I. SHORT TITLE: A.C. RANSOM LABOR UNION-CCLU V. NLRC, ET personally and or their estates.
sonally and or their estates. The labor Arbiter holds the respondent
AL.
II. FULL TITLE: A.C. Ransom Labor Union-CCLU versus National
Labor Relations Commission, First Division, A.C.
Ransom (Phils.) Corporation, Ruben Hernandez,
Maximo C. Hernandez, Sr., Porfirio R. Valencia,
Laura H. Cornejo, Francisco Hernandez, Celestino
C. Hernandez and Ma. Rosario Hernandez - G.R.
No. L-69494, May 29, 1987, J. Melencio-Herrera
III. TOPIC: Corporation Code — Piercing the Veil of Corporate
Fiction
IV.STATEMENT OF FACTS:
August 19, 1972 CIR held A.C. Ransom Philippine Corporation guilty of
unfair labor practice of interference and discrimination and ordered said
corporation the payment of the backwages. Successive motions for
execution were filed by the 22 employees whereby, RANSOM opposed on
the grounds that it was suffering from financial difficulties it manifested that it
did not have the necessary funds to deposit and asked that the employees’
earnings elsewhere during this suspension be deducted. After several
hearings, a re-computation was made and the award was reduced. April 2,
1973 RANSOM filed an application before the Secretary of Labor to cease
operation and terminate employment which was granted. January 21, 1974
the UNION filed for another motion for execution alleging that although
RANSOM had assumed a posture of suffering from business reverse, its
officers and principal stockholders had organized a new corporation, the
Rosario Industrial Corporation (ROSARIO) using the same equipment,
personnel, business stocks and the same place of business. RANSOM
declared that ROSARIO is a distinct and separate corporation which was
organized long before these instant cases were decided adversely against
RANSOM.
It appears that sometime in 1969, ROSARIO, a closed corporation, was in
fact, established. It was engaged in the same line of business as RANSOM
with the same owners, same officers, same president, same counsel and
same address. The compound, building, plant, equipment, machinery,
laboratory and bodega were the same as those occupied and used by
RANSOM.
Successive writs of execution were filed by the employees but to no avail.
The UNION filed its ex-parte Motion for Writ of Execution and Garnishment
praying that the Writ be issued against the Officers/Agents of Ransom
corporation’s officers ad agents liable.
NLRC on appeal, modified the Decision by relieving the officers and agents
liable.
A motion for reconsideration was filed by the petitioner before the NLRC but
was denied, hence this special civil action for Certiorari.
This Court promulgated its decision and SET ASIDE the order of the NLRC
and reinstated the decision rendered by the Labor Arbiter with modification
that personal liability due to the 22 strikers shall be limited to the President of
RANSOM.
Both parties have moved for reconsideration.
Private respondents asseverates that they were never impleaded as parties
in the Trial Court, that judgment holding Ruben Hernandez personally liable
is tantamount to deprivation of property without due process of law and that
he was not an officer of the Corporation at the time the ULP were committed.
On the otherhand, the UNION prays that the veil of corporate fiction be
pierced in that all the individual private respondents and not only the
president should be jointly and severally liable with RANSOM.
V. STATEMENT OF THE CASE:
The Court of Industrial relations rendered a joint decision holding petitioners
liable for unfair labor practice. Successive motions for execution were filed by
the Union. RANSOM opposed on the grounds that they do not have the
necessary funds and asked that the backwages granted to the employees on
the CIR decision be deducted. Hence, a re-computation was made. Pending
said proceedings, RANSOM filed a clearance before the Secretary of Labor
to cease operations and terminate employment which was granted without
prejudice to the right of the employees to seek redress of grievances under
existing law and decrees. UNION filed a writ of execution which were then
issued successively but to no avail.
UNION again filed an ex-parte Motion for Writ of Execution and Garnishment
praying that the Writ issue against the Officers/Agents of RANSOM
personally and or their estates, as the case may be, considering their
success in hiding or shielding the assets of said company. RANSOM
countered that the CIR Decision, dated August 19, 1972, could no longer be
enforced by mere Motion because more than five (5) years had already
lapsed. Labor Arbiter ordered the respondent corporation’s officers and
agents liable. The NLRC, on appeal, modified the Decision by relieving the
officers and agents of liability. Reconsideration sought by the UNION from
the NLRC was denied, hence this special civil action of Certiorari
VI.ISSUES:
1. Whether or not piercing of the veil of corporate fiction of
the RANSOM corporation is proper in the case at bar.
2. Whether or not the workers are entitled for their
backwages notwithstanding the bankruptcy of RANSOM.
VII.RULING:
1. Piercing the veil of the corporate fiction is proper.
The finding of this Court holding the officers and agents of RANSOM jointly
and severally liable for the payment of backwages does not ignore the legal
fiction that a corporation has a personality separate and distinct from its
stockholders and members, for, as this Court had held “where the
incorporators and directors belong to a single family, the corporation and its
members can be considered as one in order to avoid its being used as an
instrument to commit injustice,".
When the notion of legal entity is used as a means to perpetrate fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, and or confuse legitimate issues the veil which
protects the corporation will be lifted.
2. The alleged bankruptcy of RANSOM furnishes no justification for non-
payment of backwages to the employees.
Article 110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shag be paid in full before other
creditors may establish any claim to a share in the assets of the employer.
The foregoing provisions are but in consonance with the principles of social
justice and protection to labor guaranteed by past and present Constitutions
and are not really being given any retroactive effect when applied herein.
The Decision of the CIR was rendered on August 19, 1972. Clearance to
RANSOM to cease operations and terminate employment granted by the
Secretary of Labor was made effective on May 1, 1973. The right of the
employees concerned to backwages awarded them, therefore, had already
vested at the time and even before clearance was granted. Note should also
be taken of the fact that the clearance was without prejudice to the right of
subject employees to seek redress of grievances under existing laws and
decrees.
With the conclusions arrived at, the UNION's Urgent Motion for a Writ of
Preliminary Mandatory Injunction directing private respondents to deposit the
amount due as backwages in the meantime, need no longer be acted on.
A final and executory Decision in favor of the UNION obtained in 1972 and
affirmed by this Court in 1973 has remained unsatisfied to this date despite
no less than ten (10) Motions for Execution over a period of fourteen (14)
years, not to mention the fact that this is the second time that this case is
before this Court. The detriment and prejudice caused the employees
concerned is subversive of the ends of justice. This protracted litigation must
end and labor should now enjoy the just deserts of its legal victory.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the questioned Decision of the National Labor Relations
Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of
March 11, 1980 is reinstated with the modification that Rosario Industrial
Corporation and its officers and agents are hereby held jointly and severally
liable with the surviving private respondents for the payment of the
backwages due the 22 union members.
Rosario Industrial Corporation is hereby ordered to reinstate the 22 union
members or, if this is not possible, to award them separation pay equivalent
at least to one (1) month pay or to one (1) month salary for every year of
service actually rendered by them with A.C. Ransom (Phils). Corporation,
whichever is higher.
This decision is immediately executory.
I. SHORT TITLE: INTERNATIONAL EXPRESS TRAVEL &TOUR
SERVICES, INC. V. CA
II. FULL TITLE: International Express Travel & Tour Services, Inc.
versus Court of Appeals - G.R. No. 119020, October
19, 2000, J. Kapunan
III. TOPIC: Acquisition of Juridical Personality
IV. STATEMENT OF FACTS:
Philippine Football Federation (Federation) through its President, private
respondent herein Henri Kahn, secured the services of petitioner
International Express Travel and Tours Services as their travel agency. The
latter secured the airline tickets for the trips of the athletes and officials of the
Federation. Federation made two partial payments. The total cost of the
tickets amounted P449,654.83. Subsequently petitioner wrote a letter to the
Federation for the demand of the remaining balance thereof. Federation paid
the amount of P31,603.00. Henri Kahn issued a personal check in the
amount of P50,000 as partial payments for the outstanding balance.
Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the RTC of Manila against
Henri Kahn in his personal capacity for the unpaid balance of the tickets on
the ground that Henri Kahn as president of the Federation who allegedly
guaranteed the said obligations and impleaded the Federation as an
alternative defendant.
Henri Kahn averred that the petitioner has no cause of action against him
either in his personal capacity or official capacity as a president of the
Federation. He denied to have guaranteed the payment but merely acted as
an agent of the Federation which has a separate and distinct juridical
personality.
RTC holds Henri Kahn personally liable for the unpaid obligation of the
Federation on the grounds that corporate existence of the Federations was
not proved. Further the trial court asseverates that a voluntary
unincorporated association, like defendant Federation has no power to enter
into, or ratify a contract and that the officers or agents are themselves
personally liable for the contracts entered into by the unincorporated
association.
Henri Kahn elevated the lower court’s decision before the Court of Appeals.
Finding for Henri Kahn, the CA recognized the juridical existence of the
Federation. The appellate court cited RA 3135 and PD no. 604 which
recognized the juridical existence of national sports association which can be
gleaned from the powers and functions granted to these associations.
Petitioner filed for a motion for reconsideration but was denied. Hence, this
petition.
V. STATEMENT OF THE CASE:
Petitioner filed a civil case before the Regional Trial Court of Manila against
Henri Kahn in his personal capacity and as a President of the Federation for
the payment of the outstanding balance of the Federation. RTC ruled in favor
of the petitioner and hold Henri Kahn personally liable. The latter elevated
the lower court’s decision before the Court of Appeals which set aside the
judgment of the former and recognized the juridical existence of the
Federation. Petitioner then filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court.
VI. ISSUE:
Whether or not the Philippine Football Federation is a
juridical person.
VII. RULING:
The Philippine Football Federation has no juridical personality.
While it is true that RA 3135 and PD no. 604 recognizes the juridical
existence of national sports association and that national sports associations
may be accorded corporate status, such does not automatically take place by
mere passage of these laws.
It is basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of special law
or general enabling act. We cannot agree with the view of the appellate
court and the private respondent that the Philippine Football Federation
came into existence upon the passage of these laws. Nowhere can it be
found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football
Federation.
Before an entity may be considered as a national sports association, such
entity must be recognized by the accrediting organization, the Philippine
Amateur Athletic Federation under R.A. 3135, and the Department of Youth
and Sports Development under P.D. 604. This fact of recognition, however,
Henri Kahn failed to substantiate. In attempting to prove the juridical
existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of
the Philippine Football Federation. Unfortunately, the same does not prove
that said Federation has indeed been recognized and accredited by either
the Philippine Amateur Athletic Federation or the Department of Youth and
Sports Development.
Accordingly, we rule that the Philippine Football Federation is not a national
sports association within the purview of the aforementioned laws and does
not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be
held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting
or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered
into or for other acts performed as such agent.
As president of the Federation, Henri Kahn is presumed to have known about
the corporate existence or non-existence of the Federation. We cannot
subscribe to the position taken by the appellate court that even assuming
that the Federation was defectively incorporated, the petitioner cannot deny
the corporate existence of the Federation because it had contracted and
dealt with the Federation in such a manner as to recognize and in effect
admit its existence.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil
Case No. 90-53595 is hereby REINSTATED.
I. SHORT TITLE: VILLANUEVA V. ADRE
II. FULL TITLE: Antonio M. Villanueva and Fulgencio B. Lavarez
versus Hon. Abednego O. Adre and Lucio Velayo -
G.R. No. 80863, April 27, 1989, J. Sarmiento
III. TOPIC: Piercing the Veil of Corporate Fiction; Board of
Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
The Sarangani Marine and General Workers Union-ALU filrd a claim (G.R.
Nos. 7730001) for unpaid thirteenth month pay against the South Cotabato
Integrated Port Services, Inc. (SCIPSI) with the Department of Labor. Later,
thirty-seven SCIPSI employees, non-union members apparently, filed their
own complaint. The two were consolidated and when the case reached the
National Labor Relations Commission, it ordered SCIPSI and its president,
Lucio Velayo (Velayo) to pay. As a result, two parcels of land, both registered
in Velayo's name, were levied upon. Velayo assailed the decision (through
Special Case No. 227) contending that he was never a party to the labor
case and that a corporation has a separate and distinct personality from its
incorporators, stockholders and officers. He also contends that he was never
mentioned in the pleadings before the petitioner-labor arbiter and therefore is
a stranger to the case. After such proceedings, the parties involved agreed to
an off court settlement.
The court also discussed that Velayo and his counsel Atty. Dinopol are guilty
of forum shopping despite the off court settlement. In Special Case No. 227,
they assail the execution of the judgment of the National Labor Relations
Commission, the same relief he could have asked for in the very same labor
proceeding (G.R. Nos. 7730001). The fact that counsel likewise prayed for
damages therein will not alter the essence of the petition- to stay execution-
and in which the claim for damages is but an incidental relief. There exists
identity of facts, circumstance, parties and reliefs prayed for.
V. STATEMENT OF THE CASE:
This case started as a complaint for recovery of unpaid thirteenth-month pay
filed by the Sarangani Marine and General Workers Union-ALU with the
Department of Labor against SCIPSI, a Philippine corporation. Later, thirty-
seven SCIPSI employees, non-union members apparently, filed their own
complaint. The labor arbiter consolidated the twin complaints and after
hearing, ordered a dismissal. On appeal, however, the National Labor
Relations Commission, reversed and accordingly, ordered the private
respondents, SCIPSI and its president and general, Lucio Velayo, to pay the
thirteenth-month pays demanded. The private respondents' motion for
reconsideration was denied, and the decision has since attained finality.
Thereafter, the parties, on orders of the labor arbiter, were made to appear
before a corporate auditing examiner to determine the private respondents'
exact liability. The union moved for execution of the award favoring them and
the labor arbiter issued a writ of execution. SCIPSI and Velayo petitioned this
Court
to grant certiorari with injunction on the ground that the Department of
Labor's examiner erred in her determination of the private respondents
pecuniary liabilities. After such events, the parties agreed to enter into a
compromise agreement.
VI. ISSUE:
Whether or not Velayo may be held liable using the Doctrine
of Piercing the Veil of Corporate Fiction despite his
contention that he is just the president and that he was never
a party to the case
VII. RULING:
Yes, he may be held liable had there been no off-court settlement rendering
the petition moot and academic. The fact that he was never mentioned in the
pleadings before the petitioner-labor arbiter is of no moment. He himself had
questioned the findings of the corporate auditor in the labor cases and this is
enough evidence that he admits personal liability, although he does not
agree with the amount supposedly due from him.
Aside from this, other factors show opposition to Velayo’s claim that he was a
stranger to the case. For example, the caption of the labor cases shows he
was a respondent, records of the labor cases show that he participated in the
proceedings without raising the issue that he was neither a party nor the
employer of the complainants and the motion for reconsideration attached to
the petition was filed by both SCIPSI and him. SCIPSI and Velayo discussed
the merits of the cases in said motion and there was no mention that he is
not a party in the cases or an employer of the complainants.
In the case of A.C. Ransom Labor Union-CCLU v. NLRC it was held that it is
the president of the corporation who responds personally for violation of the
labor pay laws. Art. 273 of the Labor Code provide that: Any person violating
any of the provisions of Art. 265 of this Code shall be punished by a fine of
not exceeding five hundred pesos and/or imprisonment for not less than one
(1) day or more than six (6) months. To apply this provision to corporation-
employers, look into Art. 212. It states that “Employer” includes any person
acting in the interest of an employer, directly or indirectly. In this case, just
like RANSOM, SCIPSI is an artificial being that acts through its officers.
According to the Minimum Wage Law, Section 15(b), a responsible officer of
an employer corporation can be held personally, not to say even criminally,
liable for non-payment of back wages. It may be contended that the law only
mentions officers but not which officer. In the case of RANSOM, it was
presumed that the president is the responsible officer who can be deemed as
the chief operation officer. Moreover, RA 602 states that criminal
responsibility is with the "Manager or in his default, the person acting as
such." This applies to the present case.
Velayo cannot be excused from payment of SCIPSI's liability by mere reason
of SCIPSI's separate corporate existence. The theory of corporate entity, in
the first place, was not meant to promote unfair objectives or otherwise, to
shield them. This Court has not hesitated in penetrating the veil of corporate
fiction when it would defeat the ends envisaged by law, not to mention the
clear decree of the Labor Code.
VIII. DISPOSITIVE PORTION:
WHEREFORE, judgment is rendered: (1) DISMISSING the petition for
having become moot and academic; (2) ORDERING the respondent judge to
dismiss Special Case No. 227; (3) DECLARING the respondent, Lucio
Velayo and Atty. Oscar Dinopol IN CONTEMPT and ORDERING them to pay
a fine of Pl,000.00 each within five (5) days from notice; and (4)
SUSPENDING Atty. Oscar Dinopol, for a period of three (3) months effective
from notice, from the practice of law. Let a copy of this Decision be entered in
his record. THIS DECISION IS IMMEDIATELY EXECUTORY. IT IS SO
ORDERED.
I. SHORT TITLE: CHING V. SEC. OF JUSTICE
II. FULL TITLE: Alfredo Ching versus The Secretary of Justice, Asst.
City Prosecutor Ecilyn Burgos-Villavert, Judge
Edgardo Sudiam of the Regional Trial Court, Manila,
Branch 52; Rizal Commercial Banking Corp. and
The People of The Philippines - G. R. No. 164317,
February 6, 2006, J. Callejo, Sr.
III. TOPIC: Rights and Liabilities of a Corporation; Doctrine of
Apparent Authority
IV. STATEMENT OF THE FACTS:
Alfredo Ching (Ching) was the Senior Vice-President of Philippine Blooming
Mills, Inc. (PBMI). PBMI, through him applied with the Rizal Commercial
Banking Corporation (RCBC) for the issuance of commercial letters of credit
to finance its importation of assorted goods. RCBC approved it, and
irrevocable letters of credit were issued in favor of petitioner. The goods were
purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts
as surety covering the goods. Ching agreed to hold the goods in trust for the
said bank, with authority to sell but not by way of conditional sale, pledge or
otherwise; and in case such goods were sold, to turn over the proceeds
thereof as soon as received, to apply against the relative acceptances and
payment of other indebtedness to respondent bank. In case the goods
remained unsold within the specified period, the goods were to be returned to
respondent bank without any need of demand. When the trust receipts
matured, Ching failed to return the goods to RCBC, or to return their value.
RCBC filed a criminal complaint for estafa against Ching. The latter in turn
filed a Motion to Quash on the ground that the material allegations against
him did not amount to estafa; this was granted.
During this time, a similar case was decided upon by the court. The Court
held that the penal provision of P.D. No. 115 encompasses any act violative
of an obligation covered by the trust receipt; it is not limited to transactions
involving goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold and that non-payment
of the amount covered by a trust receipt is an act violative of the obligation of
the entrustee to pay (Allied Banking Corporation v. Ordoñez). Hence the
respondent again files for estafa because Ching may no longer contend that
P.D. No. 115 covers only goods to be sold. Such was granted after the
Secretary of Justice ruled that Ching, as Senior Vice-President of PBMI,
executed the 13 trust receipts and as such, was the one responsible for the
offense. Further, The Secretary goes on to say that Ching bound himself
under the terms of the trust receipts not only as a corporate official of PBMI
but also as its surety. He could be proceeded against in two (2) ways: first,
as surety as determined by the Supreme Court or as the corporate official
responsible for the offense under P.D. No. 115. This means that civil liability
from the former is separate and distinct from the criminal and civil liability of
the latter offense.
Ching contends that, except for his being the Senior Vice-President of the
PBMI, there is no iota of evidence that he was a participes crimines in
violating the trust receipts sued upon and that his liability, if at all, is purely
civil because he signed the said trust receipts merely as a surety and not as
the entrustee.
V. STATEMENT OF THE CASE:
RCBC filed a complaint for Estafa with the City Prosecutor of Manila which
was dismissed by the RTC. After the pronouncement in the case of Allied
Banking Corporation v. Ordoñez, RCBC re-filed a complaint for estafa which
was not granted by the prosecutor. The Secretary of Justice overturned the
prosecutor and granted the complaint. Petitioner then filed a petition for
certiorari, prohibition and mandamus with the CA. Hence this petition before
the Supreme Court: Before the Court is a petition for review on certiorari of
the Decision of the Court of Appeals (CA) in CA-G.R. SP No. 57169
dismissing the petition for certiorari, prohibition and mandamus filed by
petitioner Alfredo Ching, and its Resolution dated June 28, 2004 denying the
motion for reconsideration thereof.
VI. ISSUES:
1. Whether or not mere corporate officers should be held
liable for the violation of PD No. 115 by the corporation
despite the principle of separate corporate personality.
2. If they may be made liable, whether or not Ching is the
proper corporate officer to stand as a defendant.
VII. RULING:
1. Yes. Section 13 of PD 115 states that, “If the violation or offense is
committed by a corporation, partnership, association or other judicial entities,
the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the
offense, without prejudice to the civil liabilities arising from the criminal
offense.”
Furthermore, a corporation cannot be proceeded against criminally because
it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself.
2. Yes, he is the proper corporate officer to stand as defendant for the crime.
Ching, who as senior vice-president of PBM, executed the thirteen (13) trust
receipts. As such, the law points to him as the official responsible for the
offense. Ching, having participated in the negotiations for the trust receipts
and having received the goods for PBM, it was inevitable that he is the
proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.
As to Ching’s contention that he did not take possession of the goods nor
signed as an entrustee, and therefore, he must not be made liable, the Court
rules that although he signed the trust receipts merely as Senior Vice-
President of PBMI and had no physical possession of the goods, he cannot
avoid prosecution for violation of P.D. No. 115. The transaction between
petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. RCBC imported the goods and entrusted the
same to PBMI under the trust receipts signed by petitioner, as entrustee, with
the bank as entruster. Technically, the entrustee is a corporation but, the law
specifically makes the officers, employees or other officers or persons
responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees
are vested with the authority and responsibility to devise means necessary to
ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law.
The doctrine f apparent authority governs corporate officers. This means a
principal-corporation, is bound by the agent's-officer’s actions, even if the
agent had no actual authority, whether express or implied.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as
estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or
estafa with abuse of confidence. It may be committed by a corporation or
other juridical entity or by natural persons. However, the penalty for the crime
is imprisonment, which means that the penalty provided for must be served
by a natural person. If the crime is committed by a corporation or other
juridical entity, the directors, officers, employees or other officers thereof
responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty therefore. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized
for a crime punishable by imprisonment. However, a corporation may be
charged and prosecuted for a crime if the imposable penalty is fine. Even if
the statute prescribes both fine and imprisonment as penalty, a corporation
may be prosecuted and, if found guilty, may be fined. It is important to
remember that when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be
punished. On the other hand, if the State, by statute, defines a crime that
may be committed by a corporation but prescribes the penalty therefore to be
suffered by the officers, directors, or employees of such corporation or other
persons responsible for the offense, only such individuals will suffer such
penalty. Corporate officers or employees, through whose act, default or
omission the corporation commits a crime, are guilty of the crime.
The principle applies whether or not the crime requires the consciousness of
wrongdoing. It applies to those corporate agents who themselves commit the
crime and to those, who, by virtue of their managerial positions or other
similar relation to the corporation, could be deemed responsible for its
commission, if by virtue of their relationship to the corporation, they had the
power to prevent the act. Ching signed the trust receipts in question. He
cannot, thus, hide behind the cloak of the separate corporate personality of
PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot
protect himself behind a corporation where he is the actual, present and
efficient actor.
VIII. DISPOSITIVE PORTION:
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of
merit. Costs against the petitioner. SO ORDERED.
I. SHORT TITLE: PIONEER V. CA
II. FULL TITLE: Pioneer Insurance & Surety Corporation versus
Court of Appeals – G.R. No. 84197; Jacob S. Lim
versus Court of Appeals - G.R. No. 84157, July 28,
1989, J. Gutierrez Jr.
III. TOPIC: Corporation Law – De Facto Corporation
IV. STATEMENT OF FACTS:
On 1965, Jacob S. Lim (Lim) the owner-operator of Southern Air Lines (SAL)
entered into a contract of sale to Japan Domestic Airlines (JDA) regarding
two aircrafts and a set of necessary spare parts. The Pioneer Insurance &
Surety Corporation as a surety executed and issued a surety bond in favor of
JDA on behalf of its principal Lim. Lim convinced Border Machinery and
Heavy Equipment Company (Bormacheco), Francisco and Modesto
Cervantes (Cervantes), and Constancio Maglana (Maglana) to contribute
funds to buy the two aircrafts and spare parts which would form part of a new
corporation that would expand his airline business. They executed two
separate indemnity agreements in favor of Pioneer. It is stipulated that
indemnitors principally agree and bind themselves jointly and severally to
indemnify and hold to save Pioneer from all damages, losses and others of
whatever kind may incur in consequence of having become surety.
