Election, appointment, removal of corporate officer

Case no 14
MEL V. VELARDE v. LOPEZ, INC.
419 SCRA 422, 14 January 2004, THIRD DIVISION

Lopez Inc., granted a loan to Mel V. Velarde (Mel), the General Manager
of Sky Vision which is a subsidiary company owned by Lopez Inc. However,
Mel was not able to pay the loan and Lopez Inc. proposed that he may use
his retirement benefits to partially settle his loan, but because of
disagreement on the amount of his retirement benefits, Mel refused the
proposal which led Lopez Inc. to file a complaint for the claim of the payment
with interest. On his answer, Mel claims that the loan was only a cover
document and that it was really a reward for his loyalty and excellent
performance in the company and counterclaimed that he was entitled to a
much larger amount of retirement benefits than what Lopez Inc., was
alleging.
Lopez Inc., petitioned to dismiss the case for lack of jurisdiction which drew
MEL to assert that the veil of corporate fiction must be pierced to hold Lopez
Inc., liable for his counterclaims. The Regional Trial Court denied the motion
to dismiss and the motion for reconsideration. Lopez Inc., then filed a petition
for certiorari to the Court of Appeals which held that Lopez Inc., is not a real
party-in-interest on the counterclaim and that there was a failure to show the
presence of any of the circumstances to justify the application of the
principle of piercing the veil of corporate fiction.
ISSUE:
Whether or not Mel Velarde, on a complaint for collection of sum of
money can raise a counterclaim for retirement benefits, unpaid salaries and
incentives arising from services rendered by him in a subsidiary company of
Lopez Inc.
HELD:
While Mel Velarde correctly invokes the ruling in Atienza v. Court of
Appeals to postulate that not every denial of a motion to dismiss can be
corrected by certiorari under Rule 65 and that, as a general rule, the remedy
from such denial is to appeal in due course after a decision has been
rendered on the merits, there are exceptions thereto, as when the court in
denying the motion to dismiss acted without or in excess of jurisdiction or
with patent grave abuse of discretion, or when the assailed interlocutory
order is patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, or when the ground for the motion to

dismiss is improper venue, res judicata, or lack of jurisdiction as in the case

at bar.
In determining which has jurisdiction over a case, the averments of the
complaint counterclaim taken as a whole are considered.

With regards to Mel Velardes claim for unpaid salaries, unpaid share in
net income, reasonable return on the stock ownership plan and other
benefits for services rendered to Sky Vision, jurisdiction thereon pertains to
the Securities and Exchange Commission even if the complaint by a
corporate officer includes money claims since such claims are actually part
of the prerequisite of his position and, therefore interlinked with his relations
with the corporation. The question of remunerations involving a person who
is not a mere employee but a stockholder and officer of the corporation is not
a simple labor problem but a matter that comes within the area of corporate
affairs and management as is in fact a corporate controversy in
contemplation of the Corporation Code.
Mel Velarde argues nevertheless that jurisdiction over the subsidiary is
justified by piercing the veil of corporate fiction. Piercing the veil of corporate
fiction is warranted, however, only in cases when the separate legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the
corporations as merged into one.
Case 15
Nacpil vs. International Broadcasting Corporation
[GR 144767, 21 March 2002]

Facts:
Dily Dany Nacpil states that he was Assistant General Manager for
Finance/Administration and Comptroller of Intercontinental Broadcasting
Corporation (IBC) from 1996 until April 1997. According to Nacpil, when
Emiliano Templo was appointed to replace IBC President Tomas Gomez III
sometime in March 1997, the former told the Board of Directors that as soon
as he assumes the IBC presidency, he would terminate the services of Nacpil.
Apparently, Templo blamed Nacpil, along with a certain Mr. Basilio and Mr.
Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC
presidency, Templo allegedly harassed, insulted, humiliated and pressured
Nacpil into resigning until the latter was forced to retire. However, Templo
refused to pay him his retirement benefits, allegedly because he had not yet
secured the clearances from the Presidential Commission on Good
Government (PCGG) and the Commission on Audit (COA). Furthermore,

