that the
stipulations contained in the resolution were made without consideration;
that the resolution in question was, therefore, null and void ab initio, being
in effect a donation that was ultra vires and beyond the powers of the
corporate directors to adopt.
Issue: WON the board resolution is an ultra vires act and in effect a
donation from the board of directors?
Held: No. There can be no doubt that the directors of the appellee
company had authority to modify the proposed terms of the Amended
Milling Contract for the purpose of making its terms more acceptable to
the other contracting parties. As the resolution in question was passed in
good faith by the board of directors, it is valid and binding, and whether or
not it will cause losses or decrease the profits of the central, the court has
no authority to review them. Whether the business of a corporation should
be operated at a loss during depression, or close down at a smaller loss, is
a purely business and economic problem to be determined by the directors
of the corporation and not by the court. The appellee Bacolod-Murcia
Milling Company is, under the terms of its Resolution of August 20, 1936,
duty bound to grant similar increases to plaintiffs-appellants herein.
[ G.R. No. L-15092, September 29, 1962 ]
ALFREDO MONTELIBANO, ET AL., PLAINTIFFS-
APPELLANTS, VS. BACOLOD-MURCIA MILLING CO., INC.,
DEFENDANTS-APPELLEE.
DECISION
BARRERA, J.:
SUMMARY
Defendant's answer to the complaint raised defenses based on facts and
law. The trial court in dismissing the case limited itself to the resolution
of defenses based on law and ignored those based on facts. From the order
of dismissal the plaintiffs appealed. Appellee's arguments in its brief were
limited to the issued of law and without attempting to call the attention of
the trial and appellate court to the necessity of considering the factual
defenses submitted in the case for decision. Thereafter this Court rendered
a decision in favor of appellants. Consequently, appellee filed two
motions for reconsideration of the decision praying that it be set aside and
an order be issued remanding1 the case either to the Court of Appeals or
the Court of First Instance so that appellee's factual defenses be
considered. Appellee further argued that the decision is illegal since it
failed to specify the quantity of sugar due the appellants. The Supreme
Court denied the motions for reconsideration.
HELD: During the pendency of the' appeal the appellee had ample time
and options within which it could ventilate its grounds to reconsider either
in the trial court or appellate court but failed to do so. Its inaction would
mean waiver of these factual defenses. The course suggested by appellee
cannot be countenanced. It is the policy of this Court to discourage
piecemeal appeals which are the constant source of delay, in the
administration of justice and clogging of court dockets. Supplemental
proceedings in aid of execution which were neither new trial nor rehearing
of the case can be had to determine the quantity of sugar due the
appellants.
MEDIAN CONTAINER CORPORATION VS. METROPOLITAN
BANK
Facts : Respondent filed a complaint for sum of money against petitioner
for failure to settle the amount of more than P5,000,000 representing the
outstanding balance of loans contracted by MCC. Petitioner questions the
certificate of non-forum shopping filed by respodent which was signed by
a certain Atty. Alexander P. Mendoza on May 28, 2003. Petitioner claims
that Atty. Mendoza was only given authority to execute the certificate only
on June 3, 2003. The trial and appellate court denied petitioner’s motion to
dismiss.
Issue/s: W/N respondent failed to comply with the proper procedure on
the verification and certification of non-forum shopping.
Held/Ratio: NO. Verification is a formal, not jurisdictional,
requirement. It is simply intended to secure an assurance that the
allegations in the pleading are true and correct, and that the pleading is
filed in good faith. That explains why a court may order the correction of
the pleading if verification is lacking, or act on the pleading although it is
not verified, if the attending circumstances are such that strict compliance
with the rules may be dispensed with in order to serve the ends of justice.
As for the required certification against forum shopping, failure to comply
therewith is generally not curable by its submission subsequent to the
filing of the petition nor by amendment, and is cause for its dismissal. A
certification against forum shopping signed by a person on behalf of a
corporation which is unaccompanied by proof that the signatory is
authorized to file the petition is generally likewise cause for dismissal. In
several cases, however, this Court relaxed the application of these
requirements upon appreciation of attendant special circumstances or
compelling reasons.
In the case at bar, simultaneous with the filing of the complaint,
Metrobank submitted both a certification of non-forum shopping and
proof that Atty. Mendoza who signed it on its behalf was authorized to do
so. The proof of authorization of Atty. Mendoza was dated later than the
date of his signing of the certification of non-forum shopping, however,
thus giving the impression that he, at the time he affixed his signature, was
not authorized to do so. The passing on June 3, 2004 of a Board
Resolution of authorization before the actual filing on June 23, 2004 of the
complaint, however, is deemed a ratification of Atty. Mendoza's prior
execution on May 28, 2004 of the verification and certificate of non-forum
shopping, thus curing any defects thereof.
MARIVELES SHIPYARD CORP. VS. CA et al.
G.R. No. 144134
November 11, 2003
FACTS: Petitioner engaged the services of Longest Force Investigation
and Security Agency, Inc. to render security services at its premises.
Longest Force then deployed its security guards, herein private
respondents, at the petitioner’s shipyard. However, petitioner found the
services rendered by private respondents unsatisfactory and inadequate
causing it to terminate its contract with Longest Force and in turn, the
latter terminated the employment of said respondents. Consequently,
private respondents filed a case for illegal dismissal, underpayment of
wages pursuant to the PNPSOSIA-PADPAO rates, non-payment of
overtime pay, premium pay for holiday and rest day, service incentive
leave pay, 13th month pay and attorney’s fees, against both Longest Force
and petitioner, before NLRC, who in turn sought the guards’ reinstatement
with full backwages and without loss of seniority rights. Petitioner
appealed to the NLRC, contending that it should not be held jointly and
severally liable with Longest Force for underpayment of wages and
overtime pays because it had been religiously and promptly paying the
bills for the security services sent by Longest Force and that these are in
accordance with the statutory minimum wage. Also, petitioner contends
that it should not be held liable for overtime pay as private respondents
failed to present proof that overtime work was actually performed.
However, the labor tribunal affirmed in toto the decision of the Labor
Arbiter. Petitioner moved for reconsideration, but this was denied by the
NLRC. The petitioner then filed a special civil action for certiorari
assailing the NLRC judgment for having been rendered with grave abuse
of discretion with the Court of Appeals, which was also outright dismissed
by the respondent court due to a defective certificate of non-forum
shopping and non-submission of the required documents to accompany
said petition. The petitioner then moved for reconsideration of the order of
dismissal but was also denied by the appellate court, hence, this petition.
Issue: Whether or not petitioner is jointly and severally liable with
Longest Force
Held: Yes, Petitioner’s liability is joint and several with that of Longest
Force, pursuant to Articles 106, 107 and 109 of the Labor Code. When the
petitioner contracted with Longest Force, petitioner became an indirect
employer of private respondents pursuant to Article 107. Following
Article 106, when the agency as contractor failed to pay the guards, the
corporation as principal becomes jointly and severally liable for the
guards’ wages. This is mandated by the Labor Code to ensure compliance
with its provisions, including payment of statutory minimum wage. The
security agency is held liable by virtue of its status as direct employer,
while the corporation is deemed the indirect employer of the guards for the
purpose of paying their wages in the event of failure of the agency to pay
them. This statutory scheme gives the workers the ample protection
consonant with labor and social justice provisions of the Constitution.
Petitioner cannot evade its liability by claiming that it had religiously paid
the compensation of guards as stipulated under the contract with the
security agency. Labor standards are enacted by the legislature to alleviate
the plight of workers whose wages barely meet the spiraling costs of their
basic needs. Labor laws are considered written in every contract.
Stipulations in violation thereof are considered null. Similarly, legislated
wage increases are deemed amendments to the contract. Thus, employers
cannot hide behind their contracts in order to evade their (or their
contractors’ or subcontractors’) liability for noncompliance with the
statutory minimum wage.
CHARLES W. MEAD vs. E. C. McCULLOUGH, ET AL., and THE
PHILIPPINE ENGINEERING AND CONSTRUCTION COMPANY
G.R. No. 6217 December 26, 1911
Facts:
1. On March 15, 1902, the plaintiff and the defendant organized the
"Philippine Engineering and Construction Company," the incorporators
being the only stockholders and also the directors of said company, with
general ordinary powers.
2. After the plaintiff left the Philippine Islands for China, the other
directors, the defendants in this case, held a meeting on December 24,
1903, for the purpose of discussing the condition of the company at that
time anddetermining what course to pursue.
3. They did on that date enter into wrecking contract with the naval
authorities with the defendant McCullough.
4. When the sale or transfer took place, there were present four
directors, all of whom gave their consent to that sale or transfer. The
plaintiff was then about and his express consent to make this transfer or
sale was not obtained. He was, before leaving, one of the directors in this
corporation, and although he had resigned as manager, he had not resigned
as a director.
Issue:
Did a majority of the stockholders, who were at the same time a majority
of the directors of this corporation, have the power under the law and its
articles of agreement, to sell or transfer to one of its members the assets of
said corporation?
Ruling:
He accepted the position of engineer of the Canton and Shanghai Railway
Company, knowing that his duties as such engineer would require his
whole time and attention and prevent his returning to the Philippine
Islands for at least a year or more. The new position which he accepted in
China was incompatible with his position as director in the Philippine
Engineering and Construction Company, a corporation whose sphere of
operations was limited to the Philippine Islands. These facts are sufficient
to constitute an abandoning or vacating of his position as director in said
corporation.
Consequently, the transfer orsale of the corporation's assets to one of its
members was made by the unanimous consent of all the directors in the
corporation at that time.
There were only five stockholders in this corporation at any time, four of
whom were the directors who made thesale, and the other the plaintiff,
who was absent in China when the said sale took place. The sale was,
therefore, made by the unanimous consent of four-fifths of all the
stockholders. Under the articles of incorporation, the stockholders and
directors had general ordinary powers. There is nothing in said articles
which expressly prohibitsthe sale or transfer of the corporate property to
one of the stockholders of said corporation.
Articles 1700 to 1708 of the Civil Code deal with the manner of dissolving
a corporation. There is nothing in thesearticles which expressly or
impliedly prohibits the sale of corporate property to one of its members,
nor a dissolutionof a corporation in this manner. Neither is there anything
in articles 151 to 174 of the Code of Commerce which prohibits the
dissolution of a corporation by such sale or transfer.
Article XIII of the corporation's statutes expressly provides that "in all the
meetings of the stockholders, a majorityvote of the stockholders present
shall be necessary to determine any question discussed."
The sale or transfer to one of its members was a matter which a majority
of the stockholders could very properlyconsider. But it i said that if the
acts and resolutions of a majority of the stockholders in a corporation are
binding in every case upon the minority, the minority would be completely
wiped out and their rights would be wholly at the mercy of the abuses of
the majority.
Generally speaking, the voice of a majority of the stockholders is the law
of the corporation, but there are exceptionsto this rule. There must
necessarily be a limit upon the power of the majority. Without such a limit
the will of the majority would be absolute and irresistible and might easily
degenerate into an arbitrary tyranny. The reason for these limitations is
that in every contract of partnership and a corporation can be something
fundamental and unalterable which is beyond the power of the majority of
the stockholders, and which constitutes the rule controlling their actions.
This rule which must be observed is to be found in the essential compacts
of such partnership, which gave served as a basis upon which the members
have united, and without which it is not probable that they would have
entered the corporation. Notwithstanding these limitations upon the power
of the majority of the stockholders, their (the majority's) resolutions, when
passed in good faith and for a just cause, deserve careful consideration and
are generally binding upon the minority.
Itis well settled, first, that a private corporation, which owes no special
duty tothe public and which has not been given the right of eminent
domain, has the absolute right and power as against the whole world
except the state, to sell and dispose of all of its property; second, that the
board of directors, has the power, without reference to the assent or
authority of the stockholders, when the corporation is in failing
circumstances or insolvent or when it can no longer continue the business
with profit, and when it is regarded as an imperative necessity; third, that a
majority of the stockholders or directors, even against the protest of the
minority, have this power where, from any cause, the business is a failure
and the best interest of the corporation and all the stockholders require it
We therefore conclude that the sale or transfer made by the quorum of the
board of directors — a majority of the stockholders — is valid and binding
upon the majority-the plaintiff. This conclusion is not in violation of the
articles of incorporation of the Philippine Engineering and Construction
Company.