Lim then executed in favor of Pioneer a chattel mortgage stipulating that Lim
transfers and convey the two aircrafts to Pioneer as a security for the
suretyship. Lim defaulted on his payment prompting Pioneer to paid for him
and filed a petition for the foreclosure of the chattel mortgage as a security.
V. STATEMENT OF THE CASE:
On June 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a write of preliminary attachment against Lim, Cervantes,
Bormacheco and Maglana. Cervantes, Bormacecho and Maglana filed cross
claims stating that they were not privies to the contracts signed by Lim and
for the recovery of money they give Lim for the purchased of the said
aircrafts. The Court of First Instance of Manila then rendered a decision
holding Lim liable to pay Pioneer but dismissed the complaint against
Cervantes, Bormacheco and Maglana. The Court of Appeals then modified
the trial court decision in that the Pioneer complaint against all defendants
was dismissed. In all other respect the trial’s court decision was affirmed.
VI. ISSUE:
Whether or not the failure of Lim, Cervantes, Bormacheco and Maglana to
incorporate automatically result to a de facto partnership.
VII. RULING:
No, there was no de facto partnership that was created. Ordinarily it was held
that persons who attempt but fail to form a corporation and who carry on
business under the corporate name occupy the position of partners inter se
and their rights as members of the company to the property acquired by the
company will be recognized.
However, such a relation does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners when their purpose is that
no partnership shall exist and it should be implied only when necessary to do
justice between the parties; thus, one who takes no part except to subscribe
for stock in a proposed corporation which is never legally formed does not
become a partner with other subscribers. So as to be liable as such in action
for settlement of the alleged partnership and contribution.
In this case, Lim did not intend to form a corporation with Cervantes,
Bormacheco and Maglana. This can be inferred from the act of Lim signing
and executing the alleged chattel mortgage and surety bond in his own
personal capacity as the alleged proprietor of SAL. The record shows that
Lim was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the aircrafts and spare parts.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.
I. SHORT TITLE: PHIVIDEC V. CA
II. FULL TITLE: Philippine Veterans Investment Development
Corporation versus Court of Appeals and Violeta
Montelibano Borres. Rodrigo - G.R No. 85266,
January 30, 1990, J. Cruz
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
On March 29, 1979, Violeta M. Borres was injured in an accident due to the
negligence of Phividec Railways, Inc. (PRI). Days prior to the accident
Philippine Veterans Invest Development Corporation sold all its rights and
interests in the PRI to the Philippine Sugar Commission (PHILSUCOM).
Philsucom then created a wholly-owned subsidiary, Panay Railways to
operate the railway assets acquired from PHIVIDEC.
V. STATEMENT OF THE CASE:
On January 21, 1980 Borres filed a complaint for damages against PRI and
Panay Railways while the latter filed with leave of court a third party
complaint against PHIVIDEC. PHILSUCOM disclaimed liability by stating that
under the agreement PHIVIDEC holds them harmless from any action, claim
or liability that arise out from acts or omission prior to the turn over.
The RTC held PHIVIDEC negligent and liable to Borres for damages. It also
held that PRI was wholly-owned subsidiary of PHIVIDEC hence the latter
should answer for PRI’s liability. The decision was affirmed on appeal by the
Court of Appeals.
VI. ISSUE:
Whether or not the PHIVIDEC and PRI are entirely distinct
and separate corporations even though the latter is its
subsidiary.
VII. RULING:
No PHIVIDEC and PRI are not distinct and separate corporation. The court
stated the rule that where it appears that two business enterprise are owned,
conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of the third persons, disregard the legal fiction
that two corporations are distinct entities, and treat them as identical.
Moreover, PHIVIDEC’s act of selling PRI to PHILSUCOM shows that it had
complete control of PRI’s business. This circumstance renders applicable the
rule on the case of Costan v. Manila Electric that if a parent- holding
company (PHIVIDEC in the present case) assumes complete control of the
operations of its subsidiary's business, the separate corporate existence of
the subsidiary must be disregarded, such that the holding company will be
responsible for the negligence of the employees of the subsidiary as if it were
the holding company's own employees.
It also clearly stipulated between the agreement of PHIVIDEC and
PHILSUCOM that the former will assume liability for any claim or liability
arising out of any act or transaction prior to the turnover of PRI. Since the
claim happened prior to the agreement, it should follow that PHIVIDEC
cannot evade its liabilities for the injuries sustained by Borres.
A contrary conclusion would leave Borres without any recourse for her
legitimate claim. In the interest of justice and equity, and to prevent the veil of
corporate fiction from denying her the reparation to which she is entitled, that
veil must be pierced and PHIVIDEC and PRI regarded as one and the same
entity
VIII. DISPOSITIVE PORTION:
WHEREFORE, the challenged decision is AFFIRMED and the petition is
DENIED, with costs against the petitioner it is ordered.
I. SHORT TITLE: INDOPHIL V. CALICA
II. FULL TITLE: Indophil Textile Mill Workers Union-PTGWO versus
Voluntary Arbitrator Teodorico P. Calica And
Indophil Textile Mills, Inc. - G.R. No. 96490 February
3, 1992
III. TOPIC: Piercing the Veil of Corporate Fiction
IV. STATEMENT OF FACTS:
Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor
organization is the exclusive bargaining agent of all the rank-and-file
employees of Indophil Textile Mills, Incorporated. Teodorico P. Calica is
impleaded in his official capacity as the Voluntary Arbitrator of the National
Conciliation and Mediation Board of the Department of Labor and
Employment, while private respondent Indophil Textile Mills, Inc. is a
corporation engaged in the manufacture, sale and export of yarns of various
counts and kinds and of materials of kindred character. On November 3,
1967 Indophil Acrylic Manufacturing Corporation was formed and registered
with the Securities and Exchange Commission. Subsequently, Acrylic applied
for registration with the Board of Investments for incentives under the 1987
Omnibus Investments Code. The application was approved on a preferred
non-pioneer status. In 1988, Acrylic became operational and hired workers
according to its own criteria and standards. Sometime in July, 1989, the
workers of Acrylic unionized and a duly certified collective bargaining
agreement was executed. In 1990 or a year after the workers of Acrylic have
been unionized and a CBA executed, the petitioner union claimed that the
plant facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of private respondent Company
pursuant to Section 1(c), Article I of the CBA, to wit,. c) This Agreement shall
apply to the Company's plant facilities and installations and to any extension
and expansion thereat. It is the petitioner's contention that Acrylic is part of
the Indophil bargaining unit. The petitioner's contention was opposed by
private respondent which submits that Acrylic is not an alter ego or an
adjunct or business conduit of private respondent because it has a separate
legitimate business purpose.
V. STATEMENT OF THE CASE:
This is a petition for certiorari seeking the nullification of the award issued by
the respondent Voluntary Arbitrator Teodorico P. Calica dated December 8,
1990 finding that Section 1 (c), Article I of the Collective Bargaining
Agreement between Indophil Textile Mills, Inc. and Indophil Textile Mill
Workers Union-PTGWO does not extend to the employees of Indophil Acrylic
Manufacturing Corporation as an extension or expansion of Indophil Textile
Mills, Incorporated.
VI. ISSUE:
Whether or not the operations in Indophil Acrylic Corporation
are an extension or expansion of private respondent.
VII. RULING:
No. Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the
corporation will be considered as the corporation that is liability will attach
directly to the officers and stockholders. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation. In the case at bar,
petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that
the creation of the corporation is a devise to evade the application of the
CBA between petitioner Union and private respondent Company. While we
do not discount the possibility of the similarities of the businesses of private
respondent and Acrylic, neither are we inclined to apply the doctrine invoked
by petitioner in granting the relief sought. The fact that the businesses of
private respondent and Acrylic are related, that some of the employees of the
private respondent are the same persons manning and providing for auxiliary
services to the units of Acrylic, and that the physical plants, offices and
facilities are situated in the same compound, it is our considered opinion that
these facts are not sufficient to justify the piercing of the corporate veil of
Acrylic.
VIII. DISPOSITIVE PORTION:
ACCORDINGLY, the petition is DENIED and the award of the respondent
Voluntary Arbitrator are hereby AFFIRMED.
I. SHORT TITLE: PRINCE TRANSPORT V. GARCIA
II. FULL TITLE: Prince Transport, Inc. And Mr. Renato
Claros, Petitioners, Vs. Diosdado Garcia, Luisito
Garcia, Rodante Romero, Rex Bartolome, Feliciano
Gasco, Jr., Danilo Rojo, Edgar Sanfuego, Amado
Galanto, Eutiquio Lugtu, Joel Gramatica, Miel
Cervantes, Teresita Cabanes, Roe Dela Cruz,
Richelo Balidoy, Vilma Porras, Miguelito Salcedo,
Cristina Garcia, Mario Nazareno, Dindo Torres,
Esmael Ramboyong, Robeto*Mano, Rogelio
Bagawisan, Ariel Snachez, Estaqulo Villareal,
Nelson Montero, Gloria Orante, Harry Toca, Pablito
Macasaet And Ronald Garcita Respondents. - G.R.
No. 167291, January 12, 2011,
III. TOPIC: Piercing the Veil of Corporate Fiction
IV. STATEMENT OF FACTS:
The present petition arose from various complaints filed by herein
respondents charging petitioners with illegal dismissal, unfair labor practice
and illegal deductions and praying for the award of premium pay for holiday
and rest day, holiday pay, service leave pay, 13th month pay, moral and
exemplary damages and attorney's fees. Respondents alleged in their
respective position papers and other related pleadings that they were
employees of Prince Transport, Inc. (PTI), a company engaged in the
business of transporting passengers by land; respondents were hired either
as drivers, conductors, mechanics or inspectors, except for respondent
Diosdado Garcia (Garcia), who was assigned as Operations Manager; in
addition to their regular monthly income, respondents also received
commissions equivalent to 8 to 10% of their wages; sometime in October
1997, the said commissions were reduced to 7 to 9%; this led respondents
and other employees of PTI to hold a series of meetings to discuss the
protection of their interests as employees; these meetings led petitioner
Renato Claros, who is the president of PTI, to suspect that respondents are
about to form a union; he made known to Garcia his objection to the
formation of a union; in December 1997, PTI employees requested for a cash
advance, but the same was denied by management which resulted in
demoralization on the employees' ranks; later, PTI acceded to the request of
some, but not all, of the employees; the foregoing circumstances led
respondents to form a union for their mutual aid and protection; in order to
block the continued formation of the union, PTI caused the transfer of all
union members and sympathizers to one of its sub-companies, Lubas
Transport (Lubas); despite such transfer, the schedule of drivers and
conductors, as well as their company identification cards, were issued by
PTI; the daily time records, tickets and reports of the respondents were also
filed at the PTI office; and, all claims for salaries were transacted at the same
office; later, the business of Lubas deteriorated because of the refusal of PTI
to maintain and repair the units being used therein, which resulted in the
virtual stoppage of its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the
complaints contending that herein respondents were no longer their
employees, since they all transferred to Lubas at their own request;
petitioners have nothing to do with the management and operations of Lubas
as well as the control and supervision of the latter's employees; petitioners
were not aware of the existence of any union in their company and came to
know of the same only in June 1998 when they were served a copy of the
summons in the petition for certification election filed by the union; that
before the union was registered on April 15, 1998, the complaint subject of
the present petition was already filed; that the real motive in the filing of the
complaints was because PTI asked respondents to vacate the bunkhouse
where they (respondents) and their respective families were staying because
PTI wanted to renovate the same.
V. STATEMENT OF THE CASE:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court praying for the annulment of the Decision1 and Resolution2 of
the Court of Appeals (CA) dated December 20, 2004 and February 24, 2005,
respectively, in CA-G.R. SP No. 80953. The assailed Decision reversed and
set aside the Resolutions dated May 30, 20033 and September 26, 20034 of
the National Labor Relations Commission (NLRC) in CA No. 029059-
01, while the disputed Resolution denied petitioners' Motion for
Reconsideration.
VI. ISSUE:
Whether or not the CA err in applying the doctrine of piercing
the corporate veil with respect to Lubas.
VII. RULING:
No. , the Court agrees with the CA that Lubas is a mere agent, conduit or
adjunct of PTI. A settled formulation of the doctrine of piercing the corporate
veil is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as one and the same. In the
present case, it may be true that Lubas is a single proprietorship and not a
corporation. However, petitioners’ attempt to isolate themselves from and
hide behind the supposed separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical doctrine of piercing the
veil of corporate entity seeks to prevent and remedy. Thus, the Court agrees
with the observations of the CA, to wit: As correctly pointed out by
petitioners, if Lubas were truly a separate entity, how come that it was Prince
Transport who made the decision to transfer its employees to the former?
Besides, Prince Transport never regarded Lubas Transport as a separate
entity. In the aforesaid letter, it referred to said entity as "Lubas operations."
Moreover, in said letter, it did not transfer the employees; it "assigned" them.
Lastly, the existing funds and 201 file of the employees were turned over not
to a new company but a "new management." The Court also agrees with
respondents that if Lubas is indeed an entity separate and independent from
PTI why is it that the latter decides which employees shall work in the
former? What is telling is the fact that in a memorandum issued by PTI, dated
January 22, 1998, petitioner company admitted that Lubas is one of its sub-
companies. In addition, PTI, in its letters to its employees who were
transferred to Lubas, referred to the latter as its "New City Operations Bus."
Moreover, petitioners failed to refute the contention of respondents that
despite the latter’s transfer to Lubas of their daily time records, reports, daily
income remittances of conductors, schedule of drivers and conductors were
all made, performed, filed and kept at the office of PTI. In fact, respondents’
identification cards bear the name of PTI.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant petition is denied. The assailed Decision and
Resolution of the Court of Appeals, dated December 20, 2004 and February
24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.
I. SHORT TITLE: MANILA ELECTRIC COMPANY V. T.E.A.M
ELECTRONICS CORPORATION, ET AL.
II. FULL TITLE: Manila Electric Company versus T.E.A.M Electronics
Corporation, Technology Electronics Assembly and
Management Pacific Corporation; and Ultra
Electronics Instruments, Inc., – G.R. No. 131723,
December 13, 2007, J. Nachura
III. TOPIC: Corporation Law – Recovery of Moral Damages
IV. STATEMENT OF FACTS:
TEC is wholly owned by respondent Technology Electronics Assembly and
Management Pacific Corporation (TPC). Petitioner and NS Electronics Inc.,
the predecessor-in-interest of respondent TEC, were parties to two separate
contracts denominated as Agreements for the Sale of Electric Energy. Under
the agreements, petitioner undertook to supply TECs building Dyna Craft
International Manila (DCIM) with electric power. Another contract was
entered into for the supply of electric power to TEC’s NS Building. TEC under
its former name National Semi-Conductors (Phils.) entered into a Contract of
Lease with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of
the formers DCIM building for a period of five years. Ultra was, however,
ejected from the premises on February 12, 1988. A team of petitioners
inspectors conducted a surprise inspection of the electric meters installed at
the DCIM building. The two meters were found to be allegedly tampered with
and did not register the actual power consumption in the building. Petitioner
informed TEC of the results of the inspection and demanded from the latter
the payment of P7,040,401.01 representing its unregistered consumption as
a result of the alleged tampering of the meters. TEC referred the letter to
Ultra being in possession during the covered period. The failure of TEC to
pay the differential billing, petitioner disconnected the electricity supply to the
DCIM building.
TEC demanded from petitioner the reconnection of electrical service,
claiming that it had nothing to do with the alleged tampering but the latter
refused to heed the demand. Hence, TEC filed a complaint before the
Energy Regulatory Board (ERB) praying that electric power be restored to
the DCIM building. The ERB immediately ordered the reconnection of the
service but petitioner complied with it only after TEC paid under
protest. Meanwhile, petitioner conducted another inspection, this time, in
TECs NS Building. The inspection allegedly revealed that the electric meters
were not registering the correct power consumption. Petitioner, thus, demand
payment representing the differential billing. TEC denied petitioners
allegations and claim in a letter. Petitioner, thus, sent TEC another letter
demanding payment of the aforesaid amount, with a warning that the electric
service would be disconnected in case of continued refusal to pay the
differential billing. TEC paid the above amount, under protest. TEC and TPC
filed a complaint for damages before the Regional Trial Court (RTC) of Pasig.
The trial court rendered a decision in favor of respondents granting actual
damages, moral damages and exemplary damages. The trial court found the
evidence of petitioner insufficient to prove that TEC was guilty of tampering
the meter installations xxx (4) Condemning defendant Meralco to pay both
plaintiffs moral damages in the amount of P500,000 xxx. TECs claim of moral
damage was premised allegedly on the damage to its goodwill and
reputation, that the name or reputation of TEC/TPC has been debased as a
result of petitioners’ acts.
V. STATEMENT OF THE CASE:
Court of Appeals affirmed the RTC decision with a modification of the amount
of actual damages prompting the petitioner to file a petition on certiorari
under Rule 45 of the Rules of Court before the Supreme Court.
VI. ISSUE:
Whether or not respondent TEC and TPC are entitled to
moral damages.
VII. RULING:
No. The court deems it proper to delete the award of moral damages. As a
rule, a corporation is not entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and moral shock. The
only exception to this rule is when the corporation has a reputation that is
debased, resulting in its humiliation in the business realm. But in such a
case, it is imperative for the claimant to present proof to justify the award. It is
essential to prove the existence of the factual basis of the damage and its
causal relation to petitioners acts. In the present case, the records are bereft
of any evidence that the name or reputation of TEC/TPC has been debased
as a result of petitioners acts. Besides, the trial court simply awarded moral
damages in the dispositive portion of its decision without stating the basis
thereof.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is DENIED. The decision of the Court of Appeals and
its resolution are affirmed with following MODIFICATIONS: (1) The award of
P150,000.00 per month for five months reimbursement for the rentals of the
generator set is REDUCED to P150,000.00; and (2) The award of
P500,000.00 as moral damages is hereby DELETED.
I. SHORT TITLE: PILIPINAS SHELL PETROLEUM CORPORATION
V. ROYAL FERRY SERVICES, INC.
II. FULL TITLE: Pilipinas Shell Petroleum Corporation versus Royal
Ferry Services, Inc. – G.R. No. 188146, February 1,
2017, J. Leonen
III. TOPIC: Corporation Law – Nationality of Corporations
IV. STATEMENT OF FACTS:
Royal Ferry Services Inc. (Royal Ferry) is a corporation duly organized and
existing under the Philipine Law. According to its Articles of Incorporation,
Royal Ferry’s principal place of business is located at 2521 A. Bonifacio
Street, Bangkal, Makati City. However, it currently holds office at Room 203,
BF Condominium Building, Andres Soriano comer Solano Streets,
Intramuros, Manila. In 2005, Royal Ferry filed a verified Petition for Voluntary
Insolvency before the Regional Trial Court (RTC) of Manila. It alleged that in
2000, it suffered serious business losses that led to heavy debts. Royal Ferry
ceased its operations in 2002. In a special meeting in 2005 its Board of
Directors approved and authorized the filing of a petition for voluntary
insolvency in court. The RTC declared Royal Ferry insolvent in its order. On
December 2005, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) filed
before the RTC of Manila a Formal Notice of Claim and a Motion to Dismiss.
In its Motion to Dismiss, Petitioner alleged that the Petition was filed in the
wrong venue. It argued that the Insolvency Law provides that a petition for
insolvency should be filed before the court with territorial jurisdiction over the
corporation's residence. Since Royal Ferry's Articles of Incorporation stated
that the corporation's principal office is located at 2521 A. Bonifacio St.,
Bangkal, Makati City, the Petition should have been filed before the RTC of
Makati and not before the RTC of Manila. The RTC of Manila issued the
Order denying petitioner’s Motion to Dismiss for lack of merit. Petitioner
moved for reconsideration to which the RTC reconsidered the denial of
petitioner’s Motion to Dismiss. It held that a corporation cannot change its
place of business without amending its Articles of Incorporation. Without the
amendment, Royal Ferry's transfer did not produce any legal effect on its
residence. The RTC granted the dismissal of the Petition for Voluntary
Insolvency.
IV. STATEMENT OF THE CASE:
Royal Ferry filed a Notice of Appeal before the Court of Appeals (CA) to
which the CA reinstated the insolvency proceedings. CA found that the RTC
of Manila has jurisdiction over the instant case, and therefore, has the
authority to render a decision on it. Petitioner filed a petition for review on
Certiorari before the Supreme Court.
V. ISSUE:
Whether or not Petition for Insolvency was properly filed.
VI. RULING:
Yes. The Petition for Insolvency was properly filed before the RTC of Manila.
Financial Rehabilitation and Insolvency Act of 2010 (FRIA), is currently the
special law that governs insolvency. However, because the relevant
proceedings in this case took place before the enactment of the FRIA, the
case needs to be resolved under the provisions of the Insolvency Law.
Section 14 of the Insolvency Law specifies that the proper venue for a
petition for voluntary insolvency is the RTC of the province or city where the
insolvent debtor has resided in for six (6) months before the filing of the
petition. In this case, the issue of which court is the proper venue for
respondent's Petition for Voluntary Insolvency comes from the confusion on
an insolvent corporation's residence. Petitioner contends that the residence
of a corporation depends on what is stated in its articles of incorporation,
regardless of whether the corporation physically moved to a different
location. On the other hand, respondent posits that the fiction of a
corporation's residence must give way to uncontroverted facts. In Young
Auto Supply Co. v. Court of Appeals:
A corporation has no residence in the same sense in which this term is
applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation... The Corporation Code
precisely requires each corporation to specify in its articles of incorporation
the "place where the principal office of the corporation is to be located which
must be within the Philippines" ... The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be
ambulatory.
To determine the venue of an insolvency proceeding, the residence of a
corporation should be the actual place where its principal office has been
located for six (6) months before the filing of the petition. If there is a conflict
between the place stated in the articles of incorporation and the physical
location of the corporation's main office, the actual place of business should
control. Requiring a corporation to go back to a place it has abandoned just
to file a case is the very definition of inconvenience. There is no reason why
an insolvent corporation should be forced to exert whatever meager
resources it has to litigate in a city it has already left. In any case, the
creditors deal with the corporation's agents, officers, and employees in the
actual place of business. To compel a corporation to litigate in a city it has
already abandoned would create more confusion. Moreover, the six (6)-
month qualification of the law's requirement of residence shows intent to find
the most accurate location of the debtor's activities. If the address in a
corporation's articles of incorporation is proven to be no longer accurate,
then legal fiction should give way to fact.
VIII. DISPOSITIVE PORTION:
Wherefore, the Petition for Review on Certiorari is DENIED. The assailed
decision and resolution of the Court of Appeals are AFFIRMED.
I. SHORT TITLE: CONCEPT BUILDERS, INC. V. NLRC
II. FULL TITLE: Concept Builders, Inc. versus the National Labor
Relations Commission, (First Division); and Norberto
Marabe, Rodolfo Raquel, Cristobal Riego, Manuel
Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogello Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Aifredo Albera, Paquito
Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos – G.R. No. 108734, May 29, 1996, J.
Hermosisima, Jr.
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
Private respondents are laborers, carpenters and riggers of Concept
Builders, Inc. (Petitioner), a domestic corporation engaged in the construction
business. In 1981, petitioner terminated the private respondents from
employment due to the expiration of their contracts of employment and the
completion of the project in which they were hired. It was however found that
at the time of the termination, the project in which they were hired had not yet
been finished and completed. In fact, petitioner even had to engage the
services of sub-contractors whose workers performed the functions of private
respondents.