Templo allegedly refused to recognize Nacpil's employment, claiming that

Nacpil was not the Assistant General Manager/Comptroller of IBC but merely
usurped the powers of the Comptroller. Hence, in 1997, Nacpil filed with the
Labor Arbiter a complaint for illegal dismissal and non-payment of benefits.
Instead of filing its position paper, IBC filed a motion to dismiss alleging that
the Labor Arbiter had no jurisdiction over the case.
IBC contended that Nacpil was a corporate officer who was duly
elected by the Board of Directors of IBC; hence, the case qualities as an
intra-corporate dispute falling within the jurisdiction of the Securities and
Exchange Commission (SEC). However, the motion was denied by the Labor
Arbiter in an Order dated 22 April 1998. On 21 August 1998, the Labor
Arbiter rendered a Decision stating that Nacpil had been illegally dismissed.
IBC was ordered (1) to reinstate Nacpil to his former position without
diminution of salary or loss of seniority rights, and with full backwages
computed from the time of his illegal dismissal on May 16, 1997 up to the
time of his actual reinstatement which is tentatively computed as of the date
of this decision on August 21, 1998 in the amount of P1,231,750.00; and that
should Nacpil be not reinstated within 10 days from receipt of this decision,
he shall be entitled to additional backwages until actually reinstated; and (2)
to pay Nacpil P2 Million as and for moral damages, P500,000.00 as and for
exemplary damages, and 10% thereof as and for attorney's fees. IBC
appealed to the NLRC, but the same was dismissed in a Resolution dated 2
March 1999, for its failure to file the required appeal bond in accordance with
Article 223 of the Labor Code. IBC then filed a motion for reconsideration that
was likewise denied in a Resolution dated 26 April 1999. IBC then filed with
the Court of Appeals a petition for certiorari under Rule 65, which petition
was granted by the appellate court in its Decision dated 23 November 1999.
Nacpil then filed a motion for reconsideration, which was denied by the
appellate court in a Resolution dated 31 August 2000. Nacpil filed the
petition for review on certiorari.
Issue:
Whether the SEC or the NLRC has jurisdiction over the Nacpils alleged
illegal dismissal.
Whether the inclusion of money claims in Nacpils complaint for illegal
dismissal removes the case from the ambit of the Corporation Code.

Held:
1. As Nacpil's appointment as comptroller required the approval and
formal action of the IBC's Board of Directors to become valid, 17 it is clear
therefore holds that Nacpil is a corporate officer whose dismissal may be the
subject of a controversy cognizable by the SEC under Section 5(c) of PD 902A which includes controversies involving both election and appointment of

corporate directors, trustees, officers, and managers Had Nacpil been an

ordinary employee, such board action would not have been required. Thus,
since Nacpil is considered a corporate officer and his claim of illegal dismissal
is a controversy that falls under the jurisdiction of the SEC as contemplated
by Section 5 of PD 902-A. The rule is that dismissal or non-appointment of a
corporate officer is clearly an intra-corporate matter and jurisdiction over the
case properly belongs to the SEC, not to the NLRC. As to the argument that
the nature of his functions is recommendatory thereby making him a mere
managerial officer, the Court has previously held that the relationship of a
person to a corporation, whether as officer or agent or employee is not
determined by the nature of the services performed, but instead by the
incidents of the relationship as they actually exist.

2. It is of no consequence that Nacpil's complaint for illegal dismissal

includes money claims, for such claims are actually part of the perquisites of
his position in, and therefore linked with his relations with, the corporation.
The inclusion of such money claims does not convert the issue into a simple
labor problem. Clearly, the issues raised by Nacpil against the IBC are
matters that come within the area of corporate affairs and management, and
constitute a corporate controversy in contemplation of the Corporation Code.
Case 16
PSE vs CA
287 SCRA 232 Business Organization Corporation Law Extent of Power
of the Securities and Exchange Commission
Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate
business. PALI was granted permission by the Securities and Exchange
Commission (SEC) to sell its shares to the public in order for PALI to develop
its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALIs
stocks/shares to facilitate exchange. The PSE Board of Governors denied
PALIs application on the ground that there were multiple claims on the
assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the
Marcoses), and some other corporations were claiming assets if not
ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs
decision. The SEC reversed PSEs decisions and ordered the latter to cause
the listing of PALI shares in the Exchange.
ISSUE:
Whether or not it is within the power of the SEC to reverse actions
done by the PSE.

HELD:
Yes. The SEC has both jurisdiction and authority to look into the
decision of PSE pursuant to the Revised Securities Act and for the purpose of
ensuring fair administration of the exchange. PSE, as a corporation itself and
as a stock exchange is subject to SECs jurisdiction, regulation, and control.
In order to insure fair dealing of securities and a fair administration of
exchanges in the PSE, the SEC has the authority to look into the rulings
issued by the PSE. The SEC is the entity with the primary say as to whether
or not securities, including shares of stock of a corporation, may be traded or
not in the stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the
SEC may only reverse decisions issued by the PSE if such are tainted with
bad faith. In this case, there was no showing that PSE acted with bad faith
when it denied the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALIs application will
only be contrary to the best interest of the general public. It was reasonable
for the PSE to exercise its judgment in the manner it deems appropriate for
its business identity, as long as no rights are trampled upon, and public
welfare is safeguarded.
Case 17
Union Bank vs SEC
Facts:
Union Bank sought the opinion of SEC as to the applicability and
coverage of the Full Material Disclosure Rule on banks, contending that said
rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which
exempts securities issued or guaranteed by banking institutions from the
registration requirement. Because its securities are exempt from the
registration requirements under Section 5(a)(3) of the Revised Securities Act,
petitioner argues that it is not covered by RSA Implementing Rulels:
o
Rule 11(a)-1, which requires the filing of annual, quarterly, current
predecessor and successor reports;
o Rule 34(a)-1, which mandates the filing of proxy statements and forms of
proxy;
o