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006)
G.R. No. 166862 December 20, 2006
Facts:
Petitioner was the owner of 8,015 square meters of parcel of land located
in Mandaluyong City, Metro Manila. To secure a P900,000.00 loan it had
obtained from respondent Philippine National Bank, petitioner executed a
real estate mortgage over the lot. Respondent PNB later granted petitioner
a new credit accommodation. On August 5, 1982, respondent PNB filed a
petition for extrajudicial foreclosure of the real estate mortgage and sought
to have the property sold at public auction. After due notice and
publication, the property was sold at public action where respondent PNB
was declared the winning bidder. Petitioner sent a letter to PNB,
requesting it to be granted an extension of time to redeem/repurchase the
property. Some PNB personnel informed that as a matter of policy, the
bank does not accept “partial redemption”. Since petitioner failed to
redeem the property, the Register of Deeds cancelled TCT No. 32098 and
issued a new title in favor of PNB.
Meanwhile, the Special Asset Management Department (SAMD) had
prepared a statement of account of petitioner’s obligation. It also
recommended the management of PNB to allow petitioner to repurchase
the property for P1,574,560.oo. PNB rejected the offer and
recommendation of SAMD. It instead suggested to petitioner to purchase
the property for P2,660,000.00, in its minimum market value. Petitioner
declared that it had already agreed to SAMD’s offer to purchase
for P1,574,560.47 and deposited a P725,000.00. Petitioner warned PNB
that it would seek judicial recourse should the latter decline their offer.
PNB informed the petitioner that it accepted the petitioner’s offer but for
1,931,389.53 in cash less the 725k deposited. On page 2 of the letter sent
by PNB, the president of petitioner should sign. However, the president
did not affix his signature but only confirmed that the letter was accepted.
Petitioner did not respond to the letter so PNB requested petitioner to
submit an amended offer to repurchase. Petitioner rejected PNB’s offer
and said that PNB is already proscribed from increasing the price since it
already accepted the 725k deposit.
PNB filed for Annulment of Mortgage and Mortgage Foreclosure,
Delivery of Title or Specific Performance with Damages. It argued that it
had acquired ownership over the property after period to redeem had
elapsed. It claimed that no contract of sale was perfected between it and
petitioner. While the case was pending, PNB demanded that petitioner
vacate the property but it refused to do so. Petitioner offered to repurchase
for P3.5M; PNB rejected because the market value of the property was
P30M. Petitioner offered to repurchase for P4.25M; PNB rejected.
Trial court decided in favor of PNB.
CA affirmed the decision of RTC
Thus this petition.
Issue:
Whether or not MMCC and PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.
Held:
NO PERFECTION. There was no meeting of the minds. Contracts are
perfected by mere consent which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute
the contract.
Once perfected, they bind other contracting parties and the obligations
arising therefrom have the form of law between the parties and should be
complied with in good faith. The parties are bound not only to the
fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with
good faith, usage and law. A contract of sale is consensual in nature and is
perfected upon mere meeting of the minds. When there is merely an offer
by one party without acceptance of the other, there is no contract.
When the contract of sale is not perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the
parties. There is no evidence that the SAMD was authorized by
respondent's Board of Directors to accept petitioner's offer and sell the
property for P1,574,560.47. Any acceptance by the SAMD of petitioner's
offer would not bind respondent.
Section 23 of the Corporation Code:
Corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by
it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not
in the course of, or connected with the performance of authorized duties of
such director, are held not binding on the corporation. A corporation can
only execute its powers and transact its business through its:
1. Board of Directors
2. Officers and agents when authorized by:
3. A board Resolution; or
4. Its by-laws
It appears that although respondent requested petitioner to conform to its
amended counter-offer, petitioner refused and instead requested
respondent to reconsider its amended counter-offer. Petitioner's request
was ultimately rejected and respondent offered to refund its P725,000.00
deposit.
In sum, then, there was no perfected contract of sale between petitioner
and respondent over the subject property. IN LIGHT OF ALL THE
FOREGOING, the petition is DENIED.
Luneta Motor Company v AD Santos, Inc et al
July 31, 1962
Dizon, J.
TOPIC: Powers of Corporations; Implied and Incidental
SV: A CPC was originally granted to Concepcion. This CPC was made
the subject of a chattel mortgage to secure the payment of Concepcion’s
loan to Luneta Motor. Subsequently, a second mortgage was executed
over the same CPC in favor of RFC. The CPC was later sold to Benitez,
then to Rodi Taxicab, and both sales were made with assumption of
mortgage in favor of RFC, subject to Luneta Motor’s lien. Luneta Motor
filed an action for foreclose the mortgage for failure of Concepcion to pay
his account. While this was pending, RFC also instituted foreclosure
proceedings on its 2nd chattel mortgage, and the CPC was sold in favor of
Amador Santos, whose application for approval of sale was immediately
granted by PSC. In the action for foreclosure filed by Luneta, the CFI
ordered the CPC to be sold, and eventually Luneta bought the CPC.
Luneta Motor applied for the sale’s approval with the PSC, but this was
opposed by AD Santos, Inc., claiming that under Luneta Motor’s Articles
of Incorporation, it was not authorized to engage in the taxicab business or
operate as a common carrier. PSC denied Luneta Motor’s application.
Under the Corporation Law, , a corporation may purchase, hold, etc., and
otherwise deal in such real and personal property is the purpose for which
the corporation was formed may permit, and the transaction of its lawful
business may reasonably and necessarily require. Luneta Motor’s
Corporate purposes basically allow it to operate and otherwise deal in
automobiles and automobile accessories. Although it may also engage in
the transportation of persons by water, this does not mean that it may
engage in the business of land transportation, which is an entirely different
line of business. Contrary to Luneta Motor’s contentions, its Articles of
Incorporation is precisely the best evidence that it has no authority at all to
engage in the business of land transportation and operate a taxicab service.
As such it follows that it may not acquire an CPC to operate a taxicab
service.
FACTS:
 A certificate of public convenience (CPC) was granted before the war
to Nicolas Concepcion to operate a taxicab service of 27 units in the
City of Manila and therefrom to any point in Luzon.
 Concepcion contracted a loan from Luneta Motor and this was
evidenced by a promissory note executed by him and guaranteed by
Placido Esteban.
o To secure payment of this note, Concepcion executed a
chattel mortgage covering the CPC in favor of Luneta
Motors
 Concepcion contracted a subsequent loan from Rehabilitation
Finance Corporation (RFC; now known as DBP), and this was
secured by a second mortgage over the same CPC.
o This 2nd mortgage was approved by the Public Service
Commission (PSC), subject to the mortgage lien in favor of
Luneta Motor
 The CPC was later sold to Francisco Benitez, Jr. who resold it to
Rodi Taxicab Company.
o Both sales were made assumption of the mortgage in favor
of RFC, and were also approved provisionally by the
Commission, subject to Luneta Motor’s Lien.
 Petitioner filed an action to foreclose the chattel mortgage in view of
the failure of Concepcion and his guarantor to pay their overdue
account.
o While this case was pending, RFC also instituted
foreclosure proceedings on its 2nd chattel mortgage. As of
the decision in its favor therein rendered, the CPC was sold
at public auction in favor of Amador D. Santos for
P24,010.00.
o Santos immediately applied with the Commission for the
approval of the sale, and the same was approved, subject to
the mortgage lien in favor of Luneta Motor.
 [CFI] rendered judgment, adjudging Concepcion indebted to Luneta
Motor in the sum of P15,197.84 with 12% interest thereon from
December 2, 1941 until full payment, plus other assessments.
o CFI ordered the the CPC subject of the chattel mortgage be
sold at a public auction.
o Said certificate was eventually sold to Luneta Motor, and
after 6 days, the Sheriff of the City of Manila issued the
corresponding certificate of sale.
o Thereupon, Luneta Motor filed the application for the
approval of the sale.
o In the meantime, before he died, Amador Santos sold and
transferred all his rights and interests in the CPC in favor of
AD Santos, Inc., who opposed Luneta Motor’s application.
 In the course of hearing, AD Santos Inc filed a motion to dismiss on
the grounds that:
1. Under Luneta Motor’s Articles of Incorporation, it was
not authorized to engage in the taxicab business or
operate as a common carrier;
2. The CFI decision did not affect AD Santos Inc or its
predecessor inasmuch as neither of them had been
impleaded into the case;
3. What was sold to Luneta Motor were only the "rights,
interests and participation" of Nicolas Concepcion in the
certificate that had been granted to him which were no
longer existing at the time of the sale.
 [PSC] rendered the decision dismissing Luneta Motor’s application
for approval of the sale in its favor, sustaining the first ground
(petitioner is not authorized in its Art. of Inc.) and ruling that as a
result, it could not acquire by purchase the CPC.
o Luneta Motor appeals , claiming that in accordance with
the Corporation Law and its articles of incorporation, it can
acquire by purchase the certificate of public convenience in
question, maintaining inferentially that, after acquiring said
certificate, it could make use of it by operating a taxicab
business or operate is a common carrier by land.
ISSUE:
Under Corporation Law and its Articles of Incorporation, could Luneta
Motor acquire the CPC by purchase and thereafter hold the certificate and
operate thereunder as a common carrier by land?
HELD: (NO)
 Under Section 13 (5) of the Corporation Law, a corporation created
thereunder may purchase, hold, etc., and otherwise deal in such real
and personal property is the purpose for which the corporation was
formed may permit, and the transaction of its lawful business may
reasonably and necessarily require.
 Petitioner Luneta Motor says: Its corporate purposes are
o to carry on a general mercantile and commercial business,
etc., and that it is authorized in its articles of incorporation
to operate and otherwise deal in and concerning
automobiles and automobile accessories' business in all its
multifarious ramification and
o to operate, etc., and otherwise dispose of vessels and boats,
etc., and to own and operate steamship and sailing ships
and other floating craft and deal in the same and engage in
the Philippine Islands and elsewhere in the transportation of
persons, merchandise and chattels by water;
o all this incidental to the transportation of automobiles
 Court said that nothing in the legal provision and provisions in its
Articles of Incorporation could justify petitioner’s contention.
o To the contrary, they are precisely the best evidence that it
has no authority at all to engage in the business of land
transportation and operate a taxicab service.
o That it may operate and otherwise deal in automobiles and
automobile accessories; that it may engage in the
transportation of persons by water does not mean that it
may engage in the business of land transportation — an
entirely different line of business.
o If it could not thus engage in the line of business, it follows
that it may not acquire an CPC to operate a taxicab service,
such as the one in question, because such acquisition would
be without purpose and would have no necessary
connection with petitioner's legitimate business.
Appealed decision AFFIRMED.
Digest by Krys
G.R. No. L-48237 June 30, 1987
MADRIGAL & COMPANY, INC., petitioner,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT
FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and
MADRIGAL CENTRAL OFFICE EMPLOYEES UNION,
respondents.
Facts:
Madrigal & Company, Inc. (MCI) manages the business of another
corporation, Rizal Cement Co., Inc. (RCC). In 1973, a labor union in MCI
sought the renewal of the collective bargaining agreement (CBA). The
union proposes a P200.00 monthly wage increase and an additional P100
monthly allowance. MCI refused to negotiate. Later, MCI reduced its
authorized capital stocks. It then wrote a letter to the Department of Labor
averring that it is incurring losses and so it will enforce a retrenchment
program. The letter is however unsupported by documents and so the
Department of Labor ignored it. However, MCI went on to dismiss several
employees which led the labor union to sue MCI for unfair labor practices
and illegal dismissal. The labor arbiter ruled in favor of the labor union.
The issue reached the Office of the President. The then Presidential
Assistant For Legal Affairs, Ronaldo Zamora, denied MCI’s appeal.
On appeal, MCI insists that it is incurring losses; that as such, it has to
reduce its capitalization; that the profits it is earning are cash dividends
from RCC; that under the law, dividends are the absolute property of a
stockholder like MCI and cannot be compelled to share it with creditors
(like the employees).
Issue:
Whether or not cash dividends are absolute property of the stockholders
and cannot be made available for disposition to a corporation’s creditors.