Private respondents then filed a complaint for illegal dismissal against
petitioner. The Labor Arbiter (LA) rendered judgment ordering petitioner to
reinstate the private respondents and to pay them backwages equivalent to
one year. The decision became final and executory. LA then issued a writ of
execution which was partially satisfied. An Alias Writ of Execution was later
issued directing the sheriff to collect from petitioner the balance of the
judgment award, and to reinstate private respondents to their former
positions. However, service of the writ failed since the security guard at the
petitioner’s address stated that petitioner no longer occupied the premises. A
second alias writ of execution was also not enforced because the sheriff has
been prevented from entering the premises and all the employees in the
premises claimed that they were employees of Pipes Philippines, Inc.
(HPPI) and not by petitioner.
Subsequently, a certain Dennis Cuyegkeng filed a third-party claim with the
LA alleging that the properties sought to be levied upon by the sheriff were
owned by HPPI of which he is the Vice- President.
V. STATEMENT OF THE CASE:
On November 23, 1989, private respondents filed a "Motion for Issuance of a
Break-Open Order," alleging that HPPI and petitioner were owned by the
same incorporators and stockholders. HPPI opposed contending that HPPI is
separate and distinct from petitioner. HPPI also argued that it is engaged in
manufacturing business while petitioner was then engaged in construction.
LA denied the motion. On appeal, the NLRC set aside the order of the LA
and issued a break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party claim for lack of
merit.
VI. ISSUE:
Whether or not the NLRC committed grave abuse of
discretion in issuing the break-open order.
VII. RULING:
No, it is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other corporations
to which it may be connected. But this separate personality is merely a fiction
created by law for convenience and to promote justice. Hence, when the
notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat
the labor laws, or as an adjunct, a business conduit or an alter ego of another
corporation, this separate personality may be disregarded or the veil of
corporate fiction pierced.
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows: (1) Control, not mere majority or complete
stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or
existence of its own;
(2) Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiff’s legal rights; and (3)
the aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
In this case, while petitioner claimed that it ceased its business operations in
1986, it filed an Information Sheet with the SEC in 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other
hand, HPPI, the third-party claimant, submitted on the same day, a similar
information sheet stating that its office address is at the same place with
petitioner. Furthermore, both information sheets were filed by the same
person as the corporate secretary of both corporations. Also, both
corporations had the same president, the same board of directors, the same
corporate officers, and substantially the same subscribers.
Clearly, petitioner ceased its business operations in order to evade payment
to private respondents of backwages and to bar their reinstatement to their
former positions. HPPI is obviously a business conduit of petitioner and its
emergence was skillfully orchestrated to avoid the financial liability that
already attached to petitioner corporation. From the foregoing, the application
of the doctrine of piercing the veil of corporate fiction is warranted. SC then
upheld the break-open order.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the
NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.
I. SHORT TITLE: CRYSTAL V. BPI
II. FULL TITLE: Herman C. Crystal, Lamberto C. Crystal, Ann
Georgia C. Solante, and Doris C. Maglasang, as
heirs of deceased Spouses Raymundo I. Crystal and
Desamparados C. Crystal, versus Bank of the
Philippine Islands – G.R. No. 172428, November 28,
2008, J. Tinga
III. TOPIC: Corporation Code – Recovery of Moral Damages
IV. STATEMENT OF FACTS:
Sps. Raymundo and Desamparados Crystal (Sps. Crystal) obtained a loan in
behalf of Cebu Contractors Consortium Co. (CCCC) from the Bank of the
Philippine Islands-Butuan branch (BPI-Butuan) secured by a chattel
mortgage on heavy equipment and machinery of CCCC. In addition, Sps.
Crystal bound themselves as surety of CCCC for which a promissory note
was executed by Raymundo.
Subsequently, CCCC renewed a previous loan with BPI - Cebu City branch
(BPI-Cebu) evidenced by a promissory note signed by sps. Crystal where
they bound themselves jointly and severally liable with CCCC. As security,
the spouses executed a real estate mortgage over their own real property
since CCCC had no real property to offer as security for the loan.
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu when they
became due. CCCC, as well as the spouses, failed to pay their obligations
despite demands. Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure sale on the chattel
mortgage was consummated with the proceeds amounting to P240,000.00
applied to the loan from BPI-Butuan which had then reached P707,393.90.
Meanwhile, Insular Bank of Asia and America (IBAA) offered to buy the lot
subject of the two (2) real estate mortgages and to pay directly the spouses'
indebtedness in exchange for the release of the mortgages. BPI however
rejected IBAA's offer to pay.
V. STATEMENT OF THE CASE:
BPI filed a complaint for sum of money before RTC Butuan against CCCC
and Sps. Crystal seeking to recover the deficiency of their loan with BPI-
Butuan. RTC ruled in favor of BPI pursuant to which an extrajudicial
foreclosure of the spouses’ real estate property was instituted.
Sps. Crystal, on the other hand, filed an Action for Injunction with a prayer for
TRO or WPI. They claimed that the foreclosure of the real estate mortgages
is illegal because BPI should have exhausted CCCC's properties first,
stressing that they are mere guarantors of the renewed loans. Petitioners
who are the heirs of the spouses argue that the failure of the spouses to pay
the BPI-Cebu loan was due to BPI's illegal refusal to accept payment for the
loan unless the loan from BPI-Butuan would also be paid. Consequently, in
view of BPI's unjust refusal to accept payment of the BPI-Cebu loan, they
argue that the loan obligation of the spouses was extinguished.
RTC ruled in favor of BPI. CA affirmed and also awarded moral damages in
favor of BPI.
VI. ISSUES:
1. Whether or not BPI’s alleged refusal to accept payment
extinguished the obligation.
2. Whether or not CA correctly awarded moral damages to
BPI.
VII. RULING:
1. No. Petitioners rely on IBAA's offer to purchase the mortgaged lot from
them and to directly pay BPI out of the proceeds thereof to settle the loan.
BPI's refusal to agree to such payment scheme cannot extinguish the
spouses' loan obligation. In the first place, IBAA is not privy to the loan
agreement or the promissory note between the spouses and BPI. Contracts,
after all, take effect only between the parties, their successors in interest,
heirs and assigns. Besides, under Art. 1236 of the Civil Code, the creditor is
not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the
contrary. In the case at bar, the Court found no stipulation in the promissory
note which states that a third person may fulfill the spouses' obligation. Thus,
it is clear that the spouses alone bear responsibility for the same.
2. No. A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock. The CA, recognizing BPI as “being famous and having gained its
familiarity and respect not only in the Philippines but also in the whole world,”
awarded moral damages based in the case of People v. Manero and
Mamulao Lumber v. PNB, where SC ruled that it is only when a juridical
person has a good reputation that is debased, resulting in social humiliation,
that moral damages may be awarded.
However, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et
al. and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational
Center-Bicol Christian College of Medicine (AMEC-BCCM), the Court held
that the statements in Manero and Mambulao were mere obiter dicta,
implying that the award of moral damages to corporations is not a hard and
fast rule. Indeed, while the Court may allow the grant of moral damages to
corporations, it is not automatically granted; there must still be proof of the
existence of the factual basis of the damage and its causal relation to the
defendant's acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.
The spouses' complaint against BPI proved to be unfounded, but it does not
automatically entitle BPI to moral damages. Although the institution of a
clearly unfounded civil suit can at times be a legal justification for an award of
attorney's fees, such filing, however, has almost invariably been held not to
be a ground for an award of moral damages. The rationale for the rule is that
the law could not have meant to impose a penalty on the right to litigate.
Otherwise, moral damages must every time be awarded in favor of the
prevailing defendant against an unsuccessful plaintiff. BPI may have been
inconvenienced by the suit, but we do not see how it could have possibly
suffered besmirched reputation on account of the single suit alone. Hence,
the award of moral damages should be deleted.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DENIED. The Decision and Resolution of the
Court of Appeals dated 24 October 2005 and 31 March 2006, respectively,
are hereby AFFIRMED, with the MODIFICATION that the award of moral
damages to Bank of the Philippine Islands is DELETED.
I. SHORT TITLE: BENITO V. SEC and JAMIATUL PHILIPPINE-AL
ISLAMIA, INC.
II. FULL TITLE: Datu Tagoranao Benito versus Securities and
Exchange Commission and Jamiatul Philippine-Al
Islamia, Inc. – G.R. No. L-56655, July 25, 1983, J.
Relova
III. TOPIC: Corporation Law – Board of
Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
On February 6, 1959, the Articles of Incorporation of respondent Jamiatul
Philippine-Al Islamia, Inc. were filed with the SEC and were approved on
December 14, 1962. The corporation had an authorized capital stock of
P200,000.00 divided into 20,000 shares at a par value of P10.00 each. Of
the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed
and fully paid for. Herein petitioner Datu Tagoranao Benito subscribed to 460
shares worth P4,600.00. On October 28, 1975, the respondent corporation
filed a certificate of increase of its capital stock from P200,000.00 to
P1,000,000.00. It was shown in said certificate that P191,560.00 worth of
shares were represented in the stockholders' meeting held on November 25,
1975 at which time the increase was approved. Thus, P110,980.00 worth of
shares were subsequently issued by the corporation from the unissued
portion of the authorized capital stock of P200,000.00. Of the increased
capital stock of P1,000,000.00, P160,000.00 worth of shares were
subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs.
Moki-in Alonto.
V. STATEMENT OF THE CASE:
On November 18, 1976, petitioner Datu Tagoranao filed with respondent
Securities and Exchange Commission a petition alleging that the additional
issue (worth P110,980.00) of previously subscribed shares of the corporation
was made in violation of his pre-emptive right to said additional issue and
that the increase in the authorized capital stock of the corporation from
P200,000.00 to P1,000,000.00 was illegal considering that the stockholders
of record were not notified of the meeting wherein the proposed increase was
in the agenda. Petitioner prayed that the additional issue of shares of
previously authorized capital stock as well as the shares issued from the
increase in capital stock of respondent corporation be cancelled; that the
secretary of respondent corporation be ordered to register the 2,540 shares
acquired by him (petitioner) from Domocao Alonto and Moki-in Alonto; and
that the corporation be ordered to render an accounting of funds to the
stockholders.
Respondents denied the allegations of the petitioner and, claimed that
petitioner has no cause of action and that the stock certificates covering the
shares alleged to have been sold to petitioner were only given to him as
collateral for the loan of Domocao Alonto and Moki-in Alonto.
On July 11, 1980, the Securities and Exchange Commission, after due
proceedings, rendered a decision as follows:
(a) That the issuance by the corporation of its unissued shares was
validly made and was not subject to the pre-emptive rights of
stockholders, including the petitioner, herein;
(b) That there is no sufficient legal basis to set aside the certificate
issued by this Commission authorizing the increase in capital stock of
respondent corporation from P200,000.00 to Pl,000,000.00. Considering,
however, that petitioner has not waived his pre-emptive right to subscribe
to the increased capitalization, respondent corporation is hereby directed
to allow petitioner to subscribe thereto, at par value, proportionate to his
present shareholdings, adding thereto the 2,540 shares transferred to
him by Mr. Domocao Alonto and Mrs. Moki-in Alonto.
(c) To direct respondent corporation to religiously comply with the
requirement of filing annual financial statements under pain of a more
drastic action.
Hence, this petition for review by way of appeal from the aforementioned
decision of the Securities and Exchange Commission
VI. ISSUES:
1. Whether or not the issuance of the 110, 980 shares
without the consent of the stockholders or of the Board of
Directors, and in the absence of consideration, is null and
void.
2. Whether or not the increase in the authorized capital stock
from P200,000.00 to P1,000,000.00 without the consent or
express waiver of the stockholders, is null and void.
VII. RULING:
1. No. The questioned issuance of the unsubscribed portion of the capital
stock worth P110,980.00 is ' not invalid even if assuming that it was made
without notice to the stockholders as claimed by petitioner. The power to
issue shares of stocks in a corporation is lodged in the board of directors and
no stockholders' meeting is necessary to consider it because additional
issuance of shares of stocks does not need approval of the stockholders.
The by-laws of the corporation itself states that 'the Board of Trustees shall,
in accordance with law, provide for the issue and transfer of shares of stock
of the Institute and shall prescribe the form of the certificate of stock of the
Institute. The general rule is that pre-emptive right is recognized only with
respect to new issue of shares, and not with respect to additional issues of
originally authorized shares. This is on the theory that when a corporation at
its inception offers its first shares, it is presumed to have offered all of those
which it is authorized to issue. An original subscriber is deemed to have
taken his shares knowing that they form a definite proportionate part of the
whole number of authorized shares. When the shares left unsubscribed are
later re-offered, he cannot therefore claim a dilution of interest.
2. No. With respect to the claim that the increase in the authorized capital
stock was without the consent, expressed or implied, of the stockholders, it
was the finding of the Securities and Exchange Commission that a
stockholders' meeting was held on November 25,1975, presided over by Mr.
Ahmad Domocao Alonto, Chairman of the Board of Trustees and, among the
many items taken up then were the change of name of the corporation from
Kamilol Islam Institute Inc. to Jamiatul Philippine-Al Islamia, Inc., the increase
of its capital stock from P200,000.00 to P1,000,000.00, and the increase of
the number of its Board of Trustees from five to nine. "Despite the insistence
of petitioner, this Commission is inclined to believe that there was a
stockholders' meeting on November 25, 1975 which approved the increase.
The petitioner had not sufficiently overcome the evidence of respondents that
such meeting was in fact held. What petitioner successfully proved, however,
was the fact that he was not notified of said meeting and that he never
attended the same. Another thing that petitioner was able to disprove was
the allegation in the certificate of increase that all stockholders who did not
subscribe to the increase of capital stock have waived their pre-emptive right
to do so. As far as the petitioner is concerned, he had not waived his pre-
emptive right to subscribe as he could not have done so for the reason that
he was not present at the meeting and had not executed a waiver, thereof.
Not having waived such right and for reasons of equity, he may still be
allowed to subscribe to the increased capital stock proportionate to his
present shareholdings.
Well-settled is the rule that the findings of facts of administrative bodies will
not be interfered with by the courts in the absence of grave abuse of
discretion on the part of said agencies, or unless the aforementioned findings
are not supported by substantial evidence.
VIII. DISPOSITIVE PORTION:
ACCORDINGLY, this petition is hereby dismissed for lack of merit.
I. SHORT TITLE: BALUYOT V. HOLGANZA
II. FULL TITLE: Francisca S. Baluyot versus Paul E. Holganza and
the Office of the Ombudsman – G.R. No. 136374,
February 9, 2000, J. De Leon, Jr.
III. TOPIC: Corporation Law – Non-chartered GOCCs
IV. STATEMENT OF FACTS:
During a spot audit conducted on March 21, 1977 by a team of auditors from
the Philippine National Red Cross (PNRC) headquarters, a cash shortage of
P154,350.13 was discovered in the funds of its Bohol chapter. The chapter
administrator, petitioner Francisca S. Baluyot, was held accountable for the
shortage.
On January 8, 1998, private respondent Paul E. Holganza, a member of the
board of directors of the Bohol chapter, filed an affidavit-complaint before the
Office of the Ombudsman charging petitioner of malversation under Article
217 of the Revised Penal Code. Upon recommendation by respondent Anna
Marie P. Militante, Graft Investigation Officer I, an administrative docket for
dishonesty was also opened against petitioner. On March 14, 1998,
petitioner filed her counter-affidavit, raising principally the defense that public
respondent had no jurisdiction over the controversy. She argued that the
Ombudsman had authority only over government-owned or controlled
corporations, which the PNRC was not, or so she claimed. On August 21,
1998, public respondent issued the first assailed Order denying petitioner's
motion to dismiss. Petitioner filed a Motion for Reconsideration. On October
28, 1998, public respondent issued the second assailed Order denying
petitioner's motion for reconsideration. Hence, this recourse. Petitioner
contends that the Ombudsman has no jurisdiction over the subject matter of
the controversy since the PNRC is allegedly a private voluntary organization.
The following circumstances, she insists, are indicative of the private
character of the organization: (1) the PNRC does not receive any budgetary
support from the government, and that all money given to it by the latter and
its instrumentalities become private funds of the organization; (2) funds for
the payment of personnel's salaries and other emoluments come from yearly
fund campaigns, private contributions and rentals from its properties; and (3)
it is not audited by the Commission on Audit. Petitioner states that the PNRC
falls under the International Federation of Red Cross, a Switzerland-based
organization, and that the power to discipline employees accused of
misconduct, malfeasance, or immorality belongs to the PNRC Secretary
General by virtue of Section "G", Article IX of its by-laws.
V. STATEMENT OF THE CASE:
Before us is a special civil action for certiorari, seeking the reversal of the
Orders dated August 21, 1998 and October 28, 1998 issued by the Office of
the Ombudsman, which denied petitioner's motion to dismiss and motion for
reconsideration, respectively.
VI. ISSUE:
Whether or not the Ombudsman has jurisdiction over the
subject matter of the controversy.
VII. RULING:
Yes. The Philippine National Red Cross (PNRC) is a government owned and
controlled corporation, with an original charter under Republic Act No. 95, as
amended. The test to determine whether a corporation is government owned
or controlled, or private in nature is simple. Is it created by its own charter for
the exercise of a public function, or by incorporation under the general
corporation law? Those with special charters are government corporations
subject to its provisions, and its employees are under the jurisdiction of the
Civil Service Commission, and are compulsory members of the Government
Service Insurance System. The PNRC was not "impliedly converted to a
private corporation" simply because its charter was amended to vest in it the
authority to secure loans, be exempted from payment of all duties, taxes,
fees and other charges of all kinds on all importations and purchases for its
exclusive use, on donations for its disaster relief work and other services and
in its benefits and fund raising drives, and be allotted one lottery draw a year
by the Philippine Charity Sweepstakes Office for the support of its disaster
relief operation in addition to its existing lottery draws for blood program.
Clearly then, public respondent has jurisdiction over the matter, pursuant to
Section 13, of Republic Act No. 6770, otherwise known as "The Ombudsman
Act of 1989", to wit:
Sec. 13. Mandate. — The Ombudsman and his Deputies, as protectors of
the people, shall act promptly on complaints filed in any form or manner
against officers or employees of the Government, or of any subdivision,
agency or instrumentality thereof, including government-owned or controlled
corporations, and enforce their administrative, civil and criminal liability in
every case where the evidence warrants in order to promote efficient service
by the Government to the people.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs
against petitioner.
I. SHORT TITLE: ELCEE FARMS INC. V. NLRC, ET AL.
II. FULL TITLE: Elcee Farms Inc. and Corazon Saguemuller
versus National Labor Relations Commission
(Fourth Division) and Sugar Agricultural
Industry Labor Organization (SAILO), Pampelo
Semillano, Armando Fernandez, Bienvenido
Gaupo, Consejo Nicor, Rodolfo Nicor, Edwin
Nicor, Dominardo Nicor, Sr., Felizardo Nicor,
Arline Nicor, Ronilo Nicor, Maria Luz Nicor,
Dennis Nicor, Lourdes Nicor, Pablo Lingco,
Gilda Lingco, Joven Lingco, Vicente Granada,
Lolita Granada, Jonathan Granada, Eduardo
Fernandez, Joey Fernandez, Jessie
Fernandez, Estelita Fernandez, Gregorio
Tomalin, Martin Tomalin, Socorro Mationg,
Gregorio Mationg, Jorie Manalo, Enrique
Manalo, Mario Manalo, Crisanto Manalo,
George Biangco, Sigfredo Villacanas, Sonia
Villacanas, Eduardo Pabilario, Noel Salano,
Merlita Puno, Crisanto Lumanag, Gorgina
Gaupo, Dan Gaupo, Romeo Semillano,
Barbara Cabales, Ernie Jungco, Edgar
Jungco, Roel Benignos, Bellie Benignos, Juan
Semillano, Romeo Pojas, Joelita Noble, Gloria
Noble, Ronnie Lingco, Imelda Lingco, Ramon
Bantang, Barbara Bantang, Faustino
Semillano, Raquel Plasido, Bernie Plasido,
Martin Nicor, Dominador Nicor, Jr., Roland
Nicor, Prodincio Nicor, Radnie Nicor, Diosdado
Nicor, Joey Nicor, Amparo Nicor, Regalado
Nicor, Reynaldo Nicor, Jocelyn Garcia, Marlon
Nicor, Josefina Lingco, Josie Lingco, Elenita
Lingco, Cirilo Lingco, Sr., Rogelio Lingco,
Maura Lingco, Gary Lingco, Victoria Granda,
Sotero Granada, Rosendo Fernandez, Roy
Tomolin, Genebelle Mationg, Celso Alipio,
Afolonio Semillano, Ramonita Semillano,
Abner Manalo, Zosimo Biangco, Rogelio
Anecito, Pepito Noble, Paterno Lumanag,
Anita Pabilario, Renato Cabales, Jomarie
Jungco, Merlinda Canja, Anacita Orcada,
Bienvinido Garcia, Rogelio Gabiandan, Ninfa
Umali, Domingo Salcedo, Fernando Salcedo,
Renato Suerte, Lorna Pabalinas, Soledad
Noble, Anita Arroyo, Alfredo Nicor, Sr.,
Consorcia Mationg, Erlinda Nicor, Camelia
Nicor, Alfredo Nicor, Jr., Juliana Nicor,
Criselda Nicor, Rosita Nicor, Julieto Lingco,
Niya Lingco, Rozenie Granada, Elsa
Semillano, Rosalinda Fernandez, Remezildo
Fernandez, Rosalita Mationg, Diana Alipio,
Eva Manalo, Arturo Manalo, Rita Anecito,
Sarah Gaupo, Alan Bantang, Marissa Bantang,
Simplicio Bantang, Marianita Pojas, Merlita
Gabiandan, Juana Vicentino, and Precy
Placido - G.R. No. 126428, January 25, 2007,
J. Chico-Nazario
III. TOPIC: Board of Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Private respondents were regular farm workers in Hacienda Trinidad, owned
and operated by Elcee Farms. According to them, Corazon Saguemuller was
the president of Elcee Farms, but it was actually her son, Konrad
Saguemuller, who was the president thereof. Elcee Farms later entered into
a lease agreement with Garnele Aqua Culture Corporation (Garnele).
Nevertheless, most of the private respondents continued to work in Hacienda
Trinidad. Garnele then sub-leased Hacienda Trinidad to Daniel Hilado, who
operated HILLA. The contract of lease between Garnele and Hilado
stipulated the continued employment of 120 of the former’s employees by the
latter, but the contract was silent as to the benefits which may accrue to the
employees as a consequence of their employment with Elcee Farms. Thus,
private respondents were allowed to continue working in Hacienda Trinidad
under HILLA’s management. Afterwards, Hilado and the United Sugar
Farmers’ Organization (USFO) entered into a Collective Bargaining
Agreement (CBA), which contained a closed shop provision. Due to their
refusal to join the labor union, private respondents were terminated by
HILLA.
V. STATEMENT OF THE CASE:
The Sugar Agricultural Industry Labor Organization SAILO and 144
complainants, including the private respondents, filed against Elcee Farms,
Corazon Saguemuller, HILLA and its officers, Ray Hilado and Roberto
Montaño, a complaint for illegal dismissal with reinstatement with back
wages and separation pay with damages before the Labor Arbiter (LA). Only
28 out of the 144 complainants were considered by the LA as regular
employees of HILLA entitled to separation pay. The LA dismissed their claim
for damages and denied all claims made against Elcee Farms, Saguemuller,
Hilado and Montaño. On appeal, the NLRC affirmed the award of separation
pay, but held Elcee Farms, Saguemuller, Hilado and Montaño liable for the
payment of separation pay plus moral damages. The parties filed their own
motions for reconsideration. The NLRC held Elcee Farms and Saguemueller
liable to pay the complainants separation pay and moral damages on the
ground that the lease contract between Elcee Farms and Garenle was
simulated. On the other hand, the NLRC absolved HILLA and its officers from
any liability. The NLRC also ruled only 14 of the 144 complainants were to be
excluded. Thus, petitioners filed the present petition for certiorari.
VI. ISSUE:
Whether or not Corazon Saguemuller is subsidiarily liable
with Elcee Farms for the payment of separation pay and
damages.
VII. RULING:
No. It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. In Santos v. National Labor Relations
Commission, a corporate officer was not held liable for the obligations
incurred by the corporation, where the corporate officer was not even shown
to have had a direct hand in the dismissal of the employee enough to
attribute to him an unlawful act.