Rule 34(c)-1, which obligates the submission of information statements.

SECs reply: While the requirements of registration do not apply to

securities of banks, banks with a class of securities listed for trading on the
Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act
Rules governing the filing of various reports.

Unionbank was fined for failure for failure to file SEC Form 11-A.

CA affirmed the decision of SEC. #fluffypeaches

Issues:

WON the RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 applies
to Union Bank (YES)
Ruling:

NO, petitioner is not exempted from the RSA implementing rules.

Section 5(a)(3) of RSA exempts from registration the securities issued

by banking or financial institutions. Nowhere does it state or even imply that
petitioner, as a listed corporation, is exempt from complying with the reports
required by the assailed RSA Implementing Rules.

The exemption from the registration requirement enjoyed by petitioner

does not necessarily connote that [it is] exempted from the other reportorial
requirements.

The full disclosure Rules do not amend Section 5(a)(3) of the Revised
Securities Act, because they do not revoke or amend the exemption from
registration of the securities enumerated. They are reasonable regulations
imposed upon petitioner as a banking corporation trading its securities in the
stock market.

The mere fact that in regard to its banking functions, petitioner is

already subject to the supervision of the BSP does not exempt the former
from reasonable disclosure regulations issued by the SEC. These regulations
are meant to assure full, fair and accurate disclosure of information for the
protection of investors in the stock market. Imposing such regulations is a
function within the jurisdiction of the SEC
Case 18
Nestle Philippines Inc. vs. Court of Appeals
1991
FACTS:
San Miguel Corporation and Nestle S.A. are the two major stockholders of
Neslte. Nestle increased its authorized capital stock and was approved by
SEC. Thereafter, some unissued stocks were sold to San Miguel and Nestle.
Nestle filed a complaint with the SEC, seeking to exempt the firm from the
registration requirement of Section 4 of the Revised Securities Act and from
payment of the fee referred to in Section 6(c). The provision states that a
corporation may be exempted from the requirement of registration if its
issues additional capital stock among its own stockholders exclusively. Nestle
argued that issuance of additional capital stock means issuance of increased
authorized capital stock. SEC held that for purposes of granting a general or
particular exemption from the registration requirements, a request for

exemption and a fee equivalent to 0.1% of issued value or securities or

stocks are required.
ISSUE:
Whether or not Nestle is entitled to exemption.
RULING:
Nestle is not exempted from the fee provided for in Section 6 (c) of the
Revised Securities Act.
Section 6(a) (4) permits greater opportunity for the SEC to implement the
statutory objective of protecting the investing public by requiring proposed
issuers of capital stock to inform such public of the true financial conditions
and prospects of the corporation. When capital stock is issued in the course
of and in compliance with the requirements of increasing its authorized
capital stock under Section 38 of the Corporation Code, the SEC as a matter
of course examines the financial condition of the corporation. Under the
ruling issued by the SEC, an issuance of previously authorized but still
unissued capital stock may, in a particular instance, be held to be an exempt
transaction by the SEC under Section 6(b) so long as the SEC finds that the
requirements of registration under the Revised Securities Act are "not
necessary in the public interest and for the protection of the investors" by
reason, inter alia, of the small amount of stock that is proposed to be issued
or because the potential buyers are very limited in number and are in a
position to protect themselves. The construction of a statute by the
executive officers of the government is entitled to great respect and should
be accorded great weight by the courts.
Case 19
Onapal vs CA
In April 1983, Susan Chua entered into a Trading Contract with Onapal
Philippines Commodities, Inc., a commission merchant/broker licensed to
engage in commodity futures trading in Cebu, through the companys
Account Executive Elizabeth Diaz. Every time a customer enters into a
trading transaction with Onapal, the latter communicates the trading order
by telex to its principal, Frankwell Enterprises of Hongkong. A Confirmation
of Contract and Balance Sheet is issued upon consummation of a
transaction, either buying or selling commodity futures. An order is
transmitted to Manila from Cebu, then to Hongkong and finally to Japan.
Susan Chua invested P500,000.00 upon Diazs advice that the business
is profitable and that Chua can withdraw her money anytime. A Trading
Contract was executed without Susan Chuas awareness of the risks
involved. Another P300,000.00 was invested by Susan Chua upon Diazs
advice to pay the difference in prices, lest she lose her original deposit of
P500,000.00.