Held:
No. As found by the labor arbiter, MCI is in fact making significant
profits. MCI’s reduction of its capitalization is simply a scheme to avoid
negotiations with the labor union. It is therefore correct for the arbiter to
order MCI to comply with the union’s demands.
It is true that cash dividends are the absolute property of the stockholders
and cannot be made available for disposition to a corporation’s creditors.
However, this should be viewed in context. This is only true in the case of
corporation distributing dividends to its stockholders. If this is the case (if
the dividends are still with the corporation, in this case RCC), then
creditors cannot touch such dividends. But if the stockholder already
receives the dividends, then it becomes a profit on the part of the
stockholder hence its creditors (like the employees) can make some
demands out of it. In this case, MCI is a stockholder of RCC. While RCC
still has not distributed the dividends, creditors cannot demand it because
such dividends are owned by stockholders like MCI. But when MCI
already receives the dividends, then MCI’s creditors can already demand
share from the dividends because such dividends are already the profits of
the stockholder/MCI. So in this case, the employees can demand their
share from said profits (not strictly viewed as dividends now) by way of
salary increase.
Corporate Law Case Digest: Stockholders of F. Guanzon and Sons,
Inc v. Register of Deeds of Manila (1962)
G.R. No. L-18216 October 30, 1962
Lessons Applicable: Strong Juridical Personality (Corporate Law)
FACTS:
• Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc.
executed a certificate of liquidation of the assets of the corporation,
dissolution and distribution among themselves in proportion to their
shareholdings, as liquidating dividends, corporate assets, including real
properties
• Register of Deeds of Manila denied the registration of the
certificate of liquidation:
1. The number of parcels not certified to in the acknowledgment;
2. P430.50 Reg. fees need be paid;
3. P940.45 documentary stamps need be attached to the document;
4. The judgment of the Court approving the dissolution and
directing the disposition of the assets of the corporation need be presented

• Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6.
• Stockholders appealed
o contend that the certificate of liquidation is not a conveyance or
transfer but merely a distribution of the assets of the corporation which has
ceased to exist for having been dissolved
ISSUE: W/N certificate merely involves a distribution of the corporation's
assets (or should be considered a transfer or conveyance)
HELD: NO. affirm the resolution appealed from
• Corporation - juridical person distinct from the members
composing it.
o Properties registered in the name of the corporation are owned
by it as an entity separate and distinct from its members.
o While shares of stock constitute personal property they do not
represent property of the corporation.
A share of stock only typifies an aliquot part of the corporation's
property, or the right to share in its proceeds to that extent when
distributed according to law and equity but its holder is NOT the owner of
any part of the capital of the corporation nor entitled to possession
The stockholder is not a co-owner or tenant in common of the
corporate property
Lim Tay vs. CA
G.R. No. 126891
Date: August 5, 1998
Facts:
On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount
of P40,000 payable within 6 months. To secure the payment of the
aforesaid loan and interest thereon, Guiok executed a Contract of Pledge
in favor of Lim Tay. He pledged his 300 shares of stock in the Go Fay &
Company Inc. Guiok obliged himself to pay interest on said loan at the
rate of 10% per annum from the date of said contract of pledge.
On the same date, Alfonso Sy Lim secured a loan, from Lim Tay in the
amount of P40,000 payable in 6 months. To secure the payment of his
loan, Sy Lim executed a "Contract of Pledge" covering his 300 shares of
stock in Go Fay & Co. Under said contract, Sy Lim obliged himself to pay
interest on his loan at the rate of 10% per annum from the date of the
execution of said contract.
The contract provided that Lim Tay was merely authorized to foreclose
the pledge upon maturity of the loans, not to own them. The foreclosure is
not automatic, for it must be done in a public or private sale.
Guiok and Sy Lim endorsed their respective shares of stock in blank and
delivered the same to Lim Tay. However, Guiok and Sy Lim failed to pay
their respective loans and the accrued interests thereon to Lim Tay.
In October 1990, Lim Tay filed a "Petition for Mandamus" against Go Fay
& Co., with SEC praying that an order be issued directing the corporate
secretary to register the stock transfers and issue new certificates in favor
of Lim Tay; and ordering the corporation to pay all dividends due and
unclaimed on the said certificates to Lim Tay. In the interim, Sy Lim died.
Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita
Lim, filed their Answer-In-Intervention with the SEC.
The SEC hearing officer dismissed Lim Tay's Complaint on the ground
that although the SEC had jurisdiction over the action, he failed to prove
the legal basis for the secretary of the Corporation to be compelled to
register stock transfers in favor of Lim Tay and to issue new certificates of
stock under his name. His appeal was denied by SEC. He appealed with
CA.
The CA debunked Lim Tay's claim that he had acquired ownership over
the shares by virtue of novation, holding that Guiok's and Sy Lim's
endorsement and delivery of the shares were pursuant to Articles 2093 and
2095 of the Civil Code and that Lim Tay's receipt of dividends was in
compliance with Article 2102 of the same Code.
Arguments of Lim Tay: He contends that it has acquired ownership of the
shares "through extraordinary prescription," pursuant to Article 1132 of
the Civil Code, and through respondents' subsequent acts, which amounted
to a novation of the contracts of pledge. Petitioner also claims that there
was dacion en pago, in which the shares of stock were deemed sold to
petitioner, the consideration for which was the extinguishment of the loans
and the interests thereon. Petitioner likewise claims that laches bars
respondents from recovering the subject shares.
Issue: WON Lim Tay is the owner of the shares previously subjected to
pledge, for him to cause the registration of said shares in his own name.
Held: NO.
Lim Tay's ownership over the shares was not yet perfected when the
Complaint was filed. The contract of pledge certainly does not make him
the owner of the shares pledged.
Further, whether prescription effectively transferred ownership of the
shares, whether there was a novation of the contracts of pledge, and
whether laches had set in were difficult legal issues, which were
unpleaded and unresolved when Lim Tay asked the corporate secretary of
Go Fay to effect the transfer, in his favor, of the shares pledged to him.
Lim Tay has failed to establish a clear legal right.
Lim Tay's contention that he is the owner of the said shares is completely
without merit. Lim Tay does not have any ownership rights at all. At the
time Lim Tay instituted his suit at the SEC, his ownership claim had no
prima facie leg to stand on. At best, his contention was disputable and
uncertain.
Lim Tay cannot claim to have acquired ownership over the certificates of
stock through extraordinary prescription, as provided for in Article 1132
of the Civil Code. What is required by Article 1132 is possession in the
concept of an owner. Herein, Lim Tay's possession of the stock certificates
came about because they were delivered to him pursuant to the contracts
of pledge. His possession as a pledgee cannot ripen into ownership by
prescription. Lim Tay expressly repudiated the pledge, only when he filed
his Complaint and claimed that he was not a mere pledgee, but that he was
already the owner of the shares.
Based on the foregoing, Lim Tay has not acquired the certificates of stock
through extraordinary prescription. Neither did Lim Tay acquire the shares
by virtue of a novation of the contract of pledge. Novation cannot be
presumed by Guiok's and Sy Lim's indorsement and delivery of the
certificates of stock covering the 600 shares, nor Lim Tay's receipt of
dividends from 1980 to 1983, nor the fact that Guiok and Sy Lim have not
instituted any action to recover the shares since 1980. Novation is never
presumed inferred.
Notes: There is a contract of pledge between Guiok (respondent) and Lim
Tay (petitioner) & Sy Lim (respondent) and Lim Tay (petitioner). What
was mortgaged? 300 shares of stock in the Go Fay & Company Inc. by
Guiok and 300 shares of stock in the Go Fay & Company Inc. by Sy Lim.
Date - January 8, 1980.
Case Digest: Majority Stockholders of Ruby v. Lim
G.R. No. 165887: June 7, 2011
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION, Petitioner, v. MIGUEL LIM et al., Respondents.
VILLARAMA, JR., J.:
FACTS:
Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in
glass manufacturing.Reeling from severe liquidity problems beginning in
1980, RUBY filed onDecember 13, 1983a petition for suspension of
payments with the Securities and Exchange Commission (SEC) docketed
as SEC Case No. 2556.On December 20, 1983, the SEC issued an order
declaring RUBY under suspension of payments and enjoining the
disposition of its properties pending hearing of the petition, except insofar
as necessary in its ordinary operations, and making payments outside of
the necessary or legitimate expenses of its business.
On August 10, 1984, the SEC Hearing Panel created the management
committee (MANCOM) for RUBY, composed of representatives from
Allied Leasing and Finance Corporation (ALFC), Philippine Bank of
Communications (PBCOM), China Banking Corporation (China Bank),
Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and RUBY
represented by Mr. Yu Kim Giang .The MANCOM was tasked to perform
the following functions: (1) undertake the management of RUBY; (2) take
custody and control over all existing assets and liabilities of RUBY; (3)
evaluate RUBYs existing assets and liabilities, earnings and operations;
(4) determine the best way to salvage and protect the interest of its
investors and creditors; and (5) study, review and evaluate the proposed
rehabilitation plan for RUBY.
Subsequently, two (2) rehabilitation plans were submitted to the SEC: the
BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by
Yu Kim Giang, and the Alternative Plan of the minority stockholders
represented by Miguel Lim (Lim).
Both plans were endorsed by the SEC to the MANCOM for evaluation.
On April 26, 1991, over ninety percent (90%) of RUBYs creditors
objected to the Revised BENHAR/RUBY Plan and the creation of a new
management committee.Instead, they endorsed the minority stockholders
Alternative Plan.At the hearing of the petition for the creation of a new
management committee, three (3) members of the original management
committee (Lim, ALFC and Pilipinas Shell) opposed the Revised
BENHAR/RUBY Plan on grounds that:(1) it would legitimize the entry of
BENHAR, a total stranger, to RUBY as BENHAR would become the
biggest creditor of RUBY;(2) it would put RUBYs assets beyond the reach
of the unsecured creditors and the minority stockholders; and (3) it was
not approved by RUBYs stockholders in a meeting called for the purpose.
Notwithstanding the objections of 90% of RUBYs creditors and three
members of the MANCOM, the SEC Hearing Panel approved on
September 18, 1991the Revised BENHAR/RUBY Plan and dissolved the
existing management committee. It also created a new management
committee and appointed BENHAR as one of its members. In addition to
the powers originally conferred to the management committee under
Presidential Decree (P.D.) No. 902-A, the new management committee
was tasked to oversee the implementation by the Board of Directors of the
revised rehabilitation plan for RUBY.
ISSUE: Whether the minorities pre-emptive rights were violated
HELD: Yes.
COMMERCIAL LAW: Corporation Law, Pre-emptive right
Pre-emptive right under Sec. 39 of the Corporation Code refers to the right
of a stockholder of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings. The right may be restricted or denied under the articles of
incorporation, and subject to certain exceptions and limitations. The
stockholder must be given a reasonable time within which to exercise their
preemptive rights. Upon the expiration of said period, any stockholder
who has not exercised such right will be deemed to have waived it.
The validity of issuance of additional shares may be questioned if done in
breach of trust by the controlling stockholders. Thus, even if the pre-
emptive right does not exist, either because the issue comes within the
exceptions in Section 39 or because it is denied or limited in the articles of
incorporation, an issue of shares may still be objectionable if the directors
acted in breach of trust and their primary purpose is to perpetuate or shift
control of the corporation, or to "freeze out" the minority interest. In this
case, the following relevant observations should have signaled greater
circumspection on the part of the SEC -- upon the third and last remand to
it pursuant to our January 20, 1998 decision -- to demand transparency and
accountability from the majority stockholders, in view of the illegal
assignments and objectionable features of the Revised BENHAR/RUBY
Plan, as found by the CA and as affirmed by this Court:
There can be no gainsaying the well-established rule in corporate practice
and procedure that the will of the majority shall govern in all matters
within the limits of the act of incorporation and lawfully enacted by-laws
not proscribed by law. It is, however, equally true that other stockholders
are afforded the right to intervene especially during critical periods in the
life of a corporation like reorganization, or in this case, suspension of
payments, more so, when the majority seek to impose their will and
through fraudulent means, attempt to siphon off Rubys valuable assets to
the great prejudice of Ruby itself, as well as the minority stockholders and
the unsecured creditors.