The NLRC took into account the testimony of the witness Roel Benignos who
said that they believed that petitioner Corazon Saguemuller was the
president of Elcee Farms because the employees would approach her if they
needed help, as well as the fact that her sons were the officers of Elcee
Farms and Garnele. Beyond these bare suppositions, no evidence, oral or
documentary, was presented to prove that Corazon Saguemuller was truly
the President of Elcee Farms. Nor was there even proof that she was in
active management of the corporation and had dictated policies for
implementation by the corporation. Extending help to private respondents
certainly did not automatically vest upon her the position of President of the
corporation. There is also no evidence on record that she had acted
maliciously or in bad faith in terminating the services of the private
respondents; nor has it been shown that she has in any way consented to
the simulated lease contract executed by her sons which effectively
terminated the services of the private respondents.
VIII. DISPOSITIVE PORTION:
IN VIEW OF THE FOREGOING, the instant Petition is partially granted. This
Court AFFIRMS the award of separation pay and moral damages in favor of
the private respondents as decreed in the assailed Resolution of the NLRC,
to be paid by Elcee Farms with the modification that Corazon Saguemuller
should not be held subsidiarily liable. This Court further orders that Alfredo
Nicor, Sr. be excluded from the list of employees who are to be paid
separation pay and moral damages, for reason that he was inadvertently
included in the said list. Costs against the petitioners. SO ORDERED.
I. SHORT TITLE: FEDERATED LPG DEALERS ASSOCIATION V.
DEL ROSARIO, ET AL.
II. FULL TITLE: Federated LPG Dealers Association versus Ma.
Cristina L. Del Rosario, Celso E. Escobido Ii, Shiela
M. Escobido, and Resty P. Capili - G.R. No. 202639,
November 9, 2016, J. Del Castillo
III. TOPIC: Board of Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Petitioner, through its counsel, sought assistance from the Criminal
Investigation and Detection Group, Anti-Fraud and Commercial Crimes
Division (CIDG-AFCCD) of the Philippine National Police (PNP) in the
surveillance, investigation, apprehension, and prosecution of certain persons
and establishments within Metro Manila reportedly committing acts of illegal
trading of petroleum products and underfilling of LPG cylinders in violation of
Batas Pambansa Blg. 33 (BP 33), as amended by Presidential Decree No.
1865 (PD 1865). According to petitioner, ACCS Ideal Gas Corporation
(ACCS), which allegedly has been refilling branded LPG cylinders, has no
authority to refill per certifications from gas companies owning the branded
LPG cylinders. The CIDG-AFCCD, and a team of paralegal investigators
mapped out a plan for the surveillance and investigation of
ACCS. Afterwards, they conducted a test-buy operation. Inspection and
evaluation of the refilled LPG cylinders revealed that they were underfilled.
Upon application of P/Supt. Esguerra, the Regional Trial Court (RTC) issued
search warrants against the officers of ACCS, to wit: Antonio Del Rosario
(Antonio) and herein respondents. A search and seizure operation was
conducted. Inspection and evaluation of the said filled LPG cylinders showed
that they were underfilled.
V. STATEMENT OF THE CASE:
P/Supt. Esguerra filed with the Department of Justice (DOJ) Complaints-
Affidavits against Antonio, as the general manager of ACCS, and
respondents, as members of the Board of Directors of ACCS, for illegal
trading of petroleum products and for underfilling of LPG cylinders under BP
33, as amended. Chief State Prosecutor Zuno approved the finding of
probable cause by Senior State Prosecutor Dayog, although only against
Antonio and only for the charge of illegal trading. The respective motions for
reconsideration of both parties were denied. P/Supt. Esguerra
, joined by petitioner, filed a petition for review before the Secretary of
Justice. The Secretary of Justice, however, upheld the said issuances and
dismissed the petition. The Motion for Reconsideration thereto was likewise
denied. The CA sustained the Secretary of Justice. The Motion for
Reconsideration thereto having been denied, petitioner filed this present
petition for review on certiorari.
VI. ISSUE:
Whether or not respondents, as members of the Board of
Directors of ACCS, must be criminally prosecuted for the
latter's alleged violation/s of BP 33 as amended.
VII. RULING:
No. Section 4 of BP 33, as amended, states that: "When the offender is a
corporation, partnership, or other juridical person, the president, the general
manager, managing partner, or such other officer charged with the
management of the business affairs thereof, or employee responsible for the
violation shall be criminally liable. "
As enunciated by the Court in Ty v. NBI Supervising Agent De Jemil, a
member of the Board of Directors of a corporation, cannot, by mere reason of
such membership, be held liable for the corporation’s probable violation of
BP 33. If one is not the President, General Manager or Managing Partner, it
is imperative that it first be shown that he/she falls under the catch-all "such
other officer charged with the management of the business affairs," before
he/she can prosecuted. However, it must be stressed, that the matter of
being an officer charged with the management of the business affairs is a
factual issue which must be alleged and supported by evidence. Here, there
is no dispute that neither of the respondents was the President, General
Manager, or Managing Partner of ACCS. Hence, it becomes incumbent upon
petitioner to show that respondents were officers charged with the
management of the business affairs. However, the Complaint-
Affidavit attached to the records merely states that respondents were
members of the Board of Directors based on the AOI of ACCS. There is no
allegation whatsoever that they were in-charge of the management of the
corporation’s business affairs.
Nothing in the By-Laws of ACCS suggest that respondents were directly
involved in the day-to-day operations of the corporation. It is actually the
President who is vested with wide latitude in controlling the business
operations of the corporation and the officer charged with the management of
the business affairs of ACCS. But since there is no allegation or showing that
any of the respondents was the President of ACCS, none of them, therefore,
can be considered as an officer charged with the management of the
business affairs even in so far as the By-Laws of the subject corporation is
concerned.
Clearly, therefore, it is only Antonio, who undisputedly was the General
Manager - a position among those expressly mentioned as criminally liable
under paragraph 4, Section 3 of BP 33, as amended - can be prosecuted for
ACCS' perceived violations of the said law. Respondents who were mere
members of the Board of Directors and not shown to be charged with the
management of the business affairs were thus correctly dropped as
respondents in the complaints.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the Petition for Review on Certiorari is PARTLY GRANTED.
'The assailed April 27, 2012 Decision and July 6, 2012 Resolution of the
Court of Appeals in CA-G.R. SP No. 115750 are AFFIRMED with
MODIFICATION that the State Prosecutor is ORDERED to take cognizance
of the Complaint -Affidavit for Underfilling under Section 2(c), BP 33, as
amended, docketed as I.S. No. 2006-1173, but only insofar as Antonio G.
Del Rosario is concerned. SO ORDERED.
I. SHORT TITLE: PIROVANA V. DELA RAMA STEAMSHIP
II. FULL TITLE: Maria Clara Pirovana, et al. versus The De La Rama
Steamship Co. - G.R. No. L-5377, December 29,
1954, J. Bautista-Angelo
III. TOPIC: Corporation Law – Powers of a Corporation/Ultra
Vires Acts
IV. STATEMENT OF FACTS:
Enrico Pirovano was the President and General Manager of the De la Rama
Steamship Company. Early in 1941 the company insured the life of said
Enrico Pirovano in various Philippine and American Life Insurance
companies. Enrico Pirovano was largely responsible for the rapid and very
successful development of the activities of the company.
He was killed by the Japanese in Manila some time in 1944 leaving as his
only heirs four minor children. In view of the fact that Enrico Pirovano left
practically nothing to his heirs, the current President of De la Rama
Steamship proposed that it is but fit and proper that the company which owes
so much to the deceased should make some provision for his children. He
proposed that out of the proceeds of the insurance policies the sum
of P400,000 be set aside for Pirovano’s minor children, said sum of money
to be convertible into 4,000 shares of the stock of the Company, at par,
or 1,000 shares for each child. A resolution was adopted to carry out the
proposal and submitted to the stockholders of the De la Rama company at a
meeting properly convened, and on that same date the same was duly
approved.
Sometime in March 1950, the President of the corporation, Sergio Osmeña,
Jr., inquired to the Securities and Exchange Commission asking for opinion
regarding the validity of the donation of the proceeds of the insurance
policies to the Pirovano children. SEC rendered its opinion that the donation
was void because the corporation could not dispose of its assets by gift and
therefore the corporation acted beyond the scope of its corporate powers.
In 1951, in view of the failure of compliance with the conditions to which the
above donation was made subject, and in view of the opinion of the SEC
Commissioner, the majority of the stockholders' voted to revoke the
resolution approving the donation to the Pirovano children. The minor
children of the late Enrico Pirovano, represented by their mother and
guardian, Estefania demanded the payment of the credit due them,
amounting to P564,980.89, but the company refused to pay. Thus,
they instituted an action in the Court of First Instance of Rizal.
V. STATEMENT OF THE CASE:
The Pirovanos instituted an action in the Court of First Instance of Rizal
wherein they prayed that the be granted an alternative relief of the following
tenor: (1) sentencing defendant to pay to the plaintiff the sum of P564,980
with interest; (2) as an alternative relief, sentencing defendant to pay to the
plaintiffs the interests on said sum of P564,980.89 at the rate of 5 per cent
per annum, and the sum of P564, 980.89 after the redemption of the
preferred shares of the corporation held by the National Development
Company; and (3) in any event, to pay the plaintiffs damages in the amount
of not less than 20 per cent of the sum that may be adjudged to the plaintiffs,
and the costs of action.
VI. ISSUE:
Whether or not the defendant corporation may 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.
VII. RULING:
YES. The donation is valid and binding.
The provisions second article (g) (j) of the articles of incorporation of the Dela
Rama Co. gives the corporation broad and almost unlimited powers to carry
out the purposes for which it was organized among them, (1) "To invest and
deal with the moneys of the company not immediately required, in such
manner as from time to time may be determined" and, (2) "to aid in any other
manner any person, association, or corporation of which any obligation or in
which any interest is held by this corporation or in the affairs or prosperity of
which this corporation has a lawful interest." The world “deal” is broad
enough to include any manner of disposition, and refers to moneys not
immediately required by the corporation, and such disposition may be
made in such manner as from time to time may be determined by the
corporations.
The donation comes within the scope of this broad power for it is a fact
appearing in the evidence that the insurance proceeds were not immediately
required when they were given away. Under the second broad power we
have the above stated, 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 clearly show that the corporation knew its scope and
meaning so that, with the exception of the instant case, no one has lifted a
finger to dispute their validity. Thus, under this broad grant of power, there
are multiple occasions wherein the corporation invoked this power this
corporation paid to the heirs of other employees. All these acts executed
before and after the donation in question have never been questioned and
were willingly and actually carried out. The SC don't see distinctions between
these acts of generosity to some employees, and the donation which the
corporation to the children of Pirovano from the point of view of the power of
the corporation as expressed in its articles of incorporation. If the former acts
had been sanctioned and had been considered valid and intra vires, we see
no plausible reasons why the latter should now be deemed ultra vires. In
other words of the very resolutions granting the donation, said donation was
given not only because the company was him to but it did so out of a sense
of gratitude.
Granting arguendo that the donation given by Pirovano children is outside
the scope of the powers of the defendant corporation, or the scope of the
powers that it may exercise under the law, or it is an ultra vires act, still it may
said that the same cannot be invalidated, for the reason alone, it appearing
that the donation represents not only the act of the Board of Directors but of
the stockholders by ratifying the resolution duly approved by the board. Such
ratification made the act perfectly valid and enforceable.
Since it is not contended that the donation under consideration is illegal, or
contrary to any of the express provision of the articles of incorporation, nor
prejudicial to the creditors of the defendant corporation, we cannot but
logically conclude, on the strength of the authorities we have quoted above,
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. This is specially so in this case when the very directors who
conceived the idea of granting said donation are practically the stockholders
themselves, with few nominal exception. This applies to the new stockholder
Jose Cojuangco who acquired his interest after the donation has been made
because of the rule that a "purchaser of shares of stock cannot avoid ultra
vires acts of the corporation authorized by its vendor, except those done after
the purchase" (7 Fletcher, Cyc. Corps. section 3456, p. 603; Pascual vs. Del
Saz Orozco, 19 Phil., 82.) Indeed, how can the stockholders now pretend to
revoke the donation which has been partly consummated? How can the
corporation now set at naught the transfer made to Mrs. Pirovano of the
property in New York, U.S.A., the price of which was paid by her but of the
proceeds of the insurance policies given as 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.
VIII. DISPOSITIVE PORTION:
Wherefore, the decision appealed from should be modified as follows: (a)
that the donation made in favor of the children of the late Enrico Pirovano of
the proceeds of the insurance policies taken on his life is valid and binding on
the defendant corporation, (b) that said donation, which amounts to a total of
P583,813.59, including interest, as it appears in the books of the corporation
as of August 31, 1951, plus interest thereon at the rate of 5 per cent per
annum from the filing of the complaint, should be paid to the plaintiffs after
the defendant corporation shall have fully redeemed the preferred shares
issued to the National Development Company under the terms and
conditions stated in the resolutions of the Board of Directors of January 6,
1947 and June 24, 1947, as amended by the resolution of the stockholders
adopted on September 13,1949; and (c) defendant shall pay to plaintiffs an
additional amount equivalent to 10 per cent of said amount of P583,813.59
as damages by way of attorney's fees, and to pay the costs of action.
I. SHORT TITLE: GUY V. GUY
II. FULL TITLE: Simny G. Guy, As Minority Stockholder and for and
in behalf of Goodland Company, Inc. versus Gilbert
G. Guy, Alvin Agustin T. Ignacio and John and/or
Jane Does - G.R. No. 184068, April 19, 2016, C.J.
Sereno
III. TOPIC: Corporation Law – Meeting
IV. STATEMENT OF FACTS:
Petitioner Simny G. Guy (Simny) is a stockholder of record and member of
the board of directors of the Goodland Company, Inc. (GCI).
Respondents are also GCI stockholders of record who were allegedly elected
as NEW directors by virtue of the assailed stockholders' meeting held on 7
September 2004.
On 10 September 2004, Paulino Delfin Pe and Benjamin Lim (stockholders
of record of GCI) informed petitioner that they had received a notice dated 31
August 2004 calling for the holding of a special stockholders’ meeting on 7
September 2004 at the Manila Diamond Hotel.
On 22 September 2004, or fifteen (15) days after the stockholders’ meeting,
petitioner received the aforementioned notice.
V. STATEMENT OF THE CASE:
On 30 September 2004, petitioner and Grace Guy Cheu (Cheu), Filed a
Complaint for the "Nullification of Stockholders' Meeting and Election of
Directors, Nullification of Acts and Resolutions, Injunction and Damages with
Prayer for Temporary Restraining Order and/or Writ of Preliminary
Injunction." Petitioner assailed the election held on 7 September 2004 on the
following grounds:
(1) there was no or proper previous notice to petitioner and Cheu when
although the notice was sent by registered mail on 2 September 2004, the
registry return card shows that he received it only on 22 September 2004 or
fifteen (15) days after ;
(2) the meeting was not called by the proper person when it was not issued
by the corporate secretary of GCI pursuant to its by-laws;; and
(3) lack of due notice to Grace Cheu, allegedly a stockholder of record of GCI
as having in possession stock certificates.
VI. ISSUES:
1. Whether or not the stockholders’ meeting was properly
sent.
2. Whether or not the meeting was called by a proper
person.
3. Whether or not Grace Cheu is entitled to such notice.
RULING:
1. Yes. Date of Sending: Sept 2 Date of Meeting: Sept 7 or 5 days after Date
of Receipt: Sept 22
The provisions only require the sending/mailing of the notice of a
stockholders' meeting to the stockholders of the corporation.
Sending/mailing is different from ailing or service under the Rules of Court.
Had the lawmakers intended to include the stockholder's receipt of the
notice, they would have clearly reflected such requirement in the law. Absent
that requirement, the word "send" should be understood in its plain meaning.
For a stockholders' special meeting to be valid, certain requirements must be
met with respect to notice, quorum and place. In relation to the above
provision of B.P. 68, one of the requirements is a previous written notice sent
to all stockholders at least one (1) week prior to the scheduled meeting,
unless otherwise provided in the by-laws.
Under the by-laws of GCI, the notice of meeting shall be mailed not less than
five (5) days prior to the date set for the special meeting.
2. Yes, under Section 3, Article IV of the By-laws of Goodland, respondent
Gilbert G. Guy as Vice President of the corporation is qualified to act as
president.
Section 3 which provides that "the Vice President, if qualified, shall exercise
all of the functions and perform all the duties of the President, in the absence
or disability, for any cause, of the latter."
As correctly pointed out by defendants [respondents], the applicable
provisions of the by-laws of Goodland are Article II, Sec. 2 which provides
that the "special meeting of the stockholders may be called . . . by order of
the President and must be called upon the written request of stockholders
registered as the owners of one-third (1/3).
Defendant Gilbert [respondent Guy] is the owner of more than one-third (1/3)
of the outstanding stock of Goodland. In fact, it is around 79.99%. Thus,
pursuant to Art. II, Sec. 2 of the By-laws of Goodland, defendant Gilbert
[respondent Guy] may validly call such special stockholders' meeting.
3. No,Cheu was not a stockholder of record of GCI and was therefore not
entitled to any notice of meeting.
Section 63 of the Corporation Code provides: xxx
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.
The evidence presented by Cheu to prove that she was a stockholder of
record — valid, existing and uncancelled Goodland Stock Certificate does
not satisfy the requirements imposed by the Corporation Code and the by-
laws of GCI.
A "stockholder of record" is defined as follows: A person who desires to be
recognized as stockholder for the purpose of exercising stockholders' right
must secure standing by having his ownership of share recorded on the
stock and transfer book.
Thus, only those whose ownership of shares are duly registered in the stock
and transfer book are considered stockholders of record and are entitled to
all rights of a stockholder.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant Petition for Review is DENIED. The Court of
Appeals Decision in CA-G.R. SP No. 99749 is hereby AFFIRMED.

I. SHORT TITLE: BOY SCOUTS OF THE PHILIPPINES (BSP) V.
COA
II. FULL TITLE: Boy Scouts of the Philippines versus Commission on
Audit – G.R. No. 177131, June 7, 2011, J.
Leonardo-De Castro
III. TOPIC: Corporation Law – Non-chartered GOCCs
IV. STATEMENT OF FACTS:
COA issued Resolution No. 99-011 ("the COA Resolution"), with the subject
"Defining the Commission’s policy with respect to the audit of the Boy Scouts
of the Philippines." COA Resolution stated that the BSP was created as a
public corporation under CA No. 111, as amended by PD No. 460 and RA
No. 7278; that in BSP v. NLRC, SC ruled that the BSP, as constituted under
its charter, was a "government-controlled corporation within the meaning of
the Constitution"; and that "the BSP is appropriately regarded as a
government instrumentality under the 1987 Administrative Code." Finally, the
COA Resolution states that the commission may conduct an annual financial
audit of the Boy Scouts of the Philippines in accordance with generally
accepted auditing standards. Furthermore, that for purposes of audit
supervision, the BSP shall be classified among the government corporations
belonging to the Educational, Social, Scientific, Civic and Research Sector
under the Corporate Audit Office I, to be audited, similar to the subsidiary
corporations, by employing the team audit approach.
In a letter, BSP sought reconsideration of the COA resolution claiming that it
is not subject to the Commission’s jurisdiction. That RA 7278 amended the
BSP’s charter after the cited case was decided. The alteration of the
composition of the National Executive Board of the BSP. Said RA virtually
eliminated the "substantial government participation" in the National
Executive Board. The BSP believes that the cited case has been superseded
by RA 7278, thereby weakening the case’s conclusion that the BSP is a
government-controlled corporation. Also, the Government, like in other
GOCCs, does not have funds invested in the BSP. What RA 7278 only
provides is that the Government or any of its subdivisions, branches, offices,
agencies and instrumentalities can from time to time donate and contribute
funds to the BSP.
Director Sunico, CAO I of the COA, furnished the BSP with a copy of the
Memorandum, wherein COA General Counsel opined that RA No. 7278 did
not supersede the Court’s ruling in BSP v. NLRC. That the character of the
BSP’s purposes and functions which has a public aspect and the statutory
designation of the BSP as a "public corporation". That the SC has elucidated
in said BSP case that BSP is regarded as, both a "government-controlled
corporation with an original charter" and as an "instrumentality" of the
Government.
The BSP then filed a Petition for Review with Prayer for Preliminary
Injunction and/or Temporary Restraining Order before the COA, which was
denied.
V. STATEMENT OF THE CASE:
Petition for prohibition filed by BSP seeking to prohibit the COA from
implementing its resolution to conduct an annual financial audit of the BSP,
as well as all other issuances arising from it, and that it be rendered null and
void.
VI. ISSUE:
Whether or not BSP is a public corporation (GOCC,
instrumentality, agency or subdivision of the Government)
falling under the COA’s audit jurisdiction
VII. RULING:
Yes, BSP, under its amended charter, continues to be a public corporation or
a government instrumentality, hence, it is subject to the exercise by the COA
of its audit jurisdiction in the manner consistent with the provisions of the
BSP Charter.
The BSP as a Public Corporation under the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code
and the BSP, as presently constituted under RA No. 7278, falls under the
second classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose created by law; their personality begins as soon as they
have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.
The BSP, which is a corporation created for a public interest or purpose, is
subject to the law creating it under Article 45 of the Civil Code, which
provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding
article are governed by the laws creating or recognizing them.
The purpose of the BSP as stated in its amended charter shows that it was
created in order to implement a State policy declared in Article II, Section 13
of the Constitution, which states the recognition by the State of the vital role
of the youth in nation-building.
Evidently, the BSP, which was created by a special law to serve a public
purpose in pursuit of a constitutional mandate, comes within the class of
"public corporations" defined by paragraph 2, Article 44 of the Civil Code and
governed by the law which creates it, pursuant to Article 45 of the same
Code.
The BSP’s Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact
that, along with the Girl Scouts of the Philippines, it is classified as an
attached agency of the DECS under Executive Order No. 292, or the
Administrative Code of 1987.
As an attached agency, the BSP enjoys operational autonomy, as long as
policy and program coordination is achieved by having at least one
representative of government in its governing board, which in the case of the
BSP is the DECS Secretary. In this sense, the BSP is not under government
control or "supervision and control." Still this characteristic does not make the
attached chartered agency a private corporation covered by the constitutional
proscription in question.
The Court believes that the BSP is appropriately regarded as "a government
instrumentality" under the 1987 Administrative Code. It thus appears that the
BSP may be regarded as both a "government controlled corporation with an
original charter" and as an "instrumentality" of the Government within the
meaning of Article IX (B) (2) (1) of the Constitution. x x x.
Assuming for the sake of argument that the BSP ceases to be owned or
controlled by the government because of reduction of the number of
representatives of the government in the BSP Board, it does not follow that it
also ceases to be a government instrumentality as it still retains all the
characteristics of the latter as an attached agency of the DECS under the
Administrative Code.
BSP still remains an instrumentality of the national government. It is a public
corporation created by law for a public purpose, attached to the DECS
pursuant to its Charter and the Administrative Code of 1987. It is not a
private corporation which is required to be owned or controlled by the
government and be economically viable to justify its existence under a
special law.
BSP performs functions that are impressed with public interest. The Boy
Scouts of the Philippines has a long history of providing value formation to
our young, and considering how huge the population of the young people is,
at this point in time, and also considering the importance of having an
organization such as this that will inculcate moral uprightness among the
young people, and further considering that the development of these young
people at that tender age of seven to sixteen is vital in the development of
the country producing good citizens, I believe that we can make an exception
of the Boy Scouting movement of the Philippines from this general prohibition
against providing tax exemption and privileges.
The BSP objectives, as pointed out earlier, are consistent with the public
purpose of the promotion of the well-being of the youth, the future leaders of
the country. The amendments were not done with the view of changing the
character of the BSP into a privatized corporation. The BSP remains an
agency attached to a department of the government, the DECS, and it was
not at all stripped of its public character.
The relationship of the BSP, an attached agency, to the government, through
the DECS, is defined in the Revised Administrative Code of 1987. The BSP
meets the minimum statutory requirement of an attached government agency
as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the
policy and program coordination between the BSP and the DECS.
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, the instant petition for prohibition is
DISMISSED.