Susan Chua attempted to withdraw her money but to no avail after Diaz told
her that she could not get out because some accounts are hanging on the
transactions. In asserting withdrawal, Susan Chua said that she realized that
speculating in prices and her paying the difference between gains and losses
without actual delivery of goods to be gambling. She was not aware of the
risks and she wanted to discontinue. She was given only P470,000.00 out of
the P800,000.00, thus this action for recovery of the P330,000.00 balance.
ISSUE:
Whether or not the transactions violated the rules in commodity
futures contracts thereby rendering the Trading Contract null and void and
entitling Susan Chua to the recovery of her losses.
HELD:
YES. The Trading Contract executed between Susan Chua and Onapal
purports to be for the delivery of goods with the intention that the difference
between the price stipulated and the exchange or market price at the time of
the pretended delivery shall be paid by the loser to the winner.
This is simple speculation, gambling or wagering on prices within a
given time; it is not buying and selling and is illegal as against public policy.
The Court is convinced that the parties never really intended to make
or accept delivery of any commodity being traded because all of Onapals
customers were mere speculators who merely forecast the rise or fall in the
market of the commodity.
The Trading Contract bears all the indicia of a valid trading contract
reflecting as it did that the seller or the buyer may elect to make or demand
delivery of goods agreed to be bought and sold.
However, the implementation thereof deviates from the true import of
the agreement as when no such delivery, actual or constructive, of the
commodity of goods is made, and there was only a payment and receipt of
the difference in prices (the margin) at the time of delivery from that
prevailing at the time the sale is made.
The following circumstances, rather irregular, would further reveal that
Susan Chua is justly entitled to a refund:
o
There is no evidence that orders of Chua were actually transmitted to
Hongkong and Tokyo.
o
There was no arrangement with the Central Bank for Onapals
remittance of its customers money abroad.
o
The money is in fact only kept in a separate account in a local bank.
o
Onapal failed to prove that Chuas orders and money were transmitted
abroad.
Case 20
Philippine Veterans Bank vs Callangan
FACTS:

Respondent Justina F. Callangan, the Director of the Corporation Finance

Department of the Securities and Exchange Commission (SEC), sent
Philippine Veterans Bank (the Bank) a letter, informing it that it qualifies as a
"public company" under Section 17.2 of the Securities Regulation Code (SRC)
in relation with Rule 3(1) (m) of the Amended Implementing Rules and
Regulations of the SRC. The Bank is thus required to comply with the
reportorial requirements set forth in Section 17.1 of the SRC and The Bank
responded by explaining that it should not be considered a "public company"
because it is a private company whose shares of stock are available only to a
limited class or sector, i.e., to World War II veterans, and not to the general
public but Director Callangan rejected the Banks explanation and assessed
it a penalty for failing to comply with the SRC reportorial requirements from
2001 to 2003. The Bank moved for the reconsideration of the assessment,
but Director Callangan denied the motion. The Bank then filed a petition for
review with the Court of Appeals (CA) but the CA dismissed the petition and
affirmed the assailed SEC ruling. The CA also denied the Banks motion for
reconsideration, opening the way for the Banks petition for review on
certiorari filed with the Supreme Court but the Supreme Court denied the
Banks petition for failure to show any reversible error in the assailed CA
decision and resolution. Now the Supreme Court resolves the motion for
reconsideration filed by petitioner Philippine Veterans Bank (the Bank).
ISSUE:
Whether or not the petitioner Philippines Veterans Bank is a Public
Company under the Securities Regulation Code (SRC).
RULING:
Yes, the bank is a public company under the SRC.
The Supreme Court DENIED the motion for reconsideration
Under the Rule 3(1)(m) of the Amended Implementing Rules and Regulations
of the SRC, which defines a "public company" as "any corporation with a
class of equity securities listed on an Exchange or with assets in excess of
Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more
holders, at least two hundred (200) of which are holding at least one hundred
(100) shares of a class of its equity securities."
From these provisions, it is clear that a "public company," as contemplated
by the SRC, is not limited to a company whose shares of stock are publicly
listed; even companies like the Bank, whose shares are offered only to a
specific group of people, are considered a public company, provided they
meet the requirements enumerated above.
The records establish, and the Bank does not dispute, that the Bank has
assets exceeding P50,000,000.00 and has 395,998 shareholders. It is thus
considered a public company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.