Certainly, the minority stockholders and the unsecured creditors are given
some measure of protection by the law from the abuses and impositions of
the majority, more so in this case, considering thegive-away signs of
private respondents perfidy strewn all over the factual landscape. Indeed,
equity cannot deprive the minority of a remedy against the abuses of the
majority, and the present action has been instituted precisely for the
purpose of protecting the true and legitimate interests of Ruby against the
Majority Stockholders. On this score, the Supreme Court, has ruled that:
"Generally speaking, the voice of themajority of the stockholders is the
law of the corporation, but there are exceptions to this rule. There must
necessarily be a limit upon the power of the majority. Without such a limit
the will of the majority will be absolute and irresistible and might easily
degenerate into absolute tyranny.x x x" (Additional emphasis supplied.)
Lamentably, the SEC refused to heed the plea of the minority stockholders
and MANCOM for the SEC to order RUBY to commence liquidation
proceedings, which is allowed under Sec. 4-9 of the Rules on Corporate
Recovery. Under the circumstances, liquidation was the only hope of the
minority stockholders for effecting an orderly and equitable settlement of
RUBYs obligations, and compelling the majority stockholders to account
for all funds, properties and documents in their possession, and make full
disclosure on the nullified credit assignments. Oblivious to these pending
incidents so crucial to the protection of the interest of the majority of
creditors and minority shareholders, the SEC simply stated that in the
interim, RUBYs corporate term was validly extended, as if such extension
would provide the solution to RUBYs myriad problems.
Extension of corporate term requires the vote of 2/3 of the outstanding
capital stock in a stockholders meeting called for the purpose. The actual
percentage of shareholdings in RUBY as of September 3, 1996 -- when
the majority stockholders allegedly ratified the board resolution approving
the extension of RUBY's corporate life to another 25 years was seriously
disputed by the minority stockholders, and we find the evidence of
compliance with the notice and quorum requirements submitted by the
majority stockholders insufficient and doubtful. Consequently, the SEC
had no basis for its ruling denying the motion of the minority stockholders
to declare as without force and effect the extension of RUBY's corporate
existence.
DENIED.
Ollendorf vs Abrahamson Case Digest
William Ollendorf vs. Ira Abrahamson
38 Phil. 585
Facts: The record discloses that Ollendorf is and for a long time past has
been engaged in the city of Manila and elsewhere in the Philippines in the
business of manufacturing ladies' embroidered underwear for export.
Ollendorf imports the material from which this underwear is made and
adopts decorative designs which are embroidered upon it by Filipino
needle workers from patterns selected and supplied by him. Most of the
embroidery work is done in the homes of the workers. The embroiderers
employed by plaintiff are under contract to work for plaintiff exclusively.
On September 1915, plaintiff and defendant entered into a contract. Under
the terms of this, agreement defendant entered the employ of plaintiff and
worked for him until April 1916, when defendant, on account of ill health,
left plaintiff's employ and went to the United States. While in plaintiff's
employ defendant had access to all parts of plaintiff's establishment, and
had full opportunity to acquaint himself with plaintiff's business methods
and business connections. The duties performed by him were such as to
make it necessary that he should have this knowledge of plaintiff s
business. Defendant had a general knowledge of the Philippine
embroidery business before his employment by plaintiff, having been
engaged in similar work for several years.
Some months after his departure, defendant returned to Manila as the
manager of the Philippine Underwear Company, a corporation. This
corporation does not maintain a factory in the Philippine Islands, but sends
material and embroidery designs from New York to its local representative
here who employs Filipino needle workers to embroider the designs and
make up the garments in their homes. The only difference between
plaintiff's business and that of the firm by which the defendant is
employed, is the method of doing the finishing work — the manufacture
of the embroidered material into finished garments.
Shortly after defendant's return to Manila and the commencement by him
of the discharge of the duties of his position as local manager of the
Philippine Embroidery Company, plaintiff commenced this action, the
principal purpose of which is to prevent, by injunction, any further breach
of that part of defendant's contract of employment by plaintiff, by which
he agreed that he would not "enter into or engage himself directly or
indirectly . . . in a similar or competitive business to that of (plaintiff)
anywhere within the Philippine Islands for a period of five years . . ." from
the date of the agreement.
Issue: Whether or not the said contract is valid.
Ruling: The contract is a valid one. The only limitation upon the freedom
of contractual agreement is that the acts established shall not be contrary
to "law, morals or public order." (Civil Code, art. 1255.)
Public welfare is first considered, and if it be not involved, and the
restraint upon one party is not greater than protection to the other party
requires, the contract may be sustained. The question is whether, under the
particular circumstances of the case and the nature of the particular
contract involved in it the contract is, or is not, unreasonable.
The Courts adopt the modern rule that the validity of restraints upon trade
or employment is to be determined by the intrinsic reasonableness of the
restriction in each case, rather than by any fixed rule, and that such
restrictions may be upheld when not contrary to the public welfare and not
greater than is necessary to afford a fair and reasonable protection to the
party in whose favor it is imposed.
A business enterprise may and often does depend for its success upon the
owner's relations with other dealers, his skill in establishing favorable
connections, his methods of buying and selling — a multitude of details,
none vital if considered alone, but which in the aggregate constitute the
sum total of the advantages which are the result of the experience or
individual aptitude and ability of the man or men by whom the business
has been built up. Failure or success may depend upon the possession of
these intangible but all-important assets, and it is natural that their
possessor should seek to keep them from falling into the hands of his
competitors.
It is with this object in view that such restrictions as that now under
consideration are written into contracts of employment. Their purpose is
the protection of the employer, and if they do not go beyond what is
reasonably necessary to effectuate this purpose they should be upheld. We
are of the opinion, and so hold, that in the light of the established facts the
restraint imposed upon defendant by his contract is not unreasonable.
Corporate Law Case Digest: Ponce v. Alsons Cement Corp. (2002)
G.R. NO. 139802 December 10, 2002
Lessons Applicable:
• Nature of Certificate of Stock (Corporate Law)
• Remedy if Registration is Refused (Corporate Law)
FACTS:
• February 8, 1968: Vicente C. Ponce and Fausto Gaid,
incorporator of Victory Cement Corporation (VCC), executed a “Deed of
Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce
is the owner of the shares and he was therefore assigning/endorsing it to
Ponce
• VCC was renamed Floro Cement Corporation (FCC) and then to
Alsons Cement Corporation (ACC)
• 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 ACC refused to issue the
certificates of stocks
• SEC Hearing Officer Enrique L. Flores, Jr. granted the motion
to dismiss
• Upon appeal, the Commission En Banc reversed the decision of
the Hearing Officer
• Ponce, filed a complaint with the SEC for mandamus
• CA: mandamus should be dismissed for failure to state a cause
of action
o in the absence of any allegation that the transfer of the shares
was registered in the stock and transfer book
ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce
HELD: NO. petition Denied.
• SEC. 63. Certificate of stock and transfer of shares.–The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stock so issued
are personal property and may be transferred by delivery of the certificate
or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show 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.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
• the stock and transfer book is the basis for ascertaining the
persons entitled to the rights and subject to the liabilities of a stockholder
o Where a transferee is not yet recognized as a stockholder, the
corporation is under no specific legal duty to issue stock certificates in the
transferee’s name.
• in a case such as that at bar, a mandamus should not issue to
compel the secretary of a corporation to make a transfer of the stock on the
books of the company
o unless it affirmatively appears that he has failed or refused so to
do, upon the demand either of the person in whose name the stock is
registered, or of some person holding a power of attorney for that purpose
from the registered owner of the stock.
mere indorsee of a stock certificate, claiming to be the owner,
will not necessarily be recognized as such by the corporation and its
officers, in the absence of express instructions of the registered owner to
make such transfer to the indorsee, or a power of attorney authorizing such
transfer
• mandamus - proper remedy to make him the rightful owner and
holder of a stock certificate to be issued in his name
• IMELDA O. COJUANGCO et al. v. SANDIGANBAYAN et al.
586 SCRA 790 (2009)
While the general rule is that the portion of a decision that becomes the
subject of execution is that ordained or decreed in the dis-positive part
thereof, there are recognized exceptions to this rule, one of which is where
extensive and explicit discussion and settlement of the issue is found in the
body of the decision. The Republic of the Philippines (Republic) filed
before the Sandiganbayan a “Complaint for Reconveyance, Reversion,
Accounting, Restitution and Damages,” of the alleged ill-gotten wealth of
the Marcoses which have been invested in the Philippine Long Distance
Telecommunication Corporation (PLDT). Ramon and Imelda Cojuangco
(Spouses Cojuangco) were subsequently impleaded. The Sandiganbayan
dismissed the complaint with respect to the recovery of the PLDT shares.
The Republic appealed to the Supreme Court, and the same issued a
favorable ruling. The Republic thereafter filed with the Sandiganbayan a
Motion for the Issuance of a Writ of Execution, praying for the
cancellation of the shares of stock registered in the name of Prime
Holdings and the annotation of the change of ownership on PTIC‘s Stock
and Transfer Book. The Republic further prayed for the issuance of an
order for PTIC to account for all cash and stock dividends declared by
PLDT in favor of PTIC from 1986 up to the present including
compounded interests. The Sandiganbayan granted the same, except its
prayer for accounting of dividends. The Republic moved for
reconsideration with respect to the denial of accounting of dividends,
which the Sandiganbayan granted. The Cojuangcos protested, alleging that
the SC‘s decision did not include in its dispositive portion the grant of
dividends and interests accruing to the shares adjudicated in favor of the
Republic.
ISSUE:
Whether or not the Republic is entitled to the dividends and interests
accruing to the shares despite its non-inclusion in the dis-positive portion
of the decision
HELD:
The Cojuangcos insist on a literal reading of the dis-positive portion of the
SC‘s Decision, excluding the dividends, interests, and earnings accruing to
the shares of stock from being accounted for and remitted. The SC, in
directing the re-conveyance to the Republic of the 111,415 shares of
PLDT stock owned by PTIC in the name of Prime Holdings, declared the
Republic as the owner of said shares and, necessarily, the dividends and
interests accruing thereto. Ownership is a relation in law by virtue of
which a thing pertaining to one person is completely subjected to his will
in everything not prohibited by law or the concurrence with the rights of
another. Its traditional elements or attributes include jus utendi or the right
to receive from the thing that it produces. Contrary to the Cojuangcos‘
contention, while the general rule is that the portion of a decision that
becomes the subject of execution is that ordained or decreed in the dis-
positive part thereof, there are recognized exceptions to this rule, viz: (a)
where there is ambiguity or uncertainty, the body of the opinion may be
referred to for purposes of construing the judgment, because the dis-
positive part of a decision must find support from the decision‘s ratio
decidendi; and (b) where extensive and explicit discussion and settlement
of the issue is found in the body of the decision. In the Decision, although
the inclusion of the dividends, interests, and earnings of the 111,415 PTIC
shares as belonging to the Republic was not mentioned in the dis-positive
portion of the Court‘s Decision, it is clear from its body that what was
being adjudicated in favor of the Republic was the whole block of shares
and the fruits thereof, said shares having been found to be part of the
Marcoses‘ ill- gotten wealth, and therefore, public money.
Republic Planters Bank vs. Agana
[GR 51765, 3 March 1997]
Facts: On 18 September 1961, the Robes-Francisco Realty &
Development Corporation (RFRDC) secured a loan from the Republic
Planters Bank in the amount of P120,000.00. As part of the proceeds of
the loan, preferred shares of stocks were issued to RFRDC through its
officers then, Adalia F. Robes and one Carlos F. Robes. In other words,
instead of giving the legal tender totaling to the full amount of the loan,
which is P120,000.00, the Bank lent such amount partially in the form of
money and partially in the form of stock certificates numbered 3204 and
3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the
name of Adalia F. Robes and Carlos F. Robes, who subsequently,
however, endorsed his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions: "The
Preferred Stock shall have the following rights, preferences, qualifications
and limitations, to wit: 1. Of the right to receive a quarterly dividend of
1%, cumulative and participating. xxx 2. That such preferred shares may
be redeemed, by the system of drawing lots, at any time after 2 years from
the date of issue at the option of the Corporation." On 31 January 1979,
RFRDC and Robes proceeded against the Bank and filed a complaint
anchored on their alleged rights to collect dividends under the preferred
shares in question and to have the bank redeem the same under the terms
and conditions of the stock certificates. The bank filed a Motion to
Dismiss 3 private respondents' Complaint on the following grounds: (1)
that the trial court had no jurisdiction over the subject-matter of the action;
(2) that the action was unenforceable under substantive law; and (3) that
the action was barred by the statute of limitations and/or laches. The
bank's Motion to Dismiss was denied by the trial court in an order dated
16 March 1979. The bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days from 30 July 1979 to
submit their respective memoranda after the submission of which the case
would be deemed submitted for resolution. On 7 September 1979, the trial
court rendered the decision in favor of RFRDC and Robes; ordering the
bank to pay RFRDC and Robes the face value of the stock certificates as
redemption price, plus 1% quarterly interest thereon until full payment.