I. SHORT TITLE: CHINABANK V. DYNE-SEM CORP.
II. FULL TITLE: China Banking Corporation versus Dyne-Sem
Electronics Corporation – G.R. No. 149237, June
11, 2006, J. Corona
III. TOPIC: Corporation Law – Piercing the veil of corporate
fiction
IV. STATEMENT OF FACTS:
Dynetics, Inc. (Dynetics) and Lim borrowed a total of P8,939,000 from
petitioner Chinabank. The loan was evidenced by 6 promissory notes. The
borrowers failed to pay when the obligations became due. Petitioner
consequently instituted a complaint for sum of money, which sought payment
of the unpaid promissory notes plus interest and penalties.
Summons was not served on Dynetics because it had already closed down.
In an amended complaint, petitioner impleaded respondent Dyne-Sem
Electronics Corporation (Dyne-Sem) and its stockholders. According to
petitioner, respondent was formed and organized to be Dynetics’ alter ego
alleging, among others, that both engaged in the same line of business of
manufacturing, producing, assembling integrated circuits and semiconductor
devices.
Respondent filed its answer denying the allegations saying that their
incorporators as well as present stockholders of are totally different from
those of Dynetics, Inc., and not one of them has ever been a stockholder or
officer of the latter, and that acquired most of its present machineries and
equipment as second-hand items to keep costs down.
Court a quo ruled that Dyne-Sem is not an alter ego of Dynetics. CA
dismissed the subsequent appeal filed by petitioner and affirmed the trial
court’s decision.
V. STATEMENT OF THE CASE:
Petition for review filed by Chinabank questioning the decision and resolution
of the CA affirming en toto RTC’s decision in ruling that the Doctrine of
Piercing the Veil of Corporate Fiction is not applicable in this case.
VI. ISSUE:
Whether or not respondent Dyne-Sem is an alter ego of
Dynetics, Inc.
VII. RULING:
No, to disregard the separate juridical personality of a corporation, the
wrongdoing must be proven clearly and convincingly. In this case, petitioner
failed to prove that Dyne-Sem was organized and controlled, and it’s a ffairs
conducted, in a manner that made it merely an instrumentality, agency,
conduit or adjunct of Dynetics, or that it was established to defraud Dynetics’
creditors, including petitioner.
The similarity of business of the two corporations did not warrant a
conclusion that respondent was but a conduit of Dynetics. Respondent’s
acquisition of some of the machineries and equipment of Dynetics was not
proof that respondent was formed to defraud petitioner. No merger took
place between Dynetics and respondent Dyne-Sem. What took place was a
sale of the assets of the former to the latter. Merger is legally distinct from a
sale of assets. The assets were not "diverted" to respondent as an alter ego
of Dynetics. The machineries and equipment were transferred and disposed
of by the winning bidders in their capacity as owners. The sales were
therefore valid and the transfers of the properties to respondent legal and not
in any way in contravention of petitioner’s rights as Dynetics’ creditor.
It may be true that respondent later hired Dynetics’ former Vice-President
Maglaya and Assistant Corporate Counsel Gesmundo. However, the Court
cannot conclude that respondent was an alter ego of Dynetics. In fact, even
the overlapping of incorporators and stockholders of two or more
corporations will not necessarily lead to such inference and justify the
piercing of the veil of corporate fiction.
No factual and legal basis exists to hold respondent Dyne-Sem liable for the
obligations of Dynetics to petitioner.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is hereby DENIED. The assailed Court of Appeals’
decision and resolution are hereby AFFIRMED.
I. SHORT TITLE: CARANDANG V. HONORABLE DESIERTO
II. FULL TITLE: Antonio Carandang versus Honorable Aniano
Desierto; Antonio Carandang vs. Sandiganbayan
(Fifth Division) - G.R. Nos. 148076 and 153161,
January 12, 2011, J. Bersamin
III. TOPIC: Non-Chartered GOCCs
IV. STATEMENT OF FACTS:
Roberto S. Benedicto was a stockholder of RPN, a private corporation duly
registered with the SEC. In March 1986, the Government ordered the
sequestration of RPN’s properties, assets, and business. PCGG entered into
a compromise agreement with Benedicto, whereby he ceded to the
Government, through the PCGG, all his shares of stock in RPN.
Consequently, upon motion of the PCGG, the Sandiganbayan (Second
Division) directed the president and corporate secretary of RPN to transfer to
the PCGG Benedicto’s shares representing 72.4% of the total issued and
outstanding capital stock of RPN. However, Benedicto moved for a
reconsideration, contending that his RPN shares ceded to the Government,
through the PCGG, represented only 32.4% of RPN’s outstanding capital
stock, not 72.4%. Such case remains unresolved. On July 1998, Carandang
assumed office as general manager and COO of RPN.
V. STATEMENT OF THE CASE:
On April 1999, Carandang and other RPN officials were charged with grave
misconduct before the Ombudsman alleging that Carandang had entered
into a contract with AF Broadcasting Incorporated despite his being an
incorporator, director, and stockholder of that corporation; that he had thus
held financial and material interest in a contract that had required the
approval of his office; and that the transaction was prohibited under Republic
Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and
Employees), thereby rendering him administratively liable for grave
misconduct. Carandang sought the dismissal of the administrative charge on
the ground that the Ombudsman had no jurisdiction over him because RPN
was not a government-owned or -controlled corporation.
Ombudsman found Carandang guilty of grave misconduct and ordered his
dismissal from the service. On appeal, the CA affirmed the decision of the
Ombudsman, stating that RPN became a GOCC when RPN-9 was
sequestered by the Government, owning 72.4% of its capital stock. Hence,
the G.R. 148076 petition.
On January 2000, the Ombudsman formally charged Carandang in the
Sandiganbayan with a violation of RA 3019, giving unwarranted benefits to
On Target Media Concept, Inc. through manifest partiality and gross
inexcusable negligence and caused the government undue injury, by pre-
terminating the existing block time contract between RPN 9 and OTMCI for
the telecast of "Isumbong Mo Kay Tulfo" which assured the government an
income (P 64,009.00) per telecast and substituting the same with a more
onerous co-production agreement without any prior study as to the
profitability thereof, which resulted only to (P 71,185.00) in the period of 5
months, and further, by waiving RPN-9’s collectible from OTMCI in the
amount of (P 320,045.00).
Carandang moved to quash the information arguing that Sandiganbayan had
no jurisdiction because he was not a public official due to RPN not being a
GOCC. Sandiganbayan denied it.
VI. ISSUE:
Whether or not RPN was a government-owned or -controlled
corporation.
VII. RULING:
No. Under the Administrative Code of 1987, a GOCC refer to any agency
organized as a stock or non-stock corporation vested with functions relating
to public needs whether governmental or proprietary in nature, and owned by
the government directly or indirectly through its instrumentalities either
wholly, or where applicable as in the case of stock corporations to the extent
of at least 51% of its capital stock. The definition mentions three (3)
requisites, namely, first, any agency organized as a stock or non-stock
corporation; second, vested with functions relating to public needs whether
governmental or proprietary in nature; and, third, owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one (51) of its
capital stock.
Consequently, RPN was neither a government-owned nor a controlled
corporation because of the Government’s total share in RPN’s capital stock
being only 32.4%. Although it is true that the Sandiganbayan (Second
Division) ordered the transfer to the PCGG of Benedicto’s shares that
represented 72.4% of the total issued and outstanding capital stock of RPN,
such quantification of Benedicto’s shareholding cannot be controlling in view
of Benedicto’s timely filing of a motion for reconsideration whereby he
clarified and insisted that the shares ceded to the PCGG had accounted for
only 32.4%, not 72.4%, of RPN’s outstanding capital stock. Even the PCGG
and the Office of the President (OP) have recognized RPN’s status as being
neither a government-owned nor -controlled corporation.
Also, RPN-9 was organized for private needs and profits, and not for public
needs and was not specifically vested with functions relating to public needs.
Neither could RPN-9 be considered a GOCC under PD No. 2029. It is not a
parent corporation, a subsidiary corporation nor an "acquired asset
corporation” because PN-9 was not organized as a subsidiary corporation of
a government corporation organized exclusively to own and manage, or
lease, or operate specific physical assets acquired by a government financial
institution in satisfaction of debts incurred.
Lastly, the conclusion that Carandang was a public official by virtue of his
having been appointed as general manager and chief operating officer of
RPN by President Estrada deserves no consideration. President Estrada’s
intervention was merely to recommend Carandang’s designation as general
manager and chief operating officer of RPN to the PCGG, which then cast
the vote in his favor vis-à-vis said positions. Under the circumstances, it was
RPN’s Board of Directors that appointed Carandang to his positions pursuant
to RPN’s By-Laws. In fine, Carandang was correct in insisting that being a
private individual he was not subject to the administrative authority of the
Ombudsman and to the criminal jurisdiction of the Sandiganbayan.
VIII. DISPOSITIVE PORTION:

WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No.
153161. We reverse and set aside the decision promulgated on February 12,
2001 by the Court of Appeals in C.A.-G.R. SP No. 58204, and dismiss the
administrative charge for grave misconduct against the petitioner.
We annul and set aside the resolutions dated October 17, 2001 and March
14, 2002, as well as the order dated March 15, 2002, all issued by the
Sandiganbayan (Fifth Division) in Criminal Case No. 25802, and dismiss
Criminal Case No. 25802 as against the petitioner.
I. SHORT TITLE: SALES V. SEC
II. FULL TITLE: Julio Sales and George Agonieas, in their own
behalf, and in behalf of Sipalay Mining Exploration
Corporation, as minority stockholders thereof, and
Sipalay Mining Exploration Corporation versus
Securities and Exchange Commission, State
Investment House, Inc., represented by its
President, Anselmo Trinidad; Anselmo Trinidad Co.,
Inc., represented by its President, Anselmo Trinidad;
and Vulcan Industrial and Mining Corp., Walter W.
Brown; Afredo C. Ramos, Annabelle P. Brown,
Walter W. Brown, Manuel C. Diaz, and Augusto B.
Sunico et al. - G.R. No. L-54330, January 13, 1989,
J. Cortes
II. TOPIC: Board of Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Respondent State Investment House, Inc. entered into a sales agreement
with Sipalay Mining whereby the latter sold to the former 200,000,000
common shares of its capital stock in the amount of P2.6M with the condition
that the stockbroker shall not sell more than 1,000,000 shares per buyer.
Subsequently, the restriction on the sale of the shares was modified lowing
sale in blocks of 5,000,000 shares per buyer.
State Investment House sold and transferred its 200,000,000 shares to
Anselmo Trinidad & Co. ATCO in turn sold 198,500,000 of the shares to
respondent VULCAN. By resolution of the Board of Directors of Sipalay
Mining, its President was directed to sign the certificate of stock that would
effect the transfer.
V. STATEMENT OF THE CASE:
Petitioners filed before the SEC a petition to nullify the sale of the shares to
VULCAN, with a prayer for the issuance of a writ of preliminary injunction to
enjoin VULCAN from voting the shares. SEC temporarily restrained VULCAN
from voting its 198,500,000 shares at the 1979 annual stockholders' meeting.
On March 1980, a Notice of Call was published, calling for the payment of
(20%) of unpaid subscriptions in Sipalay Mining on or before April 15, 1980.
VULCAN immediately petitioned the SEC to issue a writ of injunction. SEC
issued a TRO suspending the effects and implementation of the call.
SEC issued the first of the questioned orders, denying the application for the
issuance of the writ of preliminary injunction, ordered the Board of Directors
and officers of the corporation are directed to call and hold said regular
meeting and a Committee composed of one representative of the Securities
and Exchange Commission, as Chairman, and one representatives each
from the respondents and the petitioners, as members, is hereby formed to
supervise and control the conduct of the proceedings and perform the
functions of the Corporate Secretary.
When SEC lifted its TRO dated April 1980, it issued the second questioned
order cancelling the stockholders' meeting set by Sipalay Mining Exploration
Corporation for July 18, 1980 and the Committee created under the Order
dated June 13, 1980 be constituted. Hence, the petition.
VI. ISSUE:
Whether or not the SEC acted arbitrarily and with grave
abuse of discretion, tantamount to lack of jurisdiction, when it
ordered the creation of the committee composed of the SEC
representative, as Chairman, and one representative each
from petitioners and private respondents, as members, to
supervise and control the conduct of the proceedings and
perform the functions of the Corporate Secretary, in relation
to the regular annual stockholders' meeting of Sipalay Mining
VII. RULING:
The Court finds that the order of the SEC creating the committee is fully
supported by P.D. No. 902-A that the Commission shall have absolute
jurisdiction, supervision and control over all corporations, partnerships or
associations, who are the grantees of primary franchise and/or a license or
permit issued by the government to operate in the Philippines (1)
controversies arising out of intra-corporate or partnership relations, between
and among stockholders members, or associates; between any or all of them
and the corporation, partnership or association of which they are
stockholders members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity and (2) Controversies
in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.
As correctly pointed out by the Solicitor General, the case before the SEC
involves a controversy regarding the election of directors of a corporation. It
is apparent from the foregoing that a controversy in the election of directors
of Sipalay Mining came about because it was petitioners themselves who
had asked the Commission not to allow the disputed 198,500,000 shares to
be voted on at the July 18, 1979 annual stockholders' meeting of the
corporation. Since said 198,500,000 shares of stock were not allowed to vote
due to the restraining order of the Commission, petitioners were able to elect
candidates from their group. It is this election of members of the board of
directors on July 18, 1979, which is being questioned by respondent Vulcan
in its answer in SEC Case No. 1751 wherein it prays that the stockholders'
meeting on the aforementioned date be declared null and void. The
controversy regarding the election of directors in Sipalay Mining was, thus, a
natural consequence of the relief sought by petitioners themselves that the
shares of stocks of Vulcan aforementioned be barred from voting.
Respondent Commission had to address itself to the controversy by issuing
its questioned order dated June 13, 1980, directing the holding of the annual
stockholders' meeting of Sipalay Mining for the year 1980 as mandated in its
by-laws, and creating a committee to supervise and control the conduct of
the proceedings to insure an orderly stockholders meeting and forestall
possible controversy in the sending of notices, processing and validation of
proxies and closing of the stock and transfer book. Certainly, the
Commission cannot be faulted, much less can it be said that it exceeded its
jurisdiction, for having taken all proper measures to insure that an orderly
meeting and election are held in Sipalay Mining in the light of the issues
raised in SEC Case No. 1751 pending before the Commission.
Under Section 5 of P.D. No. 902-A, the SEC had original and exclusive
jurisdiction over the controversy. It was "in order to effectively exercise such
jurisdiction", to borrow the language of P.D. No. 902-A, that the SEC ordered
the creation of the committee, in the exercise of its broad powers of control
and supervision over corporations and its more specific power to compel the
officers of a corporation to call meetings of stockholders under its
supervision.
The Court finds the functions delegated to the committee to be in accordance
with the SEC's mandate. The powers delegated to the committee were all
confined to the holding of the stockholders' meeting and the conduct of the
election of directors in connection This displays the circumspect and cautious
manner in which the SEC exercised its broad powers under P.D. No. 902-A.
The Court, therefore, finds no basis to sustain petitioners' contention that the
SEC acted arbitrarily and gravely abused its discretion when it ordered the
creation of a committee to supervise the stockholders' meeting and election
of directors.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DISMISSED. The Decision of the Court of
Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-
2754 of the Civil Service Commission, and its Resolution of 15 December
1999 are hereby affirmed. Costs against the petitioner.
I. SHORT TITLE: CARAG V. NLRC
II. FULL TITLE: Antonio C. Carag versus National Labor Relations
Commission, Isabel G. Panganiban-Ortiguerra, as
Executive Labor Arbiter, NAFLU, and Mariveles
Apparel Corporation Labor Union - G.R. No. 147590,
April 2, 2007, J. Carpio
III. TOPIC: Corporation Law – Board of
Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
National Federation of Labor Unions (NAFLU) and Mariveles Apparel
Corporation Labor Union (MACLU) (collectively, complainants), on behalf of
all of MAC's rank and file employees, filed a complaint against MAC for
illegal dismissal brought about by its illegal closure of business.
Upon receipt of the records of the case, Arbiter Ortiguerra summoned the
parties to explore options for possible settlement. The non-appearance of
respondents prompted Arbiter Ortiguerra to declare the case submitted for
resolution "based on the extant pleadings."
In their position paper dated 3 January 1994, complainants moved to implead
Carag and David, as follows:
In the present case, it is unfortunate for respondents that the records and
evidence clearly demonstrate that the individual complainants are entitled to
the reliefs prayed for in their complaint. However, any favorable judgment the
Honorable Labor Arbiter may render in favor of herein complainants will go to
naught should the Office fails [sic] to appreciate the glaring fact that the
respondents [sic] corporation is no longer existing as it suddenly stopped
business operation since [sic] 8 July 1993. Under this given circumstance,
the complainants have no option left but to implead Atty. ANTONIO CARAG,
in his official capacity as Chairman of the Board along with MR. ARMANDO
DAVID as President. Both are also owners of the respondent corporation
.This inclusion of individual respondents as party respondents in the present
case is to guarantee the satisfaction of any judgment award on the basis of
Article 212(c) of the Philippine Labor Code. Where the employer-corporation,
AS IN THE PRESENT CASE, is no longer existing and unable to satisfy the
judgment in favor of the employee, the officer should be held liable for acting
on behalf of the corporation.
If no definite proof exists as to who is the responsible officer, the president of
the corporation who can be deemed to be its chief operation officer shall be
presumed to be the responsible officer. In Republic Act 602, for example,
criminal responsibility is with the "manager" or in his default, the person
acting as such.
Without any further proceedings, Arbiter Ortiguerra rendered her Decision
dated 17 June 1994 granting the motion to implead Carag and David. In the
same Decision, Arbiter Ortiguerra declared Carag and David solidarily liable
with MAC to complainants.
LA: respondents jointly and severally guilty of illegal closure.
MAC, Carag, and David, through Atty. Pastores, filed their Memorandum
before the NLRC on 26 August 1994. Carag, through a separate counsel,
filed an appeal dated 30 August 1994 before the NLRC. Carag reiterated the
arguments in respondents' position paper filed before Arbiter Ortiguerra,
stating that:
2.1 While Atty. Antonio C. Carag is the Chairman of the Board of MAC and
Mr. Armando David is the President, they are not the owners of MAC;
2.2 MAC is owned by a consortium of banks, as stockholders, and Atty.
Antonio C. Carag and Mr. Armando David are only minority stockholders of
the corporation, owning only qualifying shares;
2.3 MAC is not a family[-]owned corporation, that in case of a close [sic]
corporation, piercing the corporate veil its [sic] possible to hold the
stockholders liable for the corporation's liabilities;
2.4 MAC is a corporation with a distinct and separate personality from that of
the stockholders; piercing the corporate veil to hold the stockholders liable for
corporate liabilities is only true [for] close corporations (family corporations);
this is not the prevailing situation in MAC;
2.5 Atty. Antonio Carag and Mr. Armando David are professional managers
and the extension of shares to them is just qualifying shares to enable them
to occupy subject position.
Respondents filed separate petitions for certiorari before this Court under
Rule 65 of the 1964 Rules of Court. Carag filed his petition, docketed as G.R.
No. 118820, on 13 February 1995. In the meantime, we granted MAC's
prayer for the issuance of a temporary restraining order to enjoin the NLRC
from enforcing Arbiter Ortiguerra's Decision. On 31 May 1995, we granted
complainants' motion for consolidation of G.R. No. 118820 with G.R. No.
118839 (MAC v. NLRC, et al.) and G.R. No. 118880 (David v. Arbiter
Ortiguerra, et al.). On 12 July 1999, after all the parties had filed their
memoranda, we referred the consolidated cases to the appellate court in
accordance with our decision in St. Martin Funeral Home v. NLRC.
Respondents filed separate petitions before the appellate court.
CA: appellate court held that the absence of a formal hearing before the
Labor Arbiter is not a cause for Carag and David to impute grave abuse of
discretion. The appellate court found that Carag and David, as the most
ranking officers of MAC, had a direct hand at the time in the illegal dismissal
of MAC's employees. The failure of Carag and David to observe the notice
requirement in closing the company shows malice and bad faith, which
justifies their solidary liability with MAC. The appellate court also found that
the circumstances of the present case do not warrant a reduction of the
appeal bond.
V. STATEMENT OF THE CASE:
This is a petition for review on certiorari assailing the Decision dated 29
February 2000 and the Resolution dated 27 March 2001 of the Court of
Appeals (appellate court) in CA-G.R. SP Nos. 54404-06. The appellate court
affirmed the decision dated 17 June 1994 of Labor Arbiter Isabel
Panganiban-Ortiguerra (Arbiter Ortiguerra) in RAB-III-08-5198-93 and the
resolution dated 5 January 1995 of the National Labor Relations Commission
(NLRC) in NLRC CA No. L-007731-94.
Arbiter Ortiguerra held that Mariveles Apparel Corporation (MAC), MAC's
Chairman of the Board Antonio Carag (Carag), and MAC's President
Armando David (David) (collectively, respondents) are guilty of illegal closure
and are solidarily liable for the separation pay of MAC's rank and file
employees. The NLRC denied the motion to reduce bond filed by MAC and
Carag.
VI. ISSUE:
Whether or not Carag and David are personally liable for
over ₱50 million of the corporation's liability, merely as board
chairman and President?
VII. RULING:
No. Carag cannot be held personally liable for the separation pay owed by
MAC to complainants based alone on Article 212(e) of the Labor Code.
Article 212(e) does not state that corporate officers are personally liable for
the unpaid salaries or separation pay of employees of the corporation. The
liability of corporate officers for corporate debts remains governed by Section
31 of the Corporation Code.
Section 31 of the Corporation Code lays down the exceptions to the rule, as
follows:
Liability of directors, trustees or officers. - Directors or trustees who wilfully
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.
Section 31 makes a director personally liable for corporate debts if he wilfully
and knowingly votes for or assents to patently unlawful acts of the
corporation. Section 31 also makes a director personally liable if he is guilty
of gross negligence or bad faith in directing the affairs of the corporation.
Complainants did not allege in their complaint that Carag wilfully and
knowingly voted for or assented to any patently unlawful act of MAC.
Complainants did not present any evidence showing that Carag wilfully and
knowingly voted for or assented to any patently unlawful act of MAC. Neither
did Arbiter Ortiguerra make any finding to this effect in her Decision.
Complainants did not also allege that Carag is guilty of gross negligence or
bad faith in directing the affairs of MAC. Complainants did not present any
evidence showing that Carag is guilty of gross negligence or bad faith in
directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding
to this effect in her Decision.
Arbiter Ortiguerra stated in her Decision that:
In instances where corporate officers dismissed employees in bad faith or
wantonly violate labor standard laws or when the company had already
ceased operations and there is no way by which a judgment in favor of
employees could be satisfied, corporate officers can be held jointly and
severally liable with the company.
After stating what she believed is the law on the matter, Arbiter Ortiguerra
stopped there and did not make any finding that Carag is guilty of bad faith or
of wanton violation of labor standard laws. Arbiter Ortiguerra did not specify
what act of bad faith Carag committed, or what particular labor standard laws
he violated.
To hold a director personally liable for debts of the corporation, and thus
pierce the veil of corporate fiction, the bad faith or wrongdoing of the director
must be established clearly and convincingly. Bad faith is never
presumed. Bad faith does not connote bad judgment or negligence. Bad faith
imports a dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the nature of fraud.
In Businessday Information Systems and Services, Inc. v. NLRC, we held:
A corporate officer is not personally liable for the money claims of discharged
corporate employees unless he acted with evident malice and bad faith in
terminating their employment.
Neither does bad faith arise automatically just because a corporation fails to
comply with the notice requirement of labor laws on company closure or
dismissal of employees. The failure to give notice is not an unlawful act
because the law does not define such failure as unlawful. Such failure to give
notice is a violation of procedural due process but does not amount to an
unlawful or criminal act. Such procedural defect is called illegal dismissal
because it fails to comply with mandatory procedural requirements, but it is
not illegal in the sense that it constitutes an unlawful or criminal act.
For a wrongdoing to make a director personally liable for debts of the
corporation, the wrongdoing approved or assented to by the director must be
a patently unlawful act. Mere failure to comply with the notice requirement of
labor laws on company closure or dismissal of employees does not amount
to a patently unlawful act. Patently unlawful acts are those declared unlawful
by law which imposes penalties for commission of such unlawful acts. There
must be a law declaring the act unlawful and penalizing the act.