The bank filed the petition for certiorari with the Supreme Court,
essentially on pure questions of law.
Issue:
1. Whether the bank can be compelled to redeem the preferred
shares issued to RFRDC and Robes.
2. Whether RFRDC and Robes are entitled to the payment of
certain rate of interest on the stocks as a matter of right without necessity
of a prior declaration of dividend.
Held:
1. While the stock certificate does allow redemption, the option to do so
was clearly vested in the bank. The redemption therefore is clearly the
type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of
its stock. Furthermore, the terms and conditions set forth therein use the
word "may". It is a settled doctrine in statutory construction that the word
"may" denotes discretion, and cannot be construed as having a mandatory
effect. The redemption of said shares cannot be allowed. The Central Bank
made a finding that the Bank has been suffering from chronic reserve
deficiency, and that such finding resulted in a directive, issued on 31
January 1973 by then Gov. G. S. Licaros of the Central Bank, to the
President and Acting Chairman of the Board of the bank prohibiting the
latter from redeeming any preferred share, on the ground that said
redemption would reduce the assets of the Bank to the prejudice of its
depositors and creditors. Redemption of preferred shares was prohibited
for a just and valid reason. The directive issued by the Central Bank
Governor was obviously meant to preserve the status quo, and to prevent
the financial ruin of a banking institution that would have resulted in
adverse repercussions, not only to its depositors and creditors, but also to
the banking industry as a whole. The directive, in limiting the exercise of a
right granted by law to a corporate entity, may thus be considered as an
exercise of police power.
2. Both Section 16 of the Corporation Law and Section 43 of the present
Corporation Code prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the
purpose. These provisions underscore the fact that payment of dividends
to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of interest
as dividends from net earnings or surplus only. In compelling the bank to
redeem the shares and to pay the corresponding dividends, the Trial
committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the
stock certificate, as well as the clear mandate of the law.
Corporate Law Case Digest: Tan v. Sycip (2006)
G.R. No. 153468 August 17, 2006
Lessons Applicable: Release from Subscription Obligation (Corporate
Law)
FACTS:
• Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation w/ 15 regular members, who also constitute the
board of trustees.
• April 6, 1998: During the annual members’ meeting only 11
living member-trustees, as 4 had already died.
o 7 attended the meeting through their respective proxies.
o The meeting was convened and chaired by Atty. Sabino Padilla
Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was
no quorum.
o In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia
Khoo, and Judith Tan were voted to replace the 4 deceased member-
trustees.
• SEC: meeting void due to lack of quorum (NOT living but based
on AIC)
o Sec 24 read together with Sec 89
• CA: Dismissed due to technicalities
ISSUE: W/N dead members should still be counted in the quorum - NO
based on by-laws
HELD: NO. remaining members of the board of trustees of GCHS may
convene and fill up the vacancies in the board
• Except as provided, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to
stocks with voting rights:
o 1. Amendment of the articles of incorporation;
o 2. Adoption and amendment of by-laws;
o 3. Sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporation property;
o 4. Incurring, creating or increasing bonded indebtedness;
o 5. Increase or decrease of capital stock;
o 6. Merger or consolidation of the corporation with another
corporation or other corporations;
o 7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
o 8. Dissolution of the corporation.
• quorum in a members’ meeting is to be reckoned as the actual
number of members of the corporation
• stock corporations - shareholders may generally transfer their
shares
o on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and
entitled to vote it
o Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor
• nonstock corporation - personal and non-transferable unless the
articles of incorporation or the bylaws of the corporation provide
otherwise
o Section 91 of the Corporation Code: termination extinguishes all
the rights of a member of the corporation, unless otherwise provided in the
articles of incorporation or the bylaws.
o whether or not "dead members" are entitled to exercise their
voting rights (through their executor or administrator), depends on those
articles of incorporation or bylaws
By-Laws of GCHS: membership in the corporation shall be
terminated by the death of the member
With 11 remaining members, the quorum = 6.
• SECTION 29. Vacancies in the office of director or trustee. --
Any vacancy occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may be
filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must be
filled by the stockholders in a regular or special meeting called for that
purpose. A director or trustee so elected to fill a vacancy shall be elected
only for the unexpired term of his predecessor in office.
o the filling of vacancies in the board by the remaining directors
or trustees constituting a quorum is merely permissive, not mandatory
either by the remaining directors constituting a quorum, or by
the stockholders or members in a regular or special meeting called for the
purpose
By-Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a majority vote of
the remaining members of the board
remaining member-trustees must sit as a board (as a body in a
lawful meeting) in order to validly elect the new ones
Republic vs. Cocofed
REPUBLIC v. COCOFED, G.R. No. 147062-64, December 14, 2001
(Coconut levy funds are prima facie public funds which should be
subjected to COA audit)
Facts:
The PCGG issued and implemented numerous sequestrations, freeze
orders and provisional takeovers of allegedly ill-gotten companies, assets
and properties, real or personal. Among the properties sequestered by the
Commission were shares of stock in the United Coconut Planters Bank
(UCPB) registered in the names of the alleged “one million coconut
farmers,” the so-called Coconut Industry Investment Fund companies
(CIIF companies) and Private Respondent Eduardo Cojuangco Jr. In
connection with the sequestration of the said UCPB shares, the PCGG, on
July 31, 1987, instituted an action for reconveyance, reversion,
accounting, restitution and damages docketed as Case No. 0033 in the
Sandiganbayan.
On November 15, 1990, upon Motion of Private Respondent COCOFED,
the Sandiganbayan issued a Resolution lifting the sequestration of the
subject UCPB shares on the ground that herein private respondents – in
particular, COCOFED and the so-called CIIF companies – had not been
impleaded by the PCGG as parties-defendants in its July 31, 1987
Complaint for reconveyance, reversion, accounting, restitution and
damages.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition
for Certiorari docketed as GR No. 96073 in this Court. Meanwhile, upon
motion of Cojuangco, the anti-graft court ordered the holding of elections
for the Board of Directors of UCPB. However, the PCGG applied for and
was granted by this Court a Restraining Order enjoining the holding of the
election. Subsequently, the Court lifted the Restraining Order and ordered
the UCPB to proceed with the election of its board of directors.
Furthermore, it allowed the sequestered shares to be voted by their
registered owners.
On February 23, 2001, “COCOFED, et al. and Ballares, et al.” filed the
“Class Action Omnibus Motion” referred to earlier in Sandiganbayan
Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:
“1. To enjoin the PCGG from voting the UCPB shares of stock registered
in the respective names of the more than one million coconut farmers; and
“2. To enjoin the PCGG from voting the SMC shares registered in the
names of the 14 CIIF holding companies including those registered in the
name of the PCGG.”
Issue:
Who may vote the sequestered UCPB shares while the main case for their
reversion to the State is pending in the Sandiganbayan?
Ruling:
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?
Sequestered Shares Acquired with Public Funds Are an Exception
From the foregoing general principle, the Court in Baseco v. PCGG
(“Baseco”) and Cojuangco Jr. v. Roxas, G.R. No. 91925, April 16, 1991)
(“Cojuangco-Roxas”) has provided two clear “public character”
exceptions under which the government is granted the authority to vote the
shares:
(1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds
somehow landed in private hands.
The exceptions are based on the common-sense principle that legal fiction
must yield to truth; that public property registered in the names of non-
owners is affected with trust relations; and that the prima facie beneficial
owner should be given the privilege of enjoying the rights flowing from
the prima facie fact of ownership.
The “public character” test was reiterated in many subsequent cases; most
recently, in Antiporda v. Sandiganbayan. (G.R. No. 116941, May 31,
2001) Expressly citing Cojuangco-Roxas, this Court said that in
determining the issue of whether the PCGG should be allowed to vote
sequestered shares, it was crucial to find out first whether these were
purchased with public funds, as follows:
“It is thus important to determine first if the sequestered corporate shares
came from public funds that landed in private hands.” In short, when
sequestered shares registered in the names of private individuals or entities
are alleged to have been acquired with ill-gotten wealth, then the two-
tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1)
originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply.
Rather, the public character exceptions in Baseco v. PCGG and Cojuangco
Jr. v. Roxas prevail; that is, the government shall vote the shares.
UCPB Shares Were Acquired With Coconut Levy Funds
In the present case before the Court, it is not disputed that the money used
to purchase the sequestered UCPB shares came from the Coconut
Consumer Stabilization Fund (CCSF), otherwise known as the coconut
levy funds. This fact was plainly admitted by private respondent’s counsel,
Atty. Teresita J. Herbosa, during the Oral Arguments held on April 17,
2001 in Baguio City. Indeed in Cocofed v. PCGG, this Court categorically
declared that the UCPB was acquired “with the use of the Coconut
Consumers Stabilization Fund in virtue of Presidential Decree No. 755,
promulgated on July 29, 1975.”
Coconut Levy Funds Are Affected With Public Interest
Having conclusively shown that the sequestered UCPB shares were
purchased with coconut levies, we hold that these funds and shares are, at
the very least, “affected with public interest.” The Resolution issued by
the Court on February 16, 1993 in Republic v. Sandiganbayan (G.R. No.
96073, stated that coconut levy funds were “clearly affected with public
interest”; thus, herein private respondents – even if they are the registered
shareholders – cannot be accorded the right to vote them. We quote the
said Resolution in part, as follows:
“The coconut levy funds being ‘clearly affected with public interest, it
follows that the corporations formed and organized from those funds, and
all assets acquired therefrom should also be regarded as ‘clearly affected
with public interest.’”
“The utilization and proper management of the coconut levy funds, raised
as they were by the State’s police and taxing powers, are certainly the
concern of the Government. It cannot be denied that it was the welfare of
the entire nation that provided the prime moving factor for the imposition
of the levy. It cannot be denied that the coconut industry is one of the
major industries supporting the national economy. It is, therefore, the
State’s concern to make it a strong and secure source not only of the
livelihood of a significant segment of the population but also of export
earnings the sustained growth of which is one of the imperatives of
economic stability. The coconut levy funds are clearly affected with public
interest. Until it is demonstrated satisfactorily that they have legitimately
become private funds, they must prima facie and by reason of the
circumstances in which they were raised and accumulated be accounted
subject to the measures prescribed in E.O. Nos. 1, 2, and 14 to prevent
their concealment, dissipation, etc., which measures include the
sequestration and other orders of the PCGG complained of.” (Italics
supplied)
To repeat, the foregoing juridical situation has not changed. It is still the
truth today: “the coconut levy funds are clearly affected with public
interest.”
To stress, the two-tiered test is applied only when the sequestered asset in
the hands of a private person is alleged to have been acquired with ill-
gotten wealth. Hence, in PCGG v. Cojuangco, we allowed Eduardo
Cojuangco Jr. to vote the sequestered shares of the San Miguel
Corporation (SMC) registered in his name but alleged to have been
acquired with ill-gotten wealth. We did so on his representation that he
had acquired them with borrowed funds and upon failure of the PCGG to
satisfy the “two-tiered” test. This test was, however, not applied to
sequestered SMC shares that were purchased with coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have
been acquired with coco levies, not with alleged ill-gotten wealth. Hence,
by parity of reasoning, the right to vote them is not subject to the “two-
tiered test” but to the public character of their acquisition, which per
Antiporda v. Sandiganbayan cited earlier, must first be determined.
Coconut Levy Funds Are Prima Facie Public Funds
To avoid misunderstanding and confusion, this Court will even be more
categorical and positive than its earlier pronouncements: the coconut levy
funds are not only affected with public interest; they are, in fact, prima
facie public funds. Public funds are those moneys belonging to the State or
to any political subdivision of the State; more specifically, taxes, customs
duties and moneys raised by operation of law for the support of the
government or for the discharge of its obligations. (Beckner v.
Commonwealth, 5 SE2d 525, Nov. 20, 1939) Undeniably, coconut levy
funds satisfy this general definition of public funds, because of the
following reasons:
1. Coconut levy funds are raised with the use of the police and taxing
powers of the State.
2. They are levies imposed by the State for the benefit of the coconut
industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares were
purchased with public funds.
4. The Commission on Audit (COA) reviews the use of coconut levy
funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private
respondents, has treated them as public funds.
6. The very laws governing coconut levies recognize their public
character.
We shall now discuss each of the foregoing reasons (among others), any
one of which is enough to show their public character.
xxx
3. Respondents Judicially Admit That the Levies Are Government Funds.
Equally important as the fact that the coconut levy funds were raised
through the taxing and police powers of the State is respondents’ effective
judicial admission that these levies are government funds. As shown by
the attachments to their pleadings, respondents concede that the Coconut
Consumers Stabilization Fund (CCSF) and the Coconut Investment
Development Fund “constitute government funds x x x for the benefit of
coconut farmers.”
4. The COA Audit Shows the Public Nature of the Funds.
Under COA Office Order No. 86-9470 dated April 15, 1986, the COA
reviewed the expenditure and use of the coconut levies allocated for the
acquisition of the UCPB. The audit was aimed at ascertaining whether
these were utilized for the purpose for which they had been intended.
Because these funds have been subjected to COA audit, there can be no
other conclusion than that they are prima facie public in character.
Having shown that the coconut levy funds are not only affected with
public interest, but are in fact prima facie public funds, this Court believes
that the government should be allowed to vote the questioned shares,
because they belong to it as the prima facie beneficial and true owner.
In sum, we hold that the Sandiganbayan committed grave abuse of
discretion in grossly contradicting and effectively reversing existing
jurisprudence, and in depriving the government of its right to vote the
sequestered UCPB shares which are prima facie public in character.
The Petition is hereby GRANTED and the assailed Order SET ASIDE.
The PCGG shall continue voting the sequestered shares until
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally
and completely resolved.
GSIS v. CA (G.R. No. 183905)
Facts:
GSIS, a major shareholder in Meralco, was distressed over the proxy
validation proceedings and the resulting certification of proxies in favor of
the Meralco Management. The proceedings were presided over by
Meralco’s assistant corporate secretary and chief legal counsel instead of
the person duly designated by Meralco’s Board of Directors. Thus, GSIS
moved before the SEC to declare certain proxies, those issued to herein
private respondents, as invalid. Private respondents contend that dispute in
the validity of proxies is an election contest which falls under the trial
court’s jurisdiction. GSIS argues there was no election yet at the time it
filed its petition with the SEC, hence no proper election contest over
which the regular courts may have jurisdiction.
Issue:
Whether or not the proxy challenge is an election contest cognizable by
the regular courts.
Ruling: YES.
Section 2, Rule 6 of the Interim Rules broadly defines the term “election
contest” as encompassing all plausible incidents arising from the election
of corporate directors, including: (1) any controversy or dispute involving
title or claim to any elective office in a stock or non-stock corporation, (2)
the validation of proxies, (3) the manner and validity of elections and (4)
the qualifications of candidates, including the proclamation of winners.
Under Section 5(c) of Presidential Decree No. 902-A, in relation to the
SRC, the jurisdiction of the regular trial courts with respect to election-
related controversies is specifically confined to “controversies in the
election or appointment of directors, trustees, officers or managers of
corporations, partnerships, or associations.” Evidently, the jurisdiction of
the regular courts over so-called election contests or controversies under
Section 5(c) does not extend to every potential subject that may be voted
on by shareholders, but only to the election of directors or trustees, in
which stockholders are authorized to participate under Section 24 of the
Corporation Code.
The power of the SEC to investigate violations of its rules on proxy
solicitation is unquestioned when proxies are obtained to vote on matters
unrelated to the cases enumerated under Section 5 of Presidential Decree
No. 902-A. However, when proxies are solicited in relation to the election
of corporate directors, the resulting controversy, even if it ostensibly
raised the violation of the SEC rules on proxy solicitation, should be
properly seen as an election controversy within the original and exclusive
jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5(c) of Presidential Decree No. 902-A.
That the proxy challenge raised by GSIS relates to the election of the
directors of Meralco is undisputed. The controversy was engendered by
the looming annual meeting, during which the stockholders of Meralco
were to elect the directors of the corporation. GSIS very well knew of that
fact.
ANG-ABAYA v. ANG G.R. No. 178511
Topic: Sec. 74 Corporation Code
ANG-ABAYA v. ANG G.R. No. 178511, December 4, 2008, Ynares-
Santiago, J.:
The stockholder’s right of inspection of the corporation’s book and
records is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of self-protection. The inspection has to be
germane to the petitioner’s interest as a stockholder, and has to be proper
and lawful in character and not inimical to the interest of the corporation.
FACTS: Vibelle Manufacturing Corporation (VMC) and Genato
Investments, Inc. (Genato) are family-owned corporations, where
petitioners and private respondent Eduardo Ang are shareholders, officers
and members of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriano Manufacturing
Corp. filed a Civil case 4257-MC against Eduardo, together with Michael,
and some other persons for allegedly conniving to fraudulently wrest
control/management of the corporations.
During the pendency of the above-mentioned Civil Case, particularly in
July 2004, Eduardo sought permission to inspect the corporate books of
VMC and Genato on account of petitioners alleged failure to update him
on the financial and business activities of these family corporations.
Petitioners denied the request claiming that Eduardo would use the
information obtained from said inspection for purposes inimical to the
corporations’ interests. Because of petitioners’ refusal to grant Eduardo’s
request, the latter filed an Affidavit-Complaint against petitioners,
charging them with violation of two counts of Sec. 74 (Corporation Code),
in relation to Sec. 144.
Petitioners denied violating Sec. 74 and reiterated the allegations
contained in their complaint in Civ. Case 4257-MC. They alleged that
Eduardo consistently pressured petitioner Flordeliza, his daughter, to
improperly transfer ownership of the corporations’ V.A.G building to him.
When the proposed transfer of the V.A.G. building did not materialize,
petitioners claim that Eduardo instituted an action to compel donation of
said property to him. Moreover, they claim that Eduardo attempted to
forcibly evict petitioner Jason from his office at VMC so he can occupy
the same; that Eduardo and his cohorts constantly created trouble by
intervening in the daily operations of the corporations without the
knowledge or consent of the board of directors.
ISSUE: Whether the petitioners violated Sec, 74 of the Corporation Code
of the PH.
RULING: NO. The stockholders’ right to inspect corporate books is not
without limitations. It is now expressly required as a condition for such
examination that the one requesting it must not have been guilty of using
improperly any information secured through a prior examination, or that
the person asking for such examination must be acting in good faith and
for a legitimate purpose in making his demand.
In order therefore for the penal provision under Sec 144 of the Corporation
Code to apply in a case of violation of a stockholder or members right to
inspect the corporate books/records the elements provided for under Sec
74 must be present.
The petition is GRANTED.
Shiou v. Chim
SY TIONG SHIOU v. SY CHIM and FELICIDAD CHAN SY, (G)
G.R. No. 174168, March 30, 2009
FACTS:
• February 3 2003, Juanita Tan, corporate treasurer of Sy Siy Ho
& Sons, Inc. (the corporation), a family corporation doing business under
the name and style Guan Yiac Hardware, submitted a letter to the
corporation’s Board of Directors (Board) statingthat Felicidad Chan Sy
did not make cash deposits to any of the corporation’s banks from 1
November 2001 to 31 January 2003, thus the total bank remittances for the
past years were less than reflected in the corporate financial statements,
accounting books and records. Finally, Juanita Tan sought to be free from
any responsibility over all corporate funds.
• April 5, 2003, Banaria, Banaria & Company in its report, the
accounting firm attributed to the Spouses Sy P67,117,230.30 as
unaccounted receipts and disbursements from 1994 to 2002.
• April 15, 2003, a demand letter was subsequently served on the
Spouses Sy. On the same date, the children of the Spouses Sy allegedly
stole from the corporation cash, postdated checks and other important
documents. After the incident, the Spouses Sy allegedly transferred
residence and ceased reporting to the corporation. Thereupon, the
corporation filed a criminal complaint for robbery against the Spouses Sy
before the City Prosecutor’s Office of Manila.
• July 1, 2003, the corporation, through Romer S. Tan, filed its
Amended Complaint for Accounting and Damages against the Spouses Sy
before the RTC Manila, praying for a complete and true accounting of all
the amounts paid to, received and earned by the company since 1993 and
for the restitution of the said amount.The complaint also prayed for a
temporary restraining order (TRO) and or preliminary injunction to
restrain Sy Chim from calling a stockholders’ meeting on the ground of
lack of authority.
• September 9, 2003, the Spouses Sy filed their Motion for Leave
to File Third-Party Complaint, praying that their attached Third Party
Complaint be allowed and admitted against Sy Tiong Shiou and his
spouse. In the said third-party complaint, the Spouses Sy accused Sy
Tiong Shiou and Juanita Tan as directly liable for the corporation’s claim
for misappropriating corporate funds.
• October 8, 2003, the trial court granted the motion for leave to
file the third-party complaint, and forthwith directed the issuance of
summons against Sy Tiong Shiou and Juanita Tan.
• January 16, 2004, their counsel allegedly discovered that Sy
Tiong Shiou and Juanita Tan were not furnished with the copies of several
pleadings, as well as a court order, which resulted in their having been
declared in default for failure to file their answer to the third-party
complaint; thus, they instead filed a petition for certiorari before the Court
of Appeals.
• May 26, 2004, the Court of Appeals granted the petition of Sy
Tiong Shiou and Juanita Tan.61The appellate court declared that a third-
party complaint is not allowed under the Interim Rules of Procedure
Governing Intra-Corporate Controversies Under R.A. No. 8799 (Interim
Rules).
ISSUE:
• Whether or not a third-party complaint is prohibited by the
Interim Rules.
HELD:
• No, the third-party complaint should be allowed. For while a
third-party complaint is not included in the allowed pleadings, neither is it
among the prohibited ones. Nevertheless, this conflict may be resolved by
following the well-entrenched rule in statutory construction, that every
part of the statute must be interpreted with reference to the context, i.e.,
that every part of the statute must be considered together with the other
parts, and kept subservient to the general intent of the whole enactment.
Statutes, including rules, should be construed in the light of the object to
be achieved and the evil or mischief to be suppressed and they should be
given such construction as will advance the object, suppress the mischief
and secure the benefits intended. A statute should therefore be read with
reference to its leading idea, and its general purpose and intention should
be gathered from the whole act, and this predominant purpose will prevail
over the literal import of particular terms or clauses, if plainly apparent,
operating as a limitation upon some and as a reason for expanding the
signification of others, so that the interpretation may accord with the spirit
of the entire act, and so that the policy and object of the statute as a whole
may be made effectual and operative to the widest possible extent.
Otherwise stated, the spirit, rather than the letter of a law determines its
construction; hence, a statute, as in the rules in this case, must be read
according to its spirit and intent
Bitong v. CA (G.R. No. 123553)
Facts:
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a
derivative suit before the SEC against respondent spouses Apostol, who
were officers in said corporation, to hold them liable for fraud and
mismanagement in directing its affairs. Respondent spouses moved to
dismiss on the ground that petitioner had no legal standing to bring the suit
as she was merely a holder-in-trust of shares of JAKA Investments which
continued to be the true stockholder of Mr. & Ms. Petitioner contends that
she was a holder of proper stock certificates and that the transfer was
recorded. She further contends that even in the absence of the actual
certificate, mere recording will suffice for her to exercise all stockholder
rights, including the right to file a derivative suit in the name of the
corporation. The SEC Hearing Panel dismissed the suit. On appeal, the
SEC En Banc found for petitioner. CA reversed the SEC En Banc
decision.