In this case, Article 283 of the Labor Code, requiring a one-month prior notice
to employees and the Department of Labor and Employment before any
permanent closure of a company, does not state that non-compliance with
the notice is an unlawful act punishable under the Code. There is no
provision in any other Article of the Labor Code declaring failure to give such
notice an unlawful act and providing for its penalty.
Complainants did not allege or prove, and Arbiter Ortiguerra did not make
any finding, that Carag approved or assented to any patently unlawful act to
which the law attaches a penalty for its commission. On this score alone,
Carag cannot be held personally liable for the separation pay of
complainants.
This leaves us with Arbiter Ortiguerra's assertion that "when the company
had already ceased operations and there is no way by which a judgment in
favor of employees could be satisfied, corporate officers can be held jointly
and severally liable with the company." This assertion echoes the
complainants' claim that Carag is personally liable for MAC's debts to
complainants "on the basis of Article 212(e) of the Labor Code, as
amended," which says:
'Employer' includes any person acting in the interest of an employer, directly
or indirectly. The term shall not include any labor organization or any of its
officers or agents except when acting as employer. (Emphasis supplied)
Indeed, complainants seek to hold Carag personally liable for the debts of
MAC based solely on Article 212(e) of the Labor Code. This is the specific
legal ground cited by complainants, and used by Arbiter Ortiguerra, in
holding Carag personally liable for the debts of MAC.
We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC
that Article 212(e) of the Labor Code, by itself, does not make a corporate
officer personally liable for the debts of the corporation. The governing law on
personal liability of directors for debts of the corporation is still Section 31 of
the Corporation Code. Thus, we explained in McLeod:
Personal liability of corporate directors, trustees or officers attaches
only when (1) they assent to a patently unlawful act of the corporation, or
when they are guilty of bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages to the corporation, its
stockholders or other persons; (2) they consent to the issuance of watered
down stocks or when, having knowledge of such issuance, do not forthwith
file with the corporate secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the corporation; or (4) they
are made by specific provision of law personally answerable for their
corporate action.
A review of the above exceptional cases would readily disclose the
attendance of facts and circumstances that could rightly sanction personal
liability on the part of the company officer. In A.C. Ransom, the corporate
entity was a family corporation and execution against it could not be
implemented because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations. The doctrine of
"piercing the veil of corporate fiction" was thus clearly
appropriate. Chua likewise involved another family corporation, and this
time the conflict was between two brothers occupying the highest ranking
positions in the company. There were incontrovertible facts which pointed to
extreme personal animosity that resulted, evidently in bad faith, in the easing
out from the company of one of the brothers by the other.
Thus, the rule is still that the doctrine of piercing the corporate veil applies
only when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or
a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities. Neither
Article 212[e] nor Article 273 (now 272) of the Labor Code expressly makes
any corporate officer personally liable for the debts of the corporation.
Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals
to hold Carag personally liable for the separation pay owed by MAC to
complainants based alone on Article 212(e) of the Labor Code. Article 212(e)
does not state that corporate officers are personally liable for the unpaid
salaries or separation pay of employees of the corporation. The liability of
corporate officers for corporate debts remains governed by Section 31 of the
Corporation Code.
VIII. DISPOSITIVE PORTION:
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated
29 February 2000 and the Resolution dated 27 March 2001 of the Court of
Appeals in CA-G.R. SP Nos. 54404-06 insofar as petitioner Antonio Carag is
concerned.
I. SHORT TITLE: PEÑA V. CA
II. FULL TITLE: Rosita Peña versus The Court Of Appeals, Spouses
Rising T. Yap and Catalina Yap, Pampanga Bus
Co., Inc., Jesus Domingo, Joaquin Briones,
Salvador Bernardez, Marcelino Enriquez and
Edgardo A. Zabat - G.R. No. 91478, February 7,
1991, J. Gancayco
III. TOPIC: Corporation Law – Board of
Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the
registered owners of the lots in question under Transfer Certificate of Title
(TCT) Nos. 148983-R, 148984-R, 148985-R. In the complaint filed on
December 15, 1978, appellants sought to recover possession over the
subject lands from defendants Rosita Peña and Washington Distillery on the
ground that being registered owners, they have to enforce their right to
possession against defendants who have been allegedly in unlawful
possession thereof since October 1974 "when the previous owners assigned
(their) right to collect rentals . . . in favor of plaintiffs" (Record, p. 5). The
amount claimed as damages is pegged on the total amount of unpaid rentals
from October 1974 (as taken from the allegations in the complaint) up to
December 1978 at a monthly rate of P1,500.00 'and the further sum of
P2,000.00 a month from January 1979 until the defendants finally vacate the
. . . premises in question with interest at the legal rate.
In their answer, defendants Rosita Peña and Washington Distillery denied
the material allegations of the complaint and by way of an affirmative and
special defense asserted that Peña is now the legitimate owner of the subject
lands for having purchased the same in a foreclosure proceeding instituted
by the DBP . . . against PAMBUSCO . . . and no valid redemption having
been effected within the period provided by law. It was contended that
plaintiffs could not have acquired ownership over the subject properties
under a deed of absolute sale executed in their favor by one Marcelino B.
Enriquez who likewise could not have become [the] owner of the properties
in question by redeeming the same on August 18, 1975 (Exh. 26) under an
alleged[ly] void deed of assignment executed in his favor on March 18, 1975
by the original owners of the land in question, the PAMBUSCO. The defense
was that since the deed of assignment executed by PAMBUSCO in favor of
Enriquez was void ab initio for being an ultra vires act of its board of directors
and, for being without any valuable consideration, it could not have had any
legal effect; hence, all the acts which flowed from it and all the rights and
obligations which derived from the aforesaid void deed are likewise void and
without any legal effect.
Further, it was alleged in the same Answer that plaintiffs are buyers in bad
faith because they have caused the titles of the subject properties with the
Register of Deeds to be issued in their names despite an order from the then
CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al.
vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting
in his registry of property . . . any of the above-mentioned documents under
contest, until further orders.
For its part, defendant Washington Distillery stated that it has never occupied
the subject lots hence they should not have been impleaded in the complaint.
The defendants, therefore, prayed that the complaint be dismissed; that the
deed of assignment executed in favor of Marcelino Enriquez, the certificate of
redemption issued by the Provincial Sheriff also in favor of Marcelino
Enriquez, and the deed of sale of these parcels of land executed by
Marcelino Enriquez in favor of the plaintiffs herein be all declared null and
void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R,
covering these parcels issued in the plaintiffs name be cancelled and, in lieu
thereof, corresponding certificates of title over these same parcels be issued
in the name of defendant Rosita Peña.
Thereafter, the defendants with prior leave of court filed a third-party
complaint third-party defendants PAMBUSCO, Jesus Domingo, Joaquin
Briones, Salvador Bernardez (as members of the Board of Directors of
PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of
Pampanga. All these third-party defendants, how ever, were declared as in
default for failure to file their answer, except Edgardo Zabat who did file his
answer but failed to appear at the pre-trial.
RTC: After trial, a decision was rendered by the court in favor of the
defendants-appellees.The RTC finds merit in the position taken by the
defendants that the questioned resolution should be declared invalid it having
been approved in a meeting attended by only 3 of the 5 members of the
Board of Directors of PAMBUSCO which attendance is short of the number
required by the by-laws of the corporation.
In the meeting of November 19, 1974 when the questioned resolution was
approved, the three members of the Board of Directors of PAMBUSCO who
were present were Jesus Domingo, Joaquin Briones, and Salvador
Bernardez The remaining 2 others, namely: Judge Pio Marcos and Alfredo
Mamuyac were both absent therefrom.
As it becomes clear that the resolution approved on November 19, 1974 is
null and void it having been approved by only 3 of the members of the Board
of Directors who were the only ones present at the said meeting, the deed of
assignment subsequently executed in favor of Marcelino Enriquez pursuant
to this resolution also becomes null and void.
CA: Thus, an appeal from said judgment of the trial court was interposed by
private respondents to the Court of Appeals wherein in due course a decision
was rendered on June 20, 1989 REVERSING RTC decision.
CA ruled that the trial court has no jurisdiction to annul the board resolution
as the matter falls within the jurisdiction of the Securities and Exchange
Commission (SEC) and that petitioner did not have the proper standing to
have the same declared null and void.
It should be also noted that the provision in Section 4, Article III of
PAMBUSCO's amended by-laws would apply only in case of a failure to
notify the members of the board of directors on the holding of a special
meeting.
A motion for reconsideration filed by the appellee was denied in a resolution
dated December 27, 1989. Hence, this petition for review on certiorari of said
decision and resolution of the appellate court.
V. STATEMENT OF THE CASE:
The validity of the redemption of a foreclosed real property is the center of
this controversy. The facts as found by the respondent court are not
disputed.
A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO,
original owners of the lots in question under TCT Nos. 4314, 4315 and 4316,
mortgaged the same to the Development Bank of the Philippines (DBP) on
January 3, 1962 in consideration of the amount of P935,000.00. This
mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on
October 25, 1974, the said properties were awarded to Rosita Peña as
highest bidder. A certificate of sale was issued in her favor by the Senior
Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of
P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of
sale was registered on October 29, 1974 (Exh. G).
On September 8, 1975, Peña wrote the Sheriff notifying him that the
redemption was not valid as it was made under a void deed of assignment.
She then requested the recall of the said redemption and a restraint on any
registration or transaction regarding the lots in question (Exh. 27).
On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil
Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al.,
ordered the Register of Deeds of Pampanga . . . to desist from registering or
noting in his registry of property . . . any of the following documents under
contract, until further orders.
Despite the foregoing, defendant-appellee Peña remained in possession of
the lots in question hence, the spouses Yap were prompted to file the instant
case.
VI. ISSUES:
1. Whether or not the resolution of respondent PAMBUSCO
is void or at the very least legally defective. YES
2. Whether or not the RTC has jurisdiction to rule on the
validity of the questioned resolution and transfers. YES
VII. RULING:
1.YES. The said resolution, as well as the subsequent assignment executed
on March 8, 1975 assigning to respondent Enriquez the said right of
redemption, should be struck down as null and void.
The by-laws of a corporation are its own private laws which substantially
have the same effect as the laws of the corporation. They are in effect,
written, into the charter. In this sense they become part of the fundamental
law of the corporation with which the corporation and its directors and officers
must comply.
Apparently, only three (3) out of five (5) members of the board of directors of
respondent PAMBUSCO convened on November 19, 1974 by virtue of a
prior notice of a special meeting. There was no quorum to validly transact
business since, under Section 4 of the amended by-laws hereinabove
reproduced, at least four (4) members must be present to constitute a
quorum in a special meeting of the board of directors of respondent
PAMBUSCO.
Section 4, Article III of the amended by-laws of respondent PAMBUSCO,
provides as follows:
Sec. 4. Notices of regular and special meetings of the Board of Directors
shall be mailed to each Director not less than five days before any such
meeting, and notices of special meeting shall state the purpose or purposes
thereof Notices of regular meetings shall be sent by the Secretary and
notices of special meetings by the President or Directors issuing the call. No
failure or irregularity of notice of meeting shall invalidate any regular meeting
or proceeding thereat; Provided a quorum of the Board is present, nor of any
special meeting; Provided at least four Directors are present.
Under Section 25 of the Corporation Code of the Philippines, the articles of
incorporation or by-laws of the corporation may fix a greater number than the
majority of the number of board members to constitute the quorum necessary
for the valid transaction of business. Any number less than the number
provided in the articles or by-laws therein cannot constitute a quorum and
any act therein would not bind the corporation; all that the attending directors
could do is to adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to operate
as of November 15, 1949 as evidenced by a letter of the SEC to said
corporation dated April 17, 1980. Being a dormant corporation for several
years, it was highly irregular, if not anomalous, for a group of three (3)
individuals representing themselves to be the directors of respondent
PAMBUSCO to pass a resolution disposing of the only remaining asset of the
corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who attended the special
meeting on November 19, 1974 were not listed as directors of respondent
PAMBUSCO in the latest general information sheet of respondent
PAMBUSCO filed with the SEC dated 18 March 1951. Similarly, the latest list
of stockholders of respondent PAMBUSCO on file with the SEC does not
show that the said alleged directors were among the stockholders of
respondent PAMBUSCO.
Under Section 30 of the then applicable Corporation Law, only persons who
own at least one (1) share in their own right may qualify to be directors of a
corporation. Further, under Section 28 1/2 of the said 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. The same requirement is found in Section 40 of the present
Corporation Code.
It is also undisputed that at the time of the passage of the questioned
resolution, respondent PAMBUSCO was insolvent and its only remaining
asset was its right of redemption over the subject properties. Since the
disposition of said redemption right of respondent PAMBUSCO by virtue of
the questioned resolution was not approved by the required number of
stockholders under the law, the said resolution, as well as the
subsequent assignment executed on March 8, 1975 assigning to
respondent Enriquez the said right of redemption, should be struck
down as null and void.
2. Yes. RTC has jurisdiction over the case. In Philex Mining Corporation vs.
Reyes, this Court held that it is the fact of relationship between the parties
that determines the proper and exclusive jurisdiction of the SEC to hear and
decide intra-corporate disputes; that unless the controversy has arisen
between and among stockholders of the corporation, or between the
stockholders and the officers of the corporation, then the case is not within
the jurisdiction of the SEC. Where the issue involves a party who is neither a
stockholder or officer of the corporation, the same is not within the jurisdiction
of the SEC.
In Union Glass & Container Corporation vs. Securities and Exchange
Commission, this Court defined the relationships which are covered within
"intra-corporate disputes" under Presidential Decree No. 902-A, as amended,
as follows:
Otherwise stated, in order that the SEC can take cognizance of a case, the
controversy must pertain to any of the following relationships (a) between the
corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners,
members, or officers; (c) between the corporation, partnership or association
and the state in so far as its franchise, permit or license to operate is
concerned; and (d) among the stockholders, partners or associates
themselves.
In this case, neither petitioner nor respondents Yap spouses are
stockholders or officers of PAMBUSCO. Consequently, the issue of the
validity of the series of transactions resulting in the subject properties
being registered in the names of respondents Yap may be resolved
only by the regular courts.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is GRANTED. The questioned decision of the
respondent Court of Appeals dated June 20, 1989 and its resolution dated
December 27, 1989 are hereby REVERSED AND SET ASIDE and another
judgment is hereby rendered AFFIRMING in toto the decision of the trial
court.
I. SHORT TITLE: UY V. VILLANUEVA
II. FULL TITLE: Atty. Andrea Uy and Feliz Yusay versus Arlene
Villanueva and NLRC – G.R. No. 157851, June 29,
2007, J. Nachura
III. TOPIC: Corporation Law- Incorporation and organization of
private corporations
IV. STATEMENT OF FACTS:
Countrywide Bank of La Carlota Inc. is a private banking corporation
engaged in rural banking and other allied services through its branches
nationwide. Sometime in 1998, it experienced liquidity problems and its
treasure department was unable to comply with its branches demands for
fresh funds. Its various branches eventually experienced bank runs. Several
depositors were alarmed. Thus, a group holding 70% of the bank’s deposit
accounts met, and agreed to organize themselves into a committee of
depositors. Yusay was elected Chairman of the board, while Uy was
secretary. It was formed to protect their collective interests and to increase
their chances recovering their deposits. Realizing that their bid to rehabilitate
the bank had failed, the committee disbanded. Eventually, 3 cases for illegal
dismissal were filed. One of which was Villanueva. She avers that she was a
regular employee of countrywide bank, south cotabato branch. She received
a memorandum accepting her courtesy resignation, but she denies having
submitted one. Subsequently, Uy and Yusay were made solidarily liable with
the bank. Hence, this petition.
V. STATEMENT OF THE CASE:
This appeal on certiorari under Rule 45 of the Rules of Court seeks the
nullification of the February 28, 2002 Resolution and the February 27, 2003
Resolution denying the motion for reconsideration thereof of the Former
Tenth Division of the Court of Appeals (CA) in CA-G.R. SP No. 68680.
VI. ISSUE:

Whether or not they are corporate officers of the bank and
may be held liable for illegal dismissal.
VII. RULING:
No. It has been held that an office is created by the charter of the corporation
and the officer is elected by the directors pr stockholders. On the other hand,
an employee usually occupies no office and generraly is employed not by
action of the directors or stockholders, but by the managing officer of the
corporation, who also determines the compensation to be paid to such
employee. Given this distinction, petitioners are neither officers nor
employees of the bank. They are mere depositors who sought to manage the
bank in order to save it.
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, the petition is GRANTED. The
February 28, 2002 Resolution in CA-G.R. SP No. 68680 of the Court of
Appeals is REVERSED and SET ASIDE. The Decision of the Labor Arbiter in
RAB-XI-01-50037-99, finding petitioners solidarily liable with Countrywide
Rural Bank of La Carlota is, likewise, REVERSED and SET ASIDE. No
pronouncement as to costs.
I. SHORT TITLE: VISAYAN V. NLRC
II. FULL TITLE: Luzviminda Visayan ET AL. versus NLRC and
Fujiyama Restaurant and Hotell, Inc. and its
manager/operator – G.R. No. 69999, April 30, 1991,
J. Paras
III. TOPIC: Corporation Law- Board of directors/trustees
IV. STATEMENT OF FACTS:
Fujiyama Hotel and Restaurant, Inc. was formally organized in 1978 with
Rivera holding a majority interest in the corporation. The corporation
immediately opened Fujiyama hotel and restaurant with Akasako as its chef
and restaurant supervisor. Subsequently, operation and management of the
corporation, including control and possession of all its assets, were forcibly
taken by Jureidini and Tsuchiya from the owners thereof by virtue of a writ of
preliminary injunction issued by RTC Manila. During the 1-year period that
they took over the corporation, before the original owners got the corporation
back, they terminated the original employees of the corporation who were
validly hired by its board of directors, and hired new employees to replace
the original employees. When the original owners took control of the
corporation, it reinstated the previous employees hired by it, and replaced the
employees hired by Jureidini and Tsuchiya. Thus, the terminated employees
filed a complaint for nillegal dismissal against the corporation, akasako,
jureidini, and tsuchiya.
V. STATEMENT OF THE CASE:
Assailed in the instant petition is the Resolution of public respondent National
Labor Relations Commission (NLRC, for brevity) promulgated January 15,
1985 for being contrary to law and jurisprudence and arrived at in grave
abuse of discretion amounting to lack or in excess of jurisdiction.
VI. ISSUE:
Whether or not there is privity of contract between the
petitioners and private respodents as to establish an
employer- employee relationship between the parties.
VII. RULING:
No. Section 23 of B.P. 68, otherwise known as the "Corporation Code of the
Philippines," expressly provides as follows:
Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified. . . .
It is clear from the above-quoted provision that a corporation can act only
through its board of directors. "The law is settled that contracts between a
corporation and third persons must be made by or under the authority of its
board of directors and not by its stockholders. Hence, the action of the
stockholders in such matters is only advisory and not in any wise binding on
the corporation."
In the case at bar, We hold that all acts done solely by Jureidini and Tsuchiya
allegedly, for and in behalf of private respondent during the period from June,
1981 up to May 31, 1982 were not binding upon respondent corporation.
VIII. DISPOSITIVE PORTION:
ACCORDINGLY, the instant petition is hereby DISMISSED for lack of merit
and the assailed decision of the National Labor Relations Commission dated
January 15, 1985 is AFFIRMED in toto.

I. SHORT TITLE: MAJORITY SHOCKHOLDERS V. LIM; CHINA
BANKING V. LIM
II. FULL TITLE: Majority Stockholders of Ruby Industrial Corporation
versus Miguel Lim, in his personal capacity as
Stockholder of Ruby Industrial Corporation and
representing the Minority Stockholders of Ruby
Industrial Corporation and the Management
Committee of Ruby Industrial Corporation – G.R. No.
165887; China Banking Corporation versus Miguel
Lim, in his personal capacity as a stockholder of
Ruby Industrial Corporation and representing the
Minority Stockholders of Ruby Industrial Corporation
- G.R. No. 165929, June 6, 2011, J. Villarama, Jr.
III. TOPIC: Corporation Law – Corporate Term; Subscription;
Pre-emptive Right
IV. STATEMENT OF FACTS:
Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in
glass manufacturing. Reeling from severe liquidity problems, RUBY filed a
petition for suspension of payments with the Securities and Exchange
Commission (SEC), which granted the petition and ordered to enjoin the
disposition of its properties pending hearing of the petition with certain
exceptions.
On August 10, 1984, the SEC Hearing Panel created the management
committee (MANCOM) for RUBY tasked to undertake the management of
RUBY, to take custody and control over all existing assets and liabilities of
RUBY, to evaluate RUBY’s existing assets and liabilities, earnings and
operations, to determine the best way to salvage and protect the interest of
its investors and creditors, and to 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). However, the BENHAR/RUBY Plan was opposed by
40% of the stockholders, including Lim, a minority shareholder of RUBY.
ALFC, the biggest unsecured creditor of RUBY and chairman of the
MANCOM, also objected to the plan as it would transfer RUBY’s assets
beyond the reach and to the prejudice of its unsecured creditors.
On May 29, 1990, RUBY filed with the SEC En Banc an ex parte petition to
create a new management committee and to approve its revised
rehabilitation plan (Revised BENHAR/RUBY Plan). Notwithstanding the
objections of 90% of RUBY’s creditors and three members of the MANCOM,
the SEC Hearing Panel approved the Revised BENHAR/RUBY Plan,
dissolved the existing management committee and created a new
management committee and appointed BENHAR as one of its members. The
new management committee was tasked to oversee the implementation by
the Board of Directors of the revised rehabilitation plan for RUBY.
The original MANCOM, Lim and ALFC appealed to the SEC En Banc which
affirmed the approval. Lim, ALFC and MANCOM appealed to the CA which
set aside the SEC’s approval of the Revised BENHAR/RUBY Plan and
remanded the case to the SEC for further proceedings. It appears that even
earlier during the pendency of the appeals in the CA, BENHAR and RUBY
have performed other acts in pursuance of the BENHAR/RUBY Plan
approved by the SEC.
On September 1, 1996, Lim received a Notice of Stockholders’ Meeting
which include the extension of RUBY’s corporate term for another twenty-five
(25) years and election of Directors. Lim together with other minority
stockholders, appeared in order to put on record their objections on the
validity of holding thereof and the matters to be taken therein.
Lim argued that the majority stockholders claimed to have increased their
shares to 74.75% by subscribing to the unissued shares of the authorized
capital stock (ACS). Lim pointed out that such move of the majority was in
implementation of the BENHAR/RUBY Plan which calls for capital infusion of
unissued and unsubscribed portion of the present ACS, and the Revised
BENHAR/RUBY Plan which proposed an additional subscription. Since the
implementation of both majority plans have been enjoined by the SEC and
CA, the calling of the special stockholders meeting by the majority
stockholders clearly violated the said injunction orders. This circumstance
certainly affects the determination of quorum, the voting requirements for
corporate term extension, as well as the election of Directors.
Lim reiterated that before the matter of extension of corporate life can be
passed upon by the stockholders, it is necessary to determine the
percentage ownership of the outstanding shares of the corporation. The
majority stockholders claimed that they have increased their shareholdings
from 59.828% to 74.75% as a result of the illegal and invalid stockholders’
meeting on September 3, 1996. The additional subscription of shares cannot
be done as it implements the BENHAR/RUBY Plan against which an existing
injunction is still effective based on the SEC Order which was struck down
under the final decision of this Court in G.R. Nos. 124185-87. Hence, the
implementation of the new percentage stockholdings of the majority
stockholders and the calling of stockholders’ meeting and the subsequent
resolution approving the extension of corporate life of RUBY for another
twenty-five (25) years, were all done in violation of the decisions of the CA
and this Court, and without compliance with the legal requirements under
the Corporation Code. There being no valid extension of corporate term,
RUBY’s corporate life had legally ceased.
The MANCOM concurred with Lim and made a similar
manifestation/comment regarding the irregular and invalid capital infusion
and extension of RUBY’s corporate term approved by stockholders
representing only 60% of RUBY’s outstanding capital stock. It further stated
that the foregoing acts were perpetrated by the majority stockholders without
even consulting the MANCOM, which technically stepped into the shoes of
RUBY’s board of directors. Since RUBY was still under a state of suspension
of payment at the time the special stockholders’ meeting was called, all
corporate acts should have been made in consultation and close
coordination with the MANCOM.