Issue:
Whether or not petitioner is the true holder of stock certificates to be able
institute a derivative suit.
Ruling: NO.
Sec 63 of the Corporation Code envisions a formal certificate of stock
which can be issued only upon compliance with certain requisites. First,
the certificates must be signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation. A mere typewritten statement advising a
stockholder of the extent of his ownership in a corporation without
qualification and/or authentication cannot be considered as a formal
certificate of stock. Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a stock certificate
where it is never detached from the stock books although blanks therein
are properly filled up if the person whose name is inserted therein has no
control over the books of the company. Third, the par value, as to par
value shares, or the full subscription as to no par value shares, must first
be fully paid. Fourth, the original certificate must be surrendered where
the person requesting the issuance of a certificate is a transferee from a
stockholder.
The certificate of stock itself once issued is a continuing affirmation or
representation that the stock described therein is valid and genuine and is
at least prima facie evidence that it was legally issued in the absence of
evidence to the contrary. However, this presumption may be rebutted.
Aside from petitioner’s own admissions, several corporate documents
disclose that the true party-in-interest is not petitioner but JAKA. It should
be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms.
shares in favor of respondent Eugenio D. Apostol. On the same day,
respondent Apostol signed a declaration of trust stating that she was the
registered owner of 1,000 Mr. & Ms. shares covered by a Certificate of
Stock. And, there is nothing in the records which shows that JAKA had
revoked the trust it reposed on respondent Eugenia D. Apostol. Neither
was there any evidence that the principal had requested her to assign and
transfer the shares of stock to petitioner. In fine, the records are unclear on
how petitioner allegedly acquired the shares of stock of JAKA.
Thus, for a valid transfer of stocks, the requirements are as follows: (a)
There must be delivery of the stock certificate; (b) The certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and, (c) to be valid against third parties,
the transfer must be recorded in the books of the corporation. At most, in
the instant case, petitioner has satisfied only the third requirement.
Compliance with the first two requisites has not been clearly and
sufficiently shown.
*The basis of a stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal requisites for its
institution. The most important of these is the bona fide ownership by a
stockholder of a stock in his own right at the time of the transaction
complained of which invests him with standing to institute a derivative
action for the benefit of the corporation.
Western Institute of Technology Inc. vs. Salas Case Digest
Western Institute of Technology Inc. vs. Salas
[GR 113032, 21 August 1997]
Facts: Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja,
Antonio S. Salas, and Richard S. Salas, belonging to the same family, are
the majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT), a stock corporation engaged in the
operation, among others, of an educational institution. According to
Homero L. Villasis, Dimas Enriquez, peston F. Villasis, and Reginald F.
Villasis, the minority stockholders of WIT, sometime on 1 June 1986 in
the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting
was held. In attendance were other members of the Board including
Reginald Villasis. Prior to said Special Board Meeting, copies of notice
thereof, dated 24 May 1986, were distributed to all Board Members.The
notice allegedly indicated that the meeting to be held on 1 June 1986
included Item 6 which states that "Possible implementation of Art. III,
Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc.
on compensation of all officers of the corporation." In said meeting, the
Board of Trustees passed Resolution 48, series 1986, granting monthly
compensation to Salas, et. al. as corporate officers retroactive 1 June 1985,
in the following amounts: “Chairman 9,000.00/month, Vice Chairman
P3,500.00/month, Corporate Treasurer P3,500.00/month and Corporate
Secretary P3,500.00/month, retroactive June 1, 1985 and the ten
percentum of the net profits shall be distributed equally among the ten
members of the Board of Trustees. This shall amend and supercede any
previous resolution.”
A few years later, or on 13 March 1991, Homero Villasis, Preston Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against
Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a result
of which 2 separate criminal informations, one for falsification of a public
document under Article 171 of the Revised Penal Code and the other for
estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33
of the Regional Trial Court of Iloilo City. The charge for falsification of
public document was anchored on Salas, et. al.'s submission of WIT's
income statement for the fiscal year 1985-1986 with the Securities and
Exchange Commission (SEC) reflecting therein the disbursement of
corporate funds for the compensation of Salas, et. al. based on Resolution
4, series of 1986, making it appear that the same was passed by the board
on 30 March 1986, when in truth, the same was actually passed on 1 June
1986, a date not covered by the corporation's fiscal year 1985-1986
(beginning May 1, 1995 and ending April 30, 1986). Thereafter, trial for
the two criminal cases (Criminal Cases 37097 and 37098), was
consolidated. After a full-blown hearing, Judge Porfirio Parian handed
down a verdict of acquittal on both counts dated 6 September 1993
without imposing any civil liability against the accused therein. Villasis,
et. al. filed a Motion for Reconsideration of the civil aspect of the RTC
Decision which was, however, denied in an Order dated 23 November
1993. Villasis, et. al. filed the petition for review on certiorari.
Significantly on 8 December 1994, a Motion for Intervention, dated 2
December 1994, was filed before this Court by Western Institute of
Technology, Inc., disowning its inclusion in the petition and submitting
that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no
authority whatsoever to represent the corporation in filing the petition.
Intervenor likewise prayed for the dismissal of the petition for being
utterly without merit. The Motion for Intervention was granted on 16
January 1995.
Issue: Whether the grant of compensation to Salas, et. al. is proscribed
under Section 30 of the Corporation Code.
Held: Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption
that directors/trustees render service gratuitously, and that the return upon
their shares adequately furnishes the motives for service, without
compensation. Under Section 30 of the Corporation Code, there are only
two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a
provision in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital stock at a
regular or special stockholders' meeting agree to give it to them. Also, the
proscription, however, against granting compensation to director/trustees
of a corporation is not a sweeping rule. Worthy of note is the clear
phraseology of Section 30 which state: "[T]he directors shall not receive
any compensation, as such directors." The phrase as such directors is not
without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their
capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to
reasonable per diems, when they render services to the corporation in a
capacity other than as directors/trustees. Herein, resolution 48, s. 1986
granted monthly compensation to Salas, et. al. not in their capacity as
members of the board, but rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer and Secretary of
Western Institute of Technology. Clearly, therefore, the prohibition with
respect to granting compensation to corporate directors/trustees as such
under Section 30 is not violated in this particular case. Consequently, the
last sentence of Section 30 which provides that "In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during the
preceding year" does not likewise find application in this case since the
compensation is being given to Salas, et. al. in their capacity as officers of
WIT and not as board members.
FILIPINAS PORT SERVICES INC v. GO, ET AL.
FACTS:
The case involves a petition for review on certiorari.
We have here Eliodoro C. Cruz suing on behalf of the stockholders
of Filipinas Port Services alleging that there has been numerous cases of
mismanagement by the board of directors:
1. creation of an executive committee not provided for in the by-
laws of the corporation
2. disproportionate increase in the salary of officials
3. re-creation of already existing positions
4. creation of additional positions with holders not doing any work
to deserve any monthly remuneration.
He prayed for the return of the salary received by all the unnecessarily
appointed members.
The Trial Court sided with the respondent and ruled that the creation of
the executive committee and the additional position was legitimate given
that it was provided by the corporation’s by-law. However, the prayer for
the return of salaries received was granted, even if the positions and the
committee were valid, for the court ruled that Filipinas Port Services is not
a big corporation requiring multiple executive positions.
The respondents appealed the decision and they received a favourable
decision as the Court of Appeals granted the respondents’ appeal, reversed
and set aside the appealed decision of the trial court and accordingly
dismissed the so-called derivative suit filed by Cruz, et al.,
Cruz did not take the decision sitting down, hence the petition.
To counter the appeal filed by Cruz, respondents also claim that what Cruz
filed is not a derivative suit.
The petition was denied and the challenged decision of the CA was
affirmed. Only, the Supreme Court clarified the issue involving the
legitimacy of the derivative suit.
ISSUE:
Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a
derivative suit?
HELD:
YES.
Under the Corporation Code, where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees. But an
individual stockholder or an individual trustee may be permitted to
institute a derivative suit in behalf of the corporation in order to protect or
vindicate corporate rights whenever the officials of the corporation refuse
to sue, or when a demand upon them to file the necessary action would be
futile because they are the ones to be sued, or because they hold control of
the corporation. In such actions, the corporation is the real party-in-interest
while the suing stockholder, in behalf of the corporation, is only a nominal
part.
Here, the action below is principally for damages resulting from
alleged mismanagement of the affairs of Filport by its directors/officers, it
being alleged that the acts of mismanagement are detrimental to the
interests of Filport. Thus, the injury complained of primarily pertains to
the corporation so that the suit for relief should be by the corporation.
However, since the ones to be sued are the directors/officers of the
corporation itself, a stockholder, like petitioner Cruz, may validly institute
a “derivative suit” to vindicate the alleged corporate injury, in which case
Cruz is only a nominal party while Filport is the real party-in-interest.
Besides, the requisites before a derivative suit can be filed by a
stockholder or individual trustee are present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time of the
act or transaction complained of, the number of his shares not being
material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief but the latter
has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and
not to the particular stockholder bringing the suit.
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought
without success to have its board of directors remedy what he perceived as
wrong when he wrote a letter requesting the board to do the necessary
action in his complaint; and (3) the alleged wrong was in truth a wrong
against the stockholders of the corporation generally, and not against Cruz
or Minterbro, in particular. And while it is true that the complaining
stockholder must show to the satisfaction of the court that he has
exhausted all the means within his reach to attain within the corporation
itself the redress for his grievances, or actions in conformity to his wishes,
nonetheless, where the corporation is under the complete control of the
principal defendants or other trustees, as here, there is no necessity of
making a demand upon the directors. The reason is obvious: a demand
upon the board to institute an action and prosecute the same effectively
would have been useless and an exercise in futility.
Bottom line, when it comes to cases involving two or more trustees, an
individual trustee can file a derivative suit duly following the requisites
without the need to exhaust internal remedies where the trusteeship is
under the complete control of the other trustees for it will be a waste of
time.
Tam Wing Tak vs Ramon Makasiar
February 22, 2013
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Business Organization – Corporation Law – Ultra Vires Acts of Corporate
Officers – Derivative Suit
Sometime before November 1992, Vic Ang Siong issued a check to
Concord-World Properties, Inc. The check amounted to P83.5 million.
The check however bounced. In November 1992, Tam Wing Tak filed an
affidavit-complaint for violation of the Anti-Bouncing Checks Law
against Ang Siong. The fiscal did not file a criminal information against
Ang Siong because apparently Concord-World and Ang Siong are settling
out of court (in fact Ang Siong already paid P19 million); and that Tam
Wing Tak was not authorized by the Board of Directors of Concord-World
to sue Ang Siong. Tam Wing Tak then filed a petition for mandamus to
compel the fiscal to file the information. Judge Ramon Makasiar
dismissed the petition.
ISSUE: Whether or not the petition should be granted.
HELD: No. The petition for mandamus shall not lie. There was no grave
abuse of discretion when the fiscal refused to file the information.
Concord-World is the named payee in the check that bounced. As payee,
Concord-World is the injured party hence only Concord-World can file the
criminal case against Ang Siong but it did not do so because it chose to
amicably settle the issue with Ang Siong. Where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. This can be delegated but Tam Wing Tak never proved that he
was authorized by the Board of Concord-World.
But may the suit be considered a derivative suit where the Board’s
authorization may not be had?
No. 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. In this case, this was not complied with. Hence, Tam
Wing Tak cannot sue Ang Siong.
Reyes v. RTC of Makati [G.R. No. 165744. August 11, 2008]
03 Oct
OSCAR C. REYES, petitioner,
vs.
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142,
ZENITH INSURANCE CORPORATION and RODRIGO C.
REYES, respondents.
[G.R. No. 165744. August 11, 2008]
FACTS:
Petitioner and private respondent were siblings together with two others,
namely Pedro and Anastacia, in a family business established as Zenith
Insurance Corporation (Zenith), from which they owned shares of stocks.