RUBY denied the allegation of Lim that RUBY’s corporate existence had
ceased. RUBY claimed that due notice were given to all stockholders of the
October 2, 1991 special meeting in which the infusion of additional capital
was discussed. It further contended that the CA decision setting aside the
SEC orders approving the Revised BENHAR/RUBY Plan, which was
subsequently affirmed by this Court on January 20, 1998, did not nullify the
resolution of RUBY’s board of directors to issue the previously unissued
shares. The amendment of its articles of incorporation on the extension of
RUBY’s corporate term was duly submitted with and approved by the SEC as
per the Certification dated September 24, 1996.
V. STATEMENT OF THE CASE:
The SEC also overruled the objections raised by the minority stockholders
regarding the questionable issuance of shares of stock by the majority
stockholders and extension of RUBY’s corporate term, citing the presumption
of regularity in the act of a government entity which obtains upon the SEC’s
approval of RUBY’s amendment of articles of incorporation. Moreover, the
SEC found that notwithstanding his allegations of fraud, Lim never proved
the illegality of the additional infusion of the capitalization by RUBY so as to
warrant a finding that there was indeed an unlawful act.
On May 26, 2004, the CA set aside the questioned SEC Orders, finding that
the October 2, 1991 meeting held by RUBY’s board of directors was illegal
because the MANCOM was neither involved nor consulted in the resolution
approving the issuance of additional shares of RUBY. The said meeting was
conducted based on SEC Order approving Revised BENHAR/RUBY Plan,
which was set aside. The CA pointed out that records confirmed the
proposed infusion of additional capital for RUBY’s rehabilitation, approved
during said meeting, as implementing the Revised BENHAR/RUBY Plan.
Necessarily then, such capital infusion is covered by the final injunction
against the implementation of the revised plan.
The CA likewise faulted the SEC in relying on the presumption of regularity
on the matter of the extension of RUBY’s corporate term through the filing of
amended articles of incorporation. With the expiration of the RUBY’s
corporate term, the CA ruled that it was error for the SEC in not commencing
liquidation proceedings.
The CA also found that the belated submission of the special power of
attorney executed by the other minority stockholders representing 40.172%
of RUBY’s ownership has no bearing to the continuation of the petition filed
with the appellate court. Moreover, since the petition is in the nature of a
derivative suit, Lim clearly can file the same not only in representation of the
minority stockholders but also in behalf of the corporation itself which is the
real party in interest. Thus, notwithstanding that Lim’s ownership in RUBY
comprises only 1.4% of the outstanding capital stock, as claimed by the
majority stockholders, his petition may not be dismissed on this ground.
VI. ISSUES:
1. Whether or not BENHAR validly extended the corporate
term.
2. Whether or not BENHAR validly increased the
subscription.
3. Whether or not the minority’s pre-emptive right has been
violated.
VII. RULING:
1. No. 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.
Since the corporate life of RUBY as stated in its articles of incorporation
expired, without a valid extension having been effected, it was deemed
dissolved by such expiration without need of further action on the part of the
corporation or the State. Hence, with greater reason then should liquidation
ensue for in this case, "the continuance in business of the debtor is no longer
feasible or profitable or no longer works to the best interest of the
stockholders, parties-litigants, creditors, or the general public."

2. No, because the issuance of additional shares was done in breach of trust
by the controlling stockholders. Here, the majority sought to impose their will
and, through fraudulent means, attempt to siphon off Ruby’s valuable assets
to the great prejudice of Ruby itself, as well as the minority stockholders and
the unsecured creditors.
3. Yes, 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 legitimate concerns of the minority stockholders and
MANCOM who objected to the capital infusion which resulted in the dilution
of their shareholdings, the expiration of RUBY’s corporate term and the
pending incidents on the void deeds of assignment of credit – all these
should have been duly considered and acted upon by the SEC when the
case was remanded to it for further proceedings. With the final rejection of
the courts of the Revised BENHAR/RUBY Plan, it was grave error for the
SEC not to act decisively on the motions filed by the minority stockholders
who have maintained that the issuance of additional shares did not help
improve the situation of RUBY except to stifle the opposition coming from the
MANCOM and minority stockholders by diluting the latter’s shareholdings.
Worse, the SEC ignored the evidence adduced by the minority stockholders
indicating that the correct amount of subscription of additional shares was not
paid by the majority stockholders and that SEC official records still reflect the
60%-40% percentage of ownership of RUBY.
The majority stockholders and BENHAR’s conduits must not be allowed to
evade the duty to make such full disclosure and account any money due to
RUBY to enable the latter to effect a fair, orderly and equitable settlement of
all its obligations, as well as distribution of any remaining assets after paying
all its debtors.
The unwinding process of all such illegal assignment of RUBY’s credits is
critical and necessary, in keeping with good faith and as a matter of fairness
and justice to all parties affected, particularly the unsecured creditors who
stands to suffer most if left with nothing of the assets of RUBY, and the
minority stockholders who waged legal battles to defend the interest of RUBY
and protect the rights of the minority from the abuses of the controlling
stockholders.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petitions for review on certiorari are DENIED. The
Decision dated May 26, 2004 and Resolution dated November 4, 2004 of the
Court of Appeals in CA-G.R. SP No. 73195 are hereby AFFIRMED with
MODIFICATION in that the Securities and Exchange Commission is hereby
ordered to TRANSFER SEC Case No. 2556 to the appropriate Regional Trial
Court which is hereby DIRECTED to supervise the liquidation of Ruby
Industrial Corporation under the provisions of R.A. No. 10142.
I. SHORT TITLE: PREMIUM MARBLE RESOURCES INC. V. C.A.
II. FULL TITLE: Premium Marble Resources Inc. versus The Court of
Appeals and International Corporate Bank - G.R.
No. 96551, November 4, 1996, J. Torres
III. TOPIC: Corporation Law—Liability of Officers, Apparent
Authority
IV. STATEMENT OF FACTS:
Sometime in 1982, Ayala Investment and Development Corporation (Ayala)
issued three (3) in the aggregate amount of P31,663.88 payable to Premium
Marble Resources, Inc. (Premium) and drawn against Citibank. In 1982,
former officers of the Premium headed by Saturnino G. Belen, Jr. (Belen),
without any authority whatsoever from Premium deposited the above-
mentioned checks to the current account of his conduit corporation, Intervest
Merchant Finance (Intervest) which the latter maintained with the
International Corporate Bank (ICB). Although the checks were clearly
payable to the Premium and crossed on their face and for payees account
only, defendant bank accepted the checks to be deposited to the current
account of Intervest and thereafter presented the same for collection from
ICB which subsequently cleared the same thus allowing Intervest to make
use of the funds to the prejudice of the Premium. Premium has demanded
upon the ICB to restitute the amount representing the value of the checks but
latter refused and continue to refuse to honor plaintiffs demands up to the
present. As a result of the illegal and irregular acts perpetrated by the ICB,
the plaintiff was damaged to the extent of the amount of P31,663.88.
V. STATEMENT OF THE CASE:
Premium assisted by Atty. Dumadag as counsel, filed an action for damages
against ICB on the ground that the latter allowed the checks issued to
Premium to be deposited to the account of the former officer of Premium and
that ICB refused to restitute the value of the checks to the prejudice of
Premium. Meanwhile, the same corporation Premium led by Belen, but this
time represented by Siguion Reyna, Montecillo and Ongsiako Law Office as
counsel, moved to dismiss on the ground that the filing of the case was
without authority from its duly constituted board of directors. Premium,
through Atty. Dumadag opposed contending that based on the Articles of
Incorporation the persons who signed the board resolution are not majority
stockholders. On the other hand, Siguion Reyna law firm asserted that it is
the general information sheet filed with the SEC that is the best evidence to
show who the stockholders of a corporation are.
VI. ISSUE:
Whether or not the filing of the case for damages against
ICB was authorized by a duly constituted Board of Directors
of Premium.
VII. RULING:
NO. By the express mandate of the Corporation Code (Section 26), all
corporations duly organized pursuant thereto are required to submit within
the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors,
trustees and officers elected. While the Minutes of the Meeting of the Board
on April 1, 1982 states that the newly elected officers for the year 1982 were
Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, Premium
failed to show proof that this election was reported to the SEC. In fact, the
last entry in their General Information Sheet with the SEC, as of 1986
appears to be the set of officers elected in March 1981 who were Saturnino
G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes. These officers
presented a Resolution dated July 30, 1986, to show that Premium did not
authorize the filing in its behalf of any suit against the private respondent
International Corporate Bank. We agree with the finding of public respondent
Court of Appeals, that “in the absence of /any board resolution from its board
of directors the [sic] authority to act for and in behalf of the corporation, the
present action must necessarily fail. The power of the corporation to sue and
be sued in any court is lodged with the board of directors that exercises its
corporate powers. The claim, therefore, of petitioners as represented by Atty.
Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not
been fully substantiated. In the absence of an authority from the board of
directors, no person, not even the officers of the corporation, can validly bind
the corporation.
VIII. DISPOSITIVE PORTION:
ACCORDINGLY, for lack of merit, the petition is hereby DENIED.
I. SHORT TITLE: RIVERA V. HON. FLORENDO
II. FULL TITLE: Aquilino Rivera, Isamu Akasako and Fujiyama Hotel
& Restaurant versus The Hon. Alfredo Florendo,
Judge of Court of First Instance of Manila, Lourdes
Jureidini and Milagros Tsuchiya - G.R. No. L-57586,
October 8, 1986, J. Paras
III. TOPIC: Corporation Law—Certificate of Stock and Transfer
of Shares; Jurisdiction of SEC
IV. STATEMENT OF FACTS:
Fujiyama Hotel & Restaurants, Inc. (Fujiyama), was organized and registered
under Philippine laws with a capital stock of P1,000,000 divided into 10,000
shares of P100.00 par value each by the Aquilino Rivera (Rivera) and four
other incorporators. Isamu Akasako (Akasako), a Japanese national and co-
petitioner who is allegedly the real owner of the shares of stock in the name
of petitioner Rivera, sold 2,550 shares of stocks to Milagros Tsuchiya
(Tsuchiya) and Lourdes Jureidini (Jureidini) for a consideration of Php
440,000 with the assurance that Tsuchiya will be made President, and
Jureidini will be made director of the corporation after the purchase of the
shares of stocks. Rivera assured Tsuchiya that he would sign the stock
certificates as the shares of stocks were registered under Rivera’s name.
After the sale was consummated and the consideration was paid, Rivera
refused to make the indorsement unless he is also paid. Tsuchiya and
Jureidini attempted several times to register the stock certificates with the
corporation but it was refused.
V. STATEMENT OF THE CASE:
Tsuchiya and Jureidini filed a special action for mandamus and damages
with preliminary injunction and/or receivership against the petitioners with the
Court of First Instance of Manila. The court issued a writ of preliminary
mandatory injunction authorizing Jureidini and Tsuchiya to manage the
corporation’s hotel and restaurant upon filing of a bond in the amount of
P30,000.00. Rivera, et.al. motion for reconsideration and motion to dismiss
for lack of jurisdiction was denied but the bond was increased to
P120,000.00.
VI. ISSUES:
1. Whether or not the Corporation may refuse the
registration of the respondents’ shares.
2. Whether or not the SEC has the proper jurisdiction over
the case.
VII. RULING:

1. Yes. As found in Sec. 63 of the Corporation Code, shares of stock may be
transferred by delivery of the certificate after indorsement by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. By
this provision it is evident that Rivera’s indorsement must be obtained before
any transfer of the questioned shares is effected. Thus, the Corporation’s
refusal for the registration of the shares of stock in the names of Jureidini and
Tsuchiya is proper. Since Jureidini and Tsuchiya chose special action for
mandamus as a remedy to compel Rivera. This recourse is not proper and,
thus, the same should be dismissed without prejudice on filing the proper
action. The rights and obligations of Jureidini, Tsuchiya and the petitioners
should be determined in a proper action, not mandamus.
2. No, SEC does not have jurisdiction of the case since the dispute is not an
intra-corporate controversy. Intra-corporate controversies are those which
arise between and stockholder and the corporation or among the
stockholders. In the present case, what it simply involves is a conflict on the
ownership of a group of shares between the registered owner and an outside
party as Jureidini and Tsuchiya are not deemed as stockholders.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the assailed orders of respondent Judge are SET ASIDE; the
complaint (special civil action for mandamus with damages, etc.) should
ordinarily be dismissed without prejudice to the filing of the proper action; but
as all parties are already duly represented, We hereby consider the case as
an ordinary civil action for specific performance, and the case is therefore
remanded to the lower court for trial on the merits; the charge of contempt
against respondent Jureidini is DISMISSED but the order of Our Court
restraining respondent from taking over the management of the restaurant
remains until after this case is decided.
I. SHORT TITLE: GONZALES V. PNB
II. FULL TITLE: Ramon A. Gonzales, petitioner, versus the
Philippine National Bank, respondent - G.R. No. L-
33320 May 30, 1983, J. Vasquez
II. TOPIC: Corporation Law – Stock and Stockholders
IV. STATEMENT OF FACTS:
Gonzales instituted a suit, as a taxpayer, against Sec. of Public Works and
Communications, the Commissioner of Public Highways, and PNB for
alleged anomalies committed regarding the bank’s extension of credit to
import public works equipment intended for the massive development
program. Praying that the latter be ordered to allow him to look into the books
and records of the respondent bank in order to satisfy himself as to the truth
of the published reports that the respondent has guaranteed the obligation of
Southern Negros Development Corporation; that the respondent is financing
the construction of Cebu-Mactan Bridge to be constructed and the
construction of Passi Sugar Mill at Iloilo, as well as to inquire into the validity
of Id transactions. The petitioner’s standing was questioned because he did
not own any share in PNB. Consequently, Petitioner bought 1 share of PNB
stocks in order to gain standing as a stockholder. The petitioner has alleged
that his written request for such examination was denied by the respondent.
The bank answered petitioner's letter denying his request for being not
germane to his interest as a one-share stockholder and for the cloud of doubt
as to his real intention and purpose in acquiring said share. In view of the
Bank's refusal the petitioner instituted this action.
Petitioner thereafter sought to inquire and ordered PNB to produce its books
and records which the Bank refused, invoking the provisions from its charter
created by Congress.
V. STATEMENT OF THE CASE:
The petitioner filed petition for mandamus to compel PNB to produce its
books and records. The RTC dismissed the petition and it ruled that the right
to examine and inspect corporate books is not absolute, but is limited to
purposes reasonably related to the interest of the stockholder, must be asked
for in good faith for a specific and honest purpose and not gratify curiosity or
for speculative or vicious purposes; that such examination would violate the
confidentiality of the records of the respondent bank as provided in Section
16 of its charter, Republic Act No. 1300, as amended; and that the petitioner
has not exhausted his administrative remedies.
The petitioner has assigned the single error to the lower court of having ruled
that his alleged improper motive in asking for an examination of the books
and records of the respondent bank disqualifies him to exercise the right of a
stockholder to such inspection under Section 51 of Act No. 1459, as
amended. Said provision reads in part as follows:
Sec. 51. ... The record of all business transactions of the corporation and the
minutes of any meeting shall be open to the inspection of any director,
member or stockholder of the corporation at reasonable hours.
He further argues that, assuming that a proper motive or purpose for the
desired examination is necessary for its exercise, there is nothing improper in
his purpose for asking for the examination and inspection herein involved.
VI. ISSUE:
Whether or not Petitioner may compel PNB to produce its
books and records upon request.
VII. RULING:
No. The right of inspection granted to a stockholder under Section 51 of Act
No. 1459 has been retained, but with some modifications. The second and
third paragraphs of Section 74 of Batas Pambansa Blg. 68 provide the
following:
The records of all business transactions of the corporation and the
minutes of any meeting shag be open to inspection by any director,
trustee, stockholder or member of the corporation at reasonable
hours on business days and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any
director, trustee, stockholder or member of the corporation to
examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to such
director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal;
and Provided, further, That it shall be a defense to any action under
this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly
used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or
was not acting in good faith or for a legitimate purpose in making his
demand.
However, while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly required as a
condition for such examination that the one requesting it must not have been
guilty of using improperly any information through a prior examination, and
that the person asking for such examination must be "acting in good faith and
for a legitimate purpose in making his demand."
Although the petitioner has claimed that he has justifiable motives in seeking
the inspection of the books of the respondent bank, he has not set forth the
reasons and the purposes for which he desires such inspection, except to
satisfy himself as to the truth of published reports regarding certain
transactions entered into by the respondent bank and to inquire into their
validity. The circumstances under which he acquired one share of stock in
the respondent bank purposely to exercise the right of inspection do not
argue in favor of his good faith and proper motivation. Admittedly he sought
to be a stockholder in order to pry into transactions entered into by the
respondent bank even before he became a stockholder. His obvious purpose
was to arm himself with materials which he can use against the respondent
bank for acts done by the latter when the petitioner was a total stranger to
the same. He could have been impelled by a laudable sense of civic
consciousness, but it could not be said that his purpose is germane to his
interest as a stockholder.
The inspection sought to be exercised by the petitioner would be violative of
the provisions of its charter of PNB. (Republic Act No. 1300, as amended.)
Sections 15, 16 and 30 of the said charter provide respectively as follows:
Sec. 15. Inspection by Department of Supervision and Examination
of the Central Bank. — The National Bank shall be subject to
inspection by the Department of Supervision and Examination of the
Central Bank'
Sec. 16. Confidential information. —The Superintendent of Banks
and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall not
reveal to any person other than the President of the Philippines, the
Secretary of Finance, and the Board of Directors the details of the
inspection or investigation, nor shall they give any information
relative to the funds in its custody, its current accounts or deposits
belonging to private individuals, corporations, or any other entity,
except by order of a Court of competent jurisdiction,'
Sec. 30. Penalties for violation of the provisions of this Act.— Any
director, officer, employee, or agent of the Bank, who violates or
permits the violation of any of the provisions of this Act, or any
person aiding or abetting the violations of any of the provisions of
this Act, shall be punished by a fine not to exceed ten thousand
pesos or by imprisonment of not more than five years, or both such
fine and imprisonment.
The Philippine National Bank is not an ordinary corporation. Having a charter
of its own, it is not governed, as a rule, by the Corporation Code of the
Philippines. Section 4 of the said Code provides:
SEC. 4. Corporations created by special laws or charters. —
Corporations created by special laws or charters shall be governed
primarily by the provisions of the special law or charter creating
them or applicable to them. supplemented by the provisions of this
Code, insofar as they are applicable.

The provision of Section 74 of Batas Pambansa Blg. 68 of the new
Corporation Code with respect to the right of a stockholder to demand an
inspection or examination of the books of the corporation may not be
reconciled with the abovequoted provisions of the charter of the respondent
bank. It is not correct to claim, therefore, that the right of inspection under
Section 74 of the new Corporation Code may apply in a supplementary
capacity to the charter of the respondent bank.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is hereby DISMISSED, without costs.
I. SHORT TITLE: SEAOIL PETROLEUM V. AUTOCORP
II. FULL TITLE: Seaoil Petroleum Corporation versus Autocorp
Group and Paul Y. Rodriguez - GR No. 164326
October 17, 2008, J. Nachura
III. TOPIC: Corporation law – Boards of
Directors/Trustees/Officers; Parol evidence cannot
be used to incorporate into contract additional
contemporaneous conditions
IV. STATEMENT OF FACTS:
Seaoil Petroleum Corporation bought one unit of ROBEX 200 LC Excavator,
Model 1994 from Autocorp Group. The original cost of the unit was
₱2,500,000.00 but was increased to ₱3,112,519.94 because it was paid in
12 monthly installments up to September 30, 1995. The sales agreement
was embodied in the Vehicle Sales Invoice. Documents were signed by
Francis Yu, president of Seaoil, on behalf of said corporation Furthermore, it
was agreed that despite delivery of the excavator, ownership thereof was to
remain with Autocorp until the obligation is fully settled. The excavator was
subsequently delivered on by Autocorp and was received by Seaoil in its
depot in Batangas. Seaoil, on the other hand issued 12 checks which served
as payment thereof. The first check issued bounced it was remedied when
Seaoil replaced it with a good check. The second check was also a good
check however the remaining 10 checks were not honored by the bank since
Seaoil requested that payment be stopped. Despite repeated demands,
Seaoil refused to pay the remaining balance of ₱2,593,766.20.
Seaoil alleged that the transaction between Seaoil and Autocorp were only
utilized as conduits to settle the obligation of one foreign entity named
UnilineAsia in favor of another foreign entity, Focus Point International,
Incorporated. The real transaction is that Uniline, through Paul Rodriguez.
Rodriguez is a stockholder and director of Autocorp. He is also the owner of
Uniline. On the other hand, Yu is the president and stockholder of Seaoil and
is at the same time owner of Focus. Allegedly, Uniline chartered MV Asia
Property from its owner Focus. Uniline was not able to settle the said
amount. In lieu of payment, Uniline instead agreed to convey vehicles and
heavy equipment. The excavator in controversy was allegedly one part of the
vehicles conveyed to Focus. Seaoil claims that Rodriguez initially issued 12
postdated checks in favor of Autocorp as payment for the excavator.
In short, Seaoil claims that the real transaction is that Uniline, through
Rodriguez, owed money to Focus. In lieu of payment, Uniline instead agreed
to convey the excavator to Focus. This was to be paid by checks issued by
Seaoil but which in turn were to be funded by checks issued by Uniline.
V. STATEMENT OF THE CASE:
Autocorp filed a complaint for recovery of personal property with damages
and replevin in the Regional Trial Court. The trial court ruled in favor of
Autocorp Group stating that the transaction between Autocorp and Seaoil
was a simple contract of sale payable in installments. It also held that the
obligation to pay plaintiff the remainder of the purchase price of the excavator
solely devolves on Seaoil. Paul Rodriguez, not being a party to the sale of
the excavator, could not be held liable. Seaoil filed a petition for review
before CA. The CA affirmed the decision of the lower court and added that
the transaction between Yu and Rodriguez was merely verbal. This cannot
alter the sales contract between Seaoil and Autocorp as this will run counter
to the parol evidence rule which prohibits the introduction of oral and parol
evidence to modify the terms of the contract. The claim that it falls under the
exceptions to the parol evidence rule has not been sufficiently proven.
VI. ISSUES:
1. Whether or not parol evidence can be used to incorporate
into contract additional contemporaneous conditions.
2. Whether or not, given the facts in evidence, the lower
courts should have pierced the corporate veil.
VII. RULING:
1. No, parol evidence cannot be utilized to incorporate into contract additional
contemporaneous conditions.
The rules provide that although parol evidence is admissible to explain the
meaning of a contract, it cannot serve the purpose of incorporating into the
contract additional contemporaneous conditions which are not mentioned at
all in the writing unless there has been fraud or mistake. Evidence of a prior
or contemporaneous verbal agreement is generally not admissible to vary,
contradict or defeat the operation of a valid contract. The Vehicle Sales
Invoice is the best evidence of the transaction. A sales invoice is a
commercial document. Commercial documents or papers are those used by
merchants or businessmen to promote or facilitate trade or credit
transactions. The terms of the subject sales invoice are clear. They show that
Autocorp sold to Seaoil one unit Robex 200 LC Excavator paid for by checks
issued by one Romeo Valera. This does not, however, change the fact that
Seaoil Petroleum Corporation, as represented by Yu, is the customer or
buyer. The moment a party affixes his or her signature thereon, he or she is
bound by all the terms stipulated therein and is subject to all the legal
obligations that may arise from their breach.
Oral testimony on the alleged conditions, coming from a party who has an
interest in the outcome of the case, depending exclusively on human
memory, is not as reliable as written or documentary evidence.
In the case at bar, the petitioners contention that the document falls within
the exception to the parol evidence rule is untenable. The exception obtains
only where the written contract is so ambiguous or obscure in terms that the
contractual intention of the parties cannot be understood from a mere
reading of the instrument. In such a case, extrinsic evidence of the subject
matter of the contract, of the relations of the parties to each other, and of the
facts and circumstances surrounding them when they entered into the
contract may be received to enable the court to make a proper interpretation
of the instrument.