The Pedro and Anastacia subsequently died. The former had his estate
judicially partitioned among his heirs, but the latter had not made the same
in her shareholding in Zenith. Zenith and Rodrigo filed a complaint with
the Securities and Exchange Commission (SEC) against petitioner (1) a
derivative suit to obtain accounting of funds and assets of Zenith, and (2)
to determine the shares of stock of deceased Pedro and Anastacia that
were arbitrarily and fraudulently appropriated [by Oscar, and were
unaccounted for]. In his answer with counterclaim, petitioner denied the
illegality of the acquisition of shares of Anastacia and questioned the
jurisdiction of SEC to entertain the complaint because it pertains to
settlement of [Anastacia’s] estate. The case was transferred to. Petitioner
filed Motion to Declare Complaint as Nuisance or Harassment Suit and
must be dismissed. RTC denied the motion. The motion was elevated to
the Court of Appeals by way of petition for certiorari, prohibition and
mandamus, but was again denied.
ISSUES:
Mercantile Law
(1) Whether or not Rodrigo may be considered a stockholder of Zenith
with respect to the shareholdings originally belonging to Anastacia.
(2) Whether or not there is an intra-corporate relationship between the
parties that would characterize the case as an intra-corporate dispute?
Remedial Law
(1) Whether or not the complaint is a mere nuisance or harassment suit
that should be dismissed under the Interim Rules of Procedure of Intra-
Corporate Controversies;
(2) Whether or not the complaint is a derivative suit within the
jurisdiction of the RTC acting as a special commercial court.
RULINGS:
Mercantile Law
(1) No. Rodrigo must, hurdle two obstacles before he can be considered a
stockholder of Zenith with respect to the shareholdings originally
belonging to Anastacia. First, he must prove that there are shareholdings
that will be left to him and his co-heirs, and this can be determined only in
a settlement of the decedent’s estate. No such proceeding has been
commenced to date. Second, he must register the transfer of the shares
allotted to him to make it binding against the corporation. He cannot
demand that this be done unless and until he has established his specific
allotment (and prima facie ownership) of the shares. Without the
settlement of Anastacia’s estate, there can be no definite partition and
distribution of the estate to the heirs. Without the partition and
distribution, there can be no registration of the transfer. And without the
registration, we cannot consider the transferee-heir a stockholder who may
invoke the existence of an intra-corporate relationship as premise for an
intra-corporate controversy within the jurisdiction of a special commercial
court. The subject shares of stock (i.e., Anastacia’s shares) are concerned
– Rodrigo cannot be considered a stockholder of Zenith.
(2) No. Court cannot declare that an intra-corporate relationship exists
that would serve as basis to bring this case within the special commercial
court’s jurisdiction under Section 5(b) of PD 902-A, as amended because
Rodrigo’s complaint failed the relationship test above.
Remedial Law
(1) Yes. The rule is that a complaint must contain a plain, concise, and
direct statement of the ultimate facts constituting the plaintiff’s cause of
action and must specify the relief sought. Section 5, Rule 8 of the Revised
Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with
particularity. These rules find specific application to Section 5(a) of P.D.
No. 902-A which speaks of corporate devices or schemes that amount to
fraud or misrepresentation detrimental to the public and/or to the
stockholders.
Allegations of deceit, machination, false pretenses, misrepresentation, and
threats are largely conclusions of law that, without supporting statements
of the facts to which the allegations of fraud refer, do not sufficiently state
an effective cause of action. Fraud and mistake are required to be averred
with particularity in order to enable the opposing party to controvert the
particular facts allegedly constituting such fraud or mistake. Tested against
these standards, charges of fraud against Oscar were not properly
supported by the required factual allegations. While the complaint
contained allegations of fraud purportedly committed by him, these
allegations are not particular enough to bring the controversy within the
special commercial court’s jurisdiction; they are not statements of ultimate
facts, but are mere conclusions of law: how and why the alleged
appropriation of shares can be characterized as “illegal and fraudulent”
were not explained nor elaborated on. The case must be dismissed.
(2) No. The allegations of the present complaint do not amount to a
derivative suit. First, as already discussed above, Rodrigo is not a
shareholder with respect to the shareholdings originally belonging to
Anastacia; he only stands as a transferee-heir whose rights to the share are
inchoate and unrecorded. Second, in order that a stockholder may show a
right to sue on behalf of the corporation, he must allege with some
particularity in his complaint that he has exhausted his remedies within the
corporation by making a sufficient demand upon the directors or other
officers for appropriate relief with the expressed intent to sue if relief is
denied. Lastly, Court found no injury, actual or threatened, alleged to have
been done to the corporation due to Oscar’s acts. If indeed he illegally
and fraudulently transferred Anastacia’s shares in his own name, then the
damage is not to the corporation but to his co-heirs; the wrongful transfer
did not affect the capital stock or the assets of Zenith.
In summary, whether as an individual or as a derivative suit, the RTC –
sitting as special commercial court – has no jurisdiction to hear Rodrigo’s
complaint since what is involved is the determination and distribution of
successional rights to the shareholdings of Anastacia Reyes. Rodrigo’s
proper remedy, under the circumstances, is to institute a special
proceeding for the settlement of the estate of the deceased Anastacia
Reyes, a move that is not foreclosed by the dismissal of his present
complaint.
Benedicto Hornilla vs Ernesto Salunat
January 14, 2014
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Commercial Law – Corporation Law – Derivative Suit
Legal Ethics – Conflict of Interests
Benedicto Hornilla and Federico Ricafort were members of the Philippine
Public School Teachers Association (PPSTA). In 1997, they accused the
Board of Directors of PPSTA of unlawfully spending the funds of PPSTA.
However, since the PPSTA was not initiating a complaint against the
Board of Directors, the two then filed a suit on behalf of PPSTA against
the Board of PPSTA.
In the said suit, the Board of Directors were represented by Atty. Ernesto
Salunat. Hornilla et al were against the legal representation being made by
Salunat for and on behalf of the Board of Directors because of the fact that
Salunat is part of the ASSA Law Offices. And the ASSA Law Offices
happen to be the retained law firm of the PPSTA. In short, Hornilla et al
alleged that there is conflict of interests.
ISSUE: Whether or not there is conflict of interest.
HELD: Yes. The suit filed by Hornilla et al against the Board of PPSTA is
a derivative suit. Where corporate directors have committed a breach of
trust either by their frauds, ultra vires acts, or negligence, and the
corporation is unable or unwilling to institute suit to remedy the wrong, a
stockholder (in this case a member because PPSTA is non-stock) may sue
on behalf of himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong done directly to the
corporation and indirectly to the stockholders. In such a case, even though
it was the members who filed the case and not the corporation itself, the
real party in interest is still the corporation (PPSTA) and the suing
members (Hornilla et al) are only the nominal party.
Therefore, since it is the corporation suing, Salunat cannot represent the
Board Members of PPSTA because he is a member of ASSA Law Office
which is the retained law firm of PPSTA. Surely, there is conflict of
interest in him representing the Board while his law office represents the
corporation. Salunat was admonished by the Supreme Court.
Evangelista & Co. et.al. v. Estrella Abad Santos
FACTS:
On October 9, 1954, a co-partnership with herein petitioners as capitalist
partners was formed under the name “Evangelista & Co.” The Articles of
Co-partnership was, however, amended on June 7, 1955 so as to include
herein respondent, Estrella Abad Santos, as an industrial partner.
Consequently, on December 17, 1963, Abad Santos filed suit against the
three (3) capitalist partners, alleging that the partnership, which was also
made a party-defendant, had been paying dividends to the partners except
to her. It was further alleged that despite her requests that she be allowed
to examine partnership books, to give her information regarding the
partnership affairs and to receive her share in the dividends declared by
the partnership, the petitioners refused and continued to refuse. She
therefore prayed that the petitioners be ordered to render an accounting of
the partnership business and to pay her the corresponding share in the
dividends.
ISSUE:
Whether or not the Articles of Co-partnership shall be considered as a
conclusive evidence of respondent’s status as a limited partner?
HELD:
NO. The Court held that despite the genuineness of the Articles of
Co-partnership the same did not express the true intent and agreement of
the parties, however, as the subsequent events and testimonial evidences
indicate otherwise, the Court upheld that respondent is an industrial
partner of the company.
Article 1789 provides that ‘An industrial partner cannot engage in
business for himself, unless the partnership expressly permits him to do
so; and if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either
case.’ Since 1954 and until after the promulgation of the decision of the
appellate court, Abad Santos has served as a judge of the City Court of
Manila and had been paid for services rendered allegedly contributed by
her to the partnership. Though being a judge of the City Court of Manila
cannot be characterized a business and/or may be considered an
antagonistic business to the partnership, the petitioners, subsequent of
petitioners’ answer to the complaint, petitioners reached the decision that
respondent be excluded from and deprived of her alleged share in the
interest or participation as an alleged industrial partner in the net profits or
income of the partnership.
Having always known the respondent is a City Judge even before she
joined the partnership, why did it take petitioners so many years before
excluding her from said company? Furthermore, the act of exclusion is
premised on the ground that respondent has always been a partner, an
industrial partner. In addition, the Court further held that with the
consideration of Article 1767 that ‘By a contract of partnership two or
more persons bind themselves, to contribute money, property, or industry
to a common fund, with the intention of dividing profits among
themselves’, the services rendered by respondent may legitimately be
considered the respondent’s contribution to the common fund.
LEGASPI TOWERS 300, INC v. AMELIA P. MUER (Jurisdiction;
Class Suit)
MissDennieIdea Uncategorized June 1, 2015 2 Minutes
LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA,
ROSANNA D. IMAI, GLORIADOMINGO and RAY VINCENT,
Petitioners, vs. AMELIA P. MUER, SAMUEL M. TANCHOCO,
ROMEO TANKIANG, RUDEL PANGANIBAN,DOLORES
AGBAYANI, ARLENEDAL A. YASUMA, GODOFREDO M.
CAGUIOA and EDGARDO M.SALANDANAN, Respondents.
FACTS: Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners,
the incumbent Board of Directors, set the annual meeting of the members
of the condominium corporation and the election of the new Board of
Directors at the lobby of Legaspi Towers 300, Inc. The Committee on
Elections of Legaspi Towers 300, Inc., however, found most of the proxy
votes, at its face value, irregular, thus, questionable; and for lack of time to
authenticate the same, petitioners adjourned the meeting for lack of
quorum. However, the group of respondents challenged the adjournment
of the meeting. Despite petitioners’ insistence that no quorum was
obtained during the annual meeting held on April 2, 2004, respondents
pushed through with the scheduled election and were elected as the new
Board of Directors and officers of Legaspi Towers 300, Inc. and
subsequently submitted a General Information Sheet to the Securities and
Exchange Commission (SEC). On plaintiffs’ motion to admit amended
complaint to include Legaspi Towers 300, Inc. as plaintiff),the RTC ruled
denying the motion for being improper. Then, petitioners filed with the
Court of Appeals and held that Judge Antonio I. De Castro of the Regional
Trial Court (RTC) of Manila, did not commit grave abuse of discretion in
issuing the Orders denying petitioners’ Motion to Admit Second Amended
Complaint and that petitioners the justified the inclusion of Legaspi
Towers 300, Inc. as plaintiff by invoking the doctrine of derivative suit.
Petitioners’ motion for reconsideration was denied by the Court of
Appeals thereafter. Hence this petition.
ISSUE: Whether or not Derivative Suit proper in this case?
RULING: The Supreme Court DENIED the petition and AFFIRMED the
Decision of the Court of Appeals. Derivative Suit is not applicable. Since
it is the corporation that is the real party-in-interest in a derivative suit,
then the reliefs prayed for must be for the benefit or interest of the
corporation. When the reliefs prayed for do not pertain to the corporation,
then it is an improper derivative suit. The requisites for a derivative suit
are as follows:
1. a) the party bringing suit should be a shareholder as of the time
of the act or transaction complained of, the number of his shares not being
material;
2. b) he has tried to exhaust intra-corporate remedies, i.e., has
made a demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and
3. c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and
not to the particular stockholder bringing the suit.
As stated by the Court of Appeals, petitioners’ complaint seek to nullify
the said election, and to protect and enforce their individual right to vote.
The cause of action devolves on petitioners, not the condominium
corporation, which did not have the right to vote. Hence, the complaint for
nullification of the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the election,
against respondents, who are the newly-elected Board of Directors. Under
the circumstances, the derivative suit filed by petitioners in behalf of the
condominium corporation in the Second Amended Complaint is improper.