No. Rodriguez is a person separate and independent from Autocorp.
Whatever obligations Rodriguez contracted cannot be attributed to Autocorp
and vice versa. The transaction under the Vehicle Sales Invoice is separate
and distinct from that under the Lease Purchase Agreement. In the former, it
is Seaoil that owes Autocorp, while in the latter, Uniline incurred obligations
to Focus. There was never any allegation, much less any evidence, that
Autocorp was merely an alter ego of Uniline, or that the two corporations’
separate personalities were being used as a means to perpetrate fraud or
wrongdoing.
It is settled that a corporation has a personality separate and distinct from its
individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter. The corporation may not be
held liable for the obligations of the persons composing it, and neither can its
stockholders be held liable for its obligation. This Court has recognized
instances when the corporation’s separate personality may be disregarded.
However, we have also held that the same may only be done in cases where
the corporate vehicle is being used to defeat public convenience, justify
wrong, protect fraud, or defend crime. Moreover, the wrongdoing must be
clearly and convincingly established.
Rodriguez, as stockholder and director of Uniline, cannot be held personally
liable for the debts of the corporation, which has a separate legal personality
of its own. While Section 31 of the Corporation Code lays down the
exceptions to the rule, the same does not apply in this case. Section 31
makes a director personally liable for corporate debts if he willfully and
knowingly votes for or assents to patently unlawful acts of the corporation.
Also makes a director personally liable if he is guilty of gross negligence or
bad faith in directing the affairs of the corporation. The bad faith or
wrongdoing of the director must be established clearly and convincingly. Bad
faith is never presumed.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the foregoing premises considered, the Petition is
hereby DENIED. The Decision of the Court of Appeals dated May 20, 2004 in
CA-G.R. CV No. 72193 is AFFIRMED.
I. SHORT TITLE: APODACA V. NLRC
II. FULL TITLE: Ernesto M. Apodaca, petitioner, versus National
Labor Relations Commission, Jose M. Mirasol and
Intrans Phils., Inc., respondents - G.R. No. 80039,
April 18, 1989, J. Gancayco
III. TOPIC: Corporation law – Call for payment of unpaid
subscriptions; Set off; Jurisdiction over intra
corporate disputes
IV. STATEMENT OF FACTS:
Petitioner was employed in respondent corporation. On August 28, 1985,
respondent Jose M. Mirasol persuaded petitioner to subscribe to shares of
the corporation he's in employed in. He made an initial payment of
P37,500.00. On September 1, 1975, petitioner was appointed President and
General Manager of the respondent corporation. However, on January 2,
1986, he resigned.
Petitioner instituted with the NLRC a complaint against private respondents
for the payment of his unpaid wages, his cost of living allowance, the balance
of his gasoline and representation expenses and his bonus compensation for
1986. Petitioner and private respondents submitted their position papers to
the labor arbiter. Private respondents admitted that there is due to petitioner
the amount of P17,060.07 but this was applied to the unpaid balance of his
subscription in the amount of P95,439.93. Petitioner questioned the set-off
alleging that there was no call or notice for the payment of the unpaid
subscription and that, accordingly, the alleged obligation is not enforceable.
V. STATEMENT OF THE CASE:
Petitioner filed a money claim consisting of unpaid wages and unpaid
benefits upon the Labor Arbiter. LA ruled in favor of petitioner. NLRC
reversed LA decision.
VI. ISSUES:
1. Whether or not the National Labor Relations Commission
(NLRC) has jurisdiction to resolve a claim for non-payment
of stock subscriptions to a corporation.
2. Whether or not an obligation of an employee to his
employer, arising from an unpaid subscription, be offset
against a money claim of an employee against the employer.
VII. RULING:
1. No. the NLRC has no jurisdiction to determine such intra-corporate dispute
between the stockholder and the corporation as in the matter of unpaid
subscriptions. This controversy is within the exclusive jurisdiction of the
Securities and Exchange Commission
2. No, the unpaid subscriptions of an employee to his corporate employer
cannot be used as a set off against the money claim of the employee against
the employer.
The unpaid subscriptions are not due and payable until a call is made by the
corporation for payment. Private respondents have not presented a
resolution of the board of directors of respondent corporation calling for the
payment of the unpaid subscriptions. It does not even appear that a notice of
such call has been sent to petitioner by the respondent corporation.
What the records show is that the respondent corporation deducted the
amount due to petitioner from the amount receivable from him for the unpaid
subscriptions. 3 No doubt such set-off was without lawful basis, if not
premature. As there was no notice or call for the payment of unpaid
subscriptions, the same is not yet due and payable.
Finally, Article 113 of the Labor Code does not allow such a deduction from
the wages of the employees by the employer.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is GRANTED and the questioned decision of the
NLRC dated September 18, 1987 is hereby set aside and another judgment
is hereby rendered ordering private respondents to pay petitioner the amount
of P17,060.07 plus legal interest computed from the time of the filing of the
complaint on December 19, 1986, with costs against private respondents.
I. SHORT TITLE: PEOPLE V. DUMLAO AND GONZALES
II. FULL TITLE: People of thr Philippines versus Hermenegildo
Dumlao y Castiliano and Emilio La'o y Gonzales -
G.R. No. 168918, March 2, 2009, J. Chico-Nazario
III. TOPIC: Corporation law - distinction between minutes of the
meeting and resolution of the board of trustees
IV. STATEMENT OF FACTS:
Respondent Dumlao is one of the members of the GSIS Board of Trustees
who allegedly approved the lease-purchase of the subject GSIS properties
consisting of three parcels of land with an area of 821 square meters,
together with a five-storey building, in favor of respondent La’o, which lease-
purchase agreement was deemed by the Office of the Ombudsman to be
grossly disadvantageous to the government.
Hence, Respondents Dumlao and La’o, Aber P. Canlas, Jacobo C. Clave,
Roman A. Cruz, Jr. and Fabian C. Ver were charged with violation of Section
3(g) of Republic Act No. 3019, otherwise known as the Anti-Graft and
Corrupt Practices Act.
Dumlao, in his defense avers that only 3 out of 7 of the members of the
Board of Trustees signed the minutes of the meeting for the lease-purchase
of the properties in dispute. Dumlao avers that in order to validly pass a
resolution at least a majority of four (4) members of the Board of Trustees
must sign and approve the same. Dumlao then filed a motion to dismiss
grounded on the above as basis. Sandiganbayan approved the motion to
dismiss.
Plaintiff People of the Philippines appealed the decision.
V. STATEMENT OF THE CASE:
Case was filed against Dumlao for violation of Republic Act No. 3019 upon
Sandiganbayan. Sandiganbayan ruled in favor of Dumlao. Plaintiff appeals
decision to the Supreme Court.
VI. ISSUE:
Whether or not the granting of the motion to dismiss filed by
Dumlao is proper.
VII. RULING:
No, the granting of the motion to dismiss is not proper.
According to the Court, a resolution is distinct and different from the minutes
of the meeting. A board resolution is a formal action by a corporate board of
directors or other corporate body authorizing a particular act, transaction, or
appointment.13 It is ordinarily special and limited in its operation, applying
usually to some single specific act or affair of the corporation; or to some
specific person, situation or occasion.14 On the other hand, minutes are a
brief statement not only of what transpired at a meeting, usually of
stockholders/members or directors/trustees, but also at a meeting of an
executive committee.
The Sandiganbayan concluded that since only three members out of seven
signed the minutes of the meeting of 23 April 1982, the resolution approving
the Lease-Purchase Agreement was not passed by the GSIS Board of
Trustees. Such conclusion is erroneous. The non-signing by the majority of
the members of the GSIS Board of Trustees of the said minutes does not
necessarily mean that the supposed resolution was not approved by the
board. The signing of the minutes by all the members of the board is not
required. There is no provision in the Corporation Code of the Philippines
that requires that the minutes of the meeting should be signed by all the
members of the board.
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, the instant petition is GRANTED. The
resolution of the Sandiganbayan in Criminal Case No. 16699 dated 14 July
2005 granting the Motion to Dismiss/Quash of respondent Hermenegildo C.
Dumlao, is hereby REVERSED and SET ASIDE. The Sandiganbayan is
forthwith DIRECTED to set the case for the reception of evidence for the
prosecution.
I. SHORT TITLE: BENGUET ELECTRIC COOPERATIVE V. NLRC
II. FULL TITLE: Benguet Electric Cooperative, Inc. versus National
Labor Relations Commission, Peter Cosalan and
Board of Directors of Benguet Electric Coope-
rative, Inc., Respondents - G.R. No. 89070, May 18,
1992, J. Feliciano
III. TOPIC: Liability of directors, trustees or officers
IV. STATEMENT OF FACTS:
In October 1982, Peter Cosalan was elected general manager of Benguet
Electric Cooperative (BENECO). In the course of his tenure, Cosalan
received three (2) Audit Memoranda and one (1) Audit Report from the
Commission on Audit (COA) on separate dates, stating the following,
respectively:
1. Cash advances of officers and employees of BENECO were written off
with the approval of the National Electrification Administration (NEA);
2. Per diems and allowances of the officers and members of the Board of
Directors were marred with inconsistencies when it comes to compliance
with NEA regulations; and
3. There were irregularities with the utilization of the PHP 37 Million
received from NEA.
In all three, appropriate remedial actions have been recommended.
Because of the serious financial situation and mismanagement of BENECO,
Cosalan initiated implementation of the recommended remedial actions.
Members of the Board of BENECO adopted a series of board resolutions
revoking Cosalan’s housing allowance, reduced his salary and allowances,
directed him to hold in abeyance all pending personnel disciplinary actions,
and struck his name out as the principal signatory of any of BENECO’s
transactions. He was also suspended indefinitely. Later on, Cosalan was
ousted altogether.
Cosalan nevertheless continued to work for BENECO, believing that he was
not removed. When he requested for the release of his compensation, it was
denied by BENECO.
V. STATEMENT OF THE CASE:
Cosalan filed a complaint before the Labor Arbiter, challenging the legality of
the board resolutions, demanding payment of his salaries and allowances,
and praying for reinstatement. The Labor Arbiter found for Cosalan, granting
all the reliefs prayed for and finding BENECO and the respondent board
members solidarily liable for the payment of Cosalan’s salary. The individual
board members appealed to the NLRC, while BENECO sought the dismissal
of the appeal. BENECO has a new set of directors during this time. The
NLRC modified the judgment of the Labor Arbiter, finding the BENECO alone
is liable. BENECO’s motion for reconsideration was denied, prompting it to
file a Petition for Certiorari.
VI. ISSUES:
1. Whether or not the NLRC gravely abused its discretion in
giving due course to the appeal of the Board members when
such was filed out of time; and
2. Whether or not the NLRC gravely abused its discretion in
releasing the individual board members from liability and
holding BENECO alone as liable.
VII. RULING:
1. YES. The judgment was received by respondents on 21 April 1988. Since
1 May 1988 was a legal holiday, the respondents had until 2 May 1988 to file
their appeal. The pleading was received by the NLRC via registered mail on
3 May 1988.
The date of actual receipt of the tribunal, not the private carrier, shall be
deemed the date of filing of the said pleading. Hence, respondents cannot
claim that they did not file out of time since the private carrier received the
pleading on 1 May 1988. The NLRC should have dismissed the case
outright.
2. NO. The applicable general rule is clear enough. The Board members and
officers of a corporation who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting, and
act in good faith, do not become liable, whether civilly or otherwise, for the
consequences of their acts. Those acts, when they are such a nature and are
done under such circumstances, are properly attributed to the corporation
alone and no personal liability is incurred by such officers and Board
members.
The Solicitor General has urged that respondent Board members may be
held liable for damages under Section 31 of the Corporation Code which
reads as follows:
"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
confict with their duty as such directors or trustees shall be jointly liable and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.”
Respondent Board members were guilty of "gross negligence or bad faith in
directing the affairs of the corporation" in enacting the series of resolutions
noted earlier indefinitely suspending and dismissing respondent Cosalan
from the position of General Manager of Beneco. Respondent Board
members, in doing so, acted beyond the scope of their Authority as such
Board members. The dismissal of an officer or employee in bad faith, without
lawful cause and without procedural due process, is an act that is contra
legem. It cannot be supposed that members of boards of directors derive any
authority to violate the express mandates of law or the clear legal rights of
their officers and employees by simply purporting to act for the corporation
they control.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the
comment filed by respondent Board members is TREATED as their answer,
and the decision of the National Labor Relations Commission dated 21
November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE
and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen
hereby REINSTATED in toto. In addition, respondent Board members are
hereby ORDERED to reimburse petitioner Beneco any amounts that it may
be compelled to pay to respondent Cosalan by virtue of the decision of Labor
Arbiter Amado T. Adquilen. No pronouncement as to costs.
SO ORDERED.
I. SHORT TITLE: VDA. DE ROXAS V. OLFI
II. FULL TITLE: Mercy Vda. De Roxas, Represented By Arlene C.
Roxas-Cruz, In Her Capacity As Substitute versus
Our Lady’s Foundation, Inc. – G.R. No. 182378,
March 6, 2013, C.J. Sereno
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
This is a complaint for the recovery of ownership of a portion of residential
land located at Our Lady’s Village, Bibincahan, Sorsogon, Sorsogon,
docketed as Civil Case No. 5403 filed by Salve Latosa. According to her,
Atty. Henry Amado Roxas (Roxas), represented by petitioner herein,
encroached on a quarter of her property.

In his Answer, Roxas imputed the blame to respondent Our Lady’s Village
Foundation, Inc., now Our Lady’s Foundation, Inc. (OLFI). He then filed a
Third-Party Complaint against respondent and claimed that he only occupied
the adjoining portion in order to get the equivalent area of what he had lost
when OLFI trimmed his property for the subdivision road.
V. STATEMENT OF THE CASE:
On 1 September 1988, Salve Dealca Latosa filed before the RTC a
Complaint for the recovery of ownership of a portion of her residential land.
The trial court ruled in favor of Latosa. Subsequently, Roxas appealed to the
CA, which later denied the appeal. Since the Decision had become final, the
RTC issued a Writ of Execution to implement the ruling ordering OLFI to
reimburse Roxas for the value of the 92-square-meter property plus legal
interest to be reckoned from the time the amount was paid to the third-party
defendant.
Now, the instant petition is a Rule 45 Petition, seeking a review of the Court
of Appeals (CA) 25 September 2007 Decision and 11 March 2008
Resolution in CA-G.R. SP No. 88622, which nullified the (1) Notices of
Garnishment directed against the bank accounts of petitioner's general
manager; and (2) the 2 December 2004 Order in Civil Case No. 5403 of the
Regional Trial Court (RTC) of Sorsogon City, Branch 52. The Order required
respondent to reimburse petitioner Pl,800 per square meter of the 92-square-
meter property it had encroached upon.
VI. ISSUE:
Whether or not the general manager of OLFI can be held
personally liable for the obligation of the corporation through
the Notices of Garnishment directed against his bank
account.
VII. RULING:
No. The Court affirmed the ruling of the CA.The appellate court appreciated
that in the main case for the recovery of ownership before the court of origin,
only OLFI was named as respondent corporation, and that its general
manager was never impleaded in the proceedings a quo.
Given this finding, this Court holds that since OLFI’s general manager was
not a party to the case, the CA correctly ruled that Arcilla-Maullon cannot be
held personally liable for the obligation of the corporation. In Santos v. NLRC,
this Court upheld the doctrine of separate juridical personality of corporate
entities. The case emphasizes that a corporation is a juridical entity with a
legal personality separate and distinct from those acting for and on its behalf
and, in general, of the people comprising it. Hence, the obligations incurred
by the corporation, acting through its officers such as in this case, are its sole
liabilities.
To hold the general manager of OLFI liable, petitioner claims that it is a mere
business conduit of Arcilla-Maullon, hence, the corporation does not maintain
a bank account separate and distinct from the bank accounts of its members.
In support of this claim, petitioner submits that because OLFI did not rebut
the attack on its legal personality, as alleged in petitioner’s Opposition and
Comments on the Motion to Quash Notice/Writ of Garnishment dated 15
March 2005, respondent effectively admitted by its silence that it was a mere
dummy corporation. This argument is untenable, for any piercing of the
corporate veil has to be done with caution. Save for its rhetoric, petitioner
fails to adduce any evidence that would prove OLFI’s status as a dummy
corporation.
In any event, in order for us to hold Arcilla-Maullon personally liable alone for
the debts of the corporation and thus pierce the veil of corporate fiction, we
have required that the bad faith of the officer must first be established clearly
and convincingly. Petitioner, however, has failed to include any submission
pertaining to any wrongdoing of the general manager. Necessarily, it would
be unjust to hold the latter personally liable.
Therefore, the Court refuse to allow the execution of a corporate judgment
debt against the general manager of the corporation, since in no legal sense
is he the owner of the corporate property. Consequently, the Court sustains
the CA in nullifying the Notices of Garnishment against his bank accounts.
VIII. DISPOSITIVE PORTION:
IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008
Resolution of the Court of Appeals in CA-GR SP No. 88622 are AFFIRMED
with MODIFICATION in that the value of the 92-square-meter property for
which respondent should reimburse petitioner, as determined by the 2
December 2004 Order of the Regional Trial Court in Civil Case No. 5403, is
hereby reinstated at P1,800 per square meter.
I. SHORT TITLE: FIL ESTATE V. VERTEX
II. FULL TITLE: Fil-Estate Golf and Development, Inc. and Fil-Estate
Land, Inc. versus Vertex Sales and Trading, Inc. -
G.R. No. 202079, June 10, 2013, J. Brion
III. TOPIC: Corporation Law – Stocks and Stockholders

IV. STATEMENT OF FACTS:
FEGDI is a stock corporation whose primary business is the development of
golf courses. FELI is also a stock corporation, but is engaged in real estate
development. FEGDI was the developer of the Forest Hills Golf and Country
Club and, in consideration for its financing support and construction efforts,
was issued several shares of stock of Forest Hills.
Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion
Construction Corporation one Class “C” Common Share of Forest Hills for
P1,100,000.00. Prior to the full payment of the purchase price, RSACC sold,
on February 11, 1999, the Class “C” Common Share to respondent Vertex
Sales and Trading, Inc.. RSACC advised FEGDI of the sale to Vertex and
FEGDI, in turn, instructed Forest Hills to recognize Vertex as a shareholder.
For this reason, Vertex enjoyed membership privileges in Forest Hills.
Despite Vertex’s full payment, the share remained in the name of FEGDI.
Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote
FEDGI a letter demanding the issuance of a stock certificate in its name.
FELI replied, initially requested Vertex to first pay the necessary fees for the
transfer. Although Vertex complied with the request, no certificate was
issued. This prompted Vertex to make a final demand on March 17, 2001.
V. STATEMENT OF THE CASE:
Vertex filed on January 7, 2002 a Complaint for Rescission with Damages
and Attachment against FEGDI, FELI and Forest Hills. The RTC dismissed
the complaint for insufficiency of evidence. It ruled that delay in the issuance
of stock certificates does not warrant rescission of the contract.
Vertex appealed the dismissal of its complaint. In its decision, the CA
reversed the RTC and rescinded the sale of the share. Citing Section 63 of
the Corporation Code, the CA held that there can be no valid transfer of
shares where there is no delivery of the stock certificate.
VI. ISSUE:
Whether or not the delay in the issuance of a stock
certificate can be considered a substantial breach as to
warrant rescission of the contract of sale?
VII. RULING:
Yes. The Court cited Raquel-Santos v. Court of Appeals where it held that in
“a sale of shares of stock, physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the stocks purchased.”
Section 63 of the Corporation Code provides:
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 showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation.
In this case, Vertex fully paid the purchase price by February 11, 1999 but
the stock certificate was only delivered on January 23, 2002 after Vertex filed
an action for rescission against FEGDI.
Under these facts, considered in relation to the governing law, FEGDI clearly
failed to deliver the stock certificates, representing the shares of stock
purchased by Vertex, within a reasonable time from the point the shares
should have been delivered. This was a substantial breach of their contract
that entitles Vertex the right to rescind the sale under Article 1191 of the Civil
Code. It is not entirely correct to say that a sale had already been
consummated as Vertex already enjoyed the rights a shareholder can
exercise. The enjoyment of these rights cannot suffice where the law, by its
express terms, requires a specific form to transfer ownership.
VIII. DISPOSITIVE PORTION:
WHEREFORE, we hereby DENY the petition. The decision dated February
22, 2012 and the resolution dated May 31, 2012 of the Court of Appeals in
CA-G.R. CV No. 89296 are AFFIRMED with the MODIFICATION that Fil-
Estate Land, Inc. is ABSOLVED from any liability.
I. SHORT TITLE: ERQUIAGA V. CA
II. FULL TITLE: Gloria M. De Erquiaga, administratrix of the estate of
the late Santiago De Erquiaga & Hon. Feliciano S.
Gonzales versus Hon. Court Of Appeals, Africa
Valdez VDA. De Reynoso, Joses V. Reynoso, Jr.,
Eernesto, Sylvia Reynoso, Lourdes Reynoso, Cecile
Reynoso, Edna Reynoso, Erlinda Reynoso & Emily
Reynoso - G.R. No. 47206, September 27, 1989, J.
Grino-Aquino
III. TOPIC: Corporation Law – Stocks and Stockholders
IV. STATEMENT OF FACTS:
Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of
stock of the Erquiaga Development Corporation which owns the Hacienda
San Jose in Irosin, Sorsogon. On November 4,1968, he entered into an
Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of Erquiaga Development Corporation for P900,000 payable in
installments on definite dates fixed in the contract but not later than
November 30, 1968. Because Reynoso failed to pay the second and third
installments on time, the total price of the sale was later increased to
P971,371.70 payable on or before December 17, 1969. The difference of
P71,371.70 represented brokers' commission and interest.
As of December 17, 1968, Reynoso was able to pay the total sum of
P410,000 to Erquiaga who thereupon transferred all his shares (3,100 paid-
up shares) in Erquiaga Development Corporation to Reynoso, as well as the
possession of the Hacienda San Jose, the only asset of the corporation.
However, as provided in paragraph 3, subparagraph (c) of the contract to
sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the
balance of his obligation. Reynoso failed to pay the balance of P561,321.70
on or before December 17, 1969, as provided in the promissory notes he
delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel,
formally informed Reynoso that he was rescinding the sale of his shares in
the Erquiaga Development Corporation.
V. STATEMENT OF THE CASE:
On March 30, 1970, private respondent Santiago de Erquiaga filed a
complaint for rescission with preliminary injunction against Jose L. Reynoso
and Erquiaga Development Corporation, in the Court of First Instance of
Sorsogon, Branch I.
Subsequently, judgment was rendered in favor of the plaintiff and against the
defendant Jose L. Reynoso, rescinding the sale of 3,100 paid up shares of
stock of the Erquiaga Development Corporation to the defendant, render a
full accounting of the fruits he received by virtue of said shares, and to return
said fruits received by him to Erquiaga and pay Erquiaga actual damages.
In the same Order, the CFI of Sorsogon appointed a receiver upon the filing
of a bond in the amount of P100,000.00. The reasons of the lower court for
appointing a receiver 'were that the matter of accounting of the fruits received
by defendant Reynoso as directed in the decision will take time; that plaintiff
Erquiaga has shown sufficient and justifiable ground for the appointment of a
receiver in order to preserve the Hacienda which has obviously been
mismanaged by the defendant to a point where the amortization of the loan
with the Development Bank of the Philippines has been neglected and the
arrears in payments have risen to the amount of P503,510.70 as of October
19, 1972, and there is danger that the Development Bank of the Philippines
may institute foreclosure proceedings to the damage and prejudice of the
plaintiff. The Reynoso heirs filed a petition for certiorari in the CA against the
CFI order. The CA commanded the respondent judge, upon delivery by
petitioners or transfer by the Clerk of Court of said shares of stock to private
respondent, as the case may be, to issue a writ of execution ordering private
respondent to pay petitioners the amount of P410,000.00 plus interests in
accordance with the final decision of September 30, 1972 in Civil Case No.
2448, setting-off therewith the amount of P62,000.00 adjudged in favor of
private respondent, and against petitioners' predecessor-in-interest, Jose L.
Reynoso, in the same decision, as damages and attorney's fees.
VI. ISSUE:
Whether or not the Court of Appeals erred in annulling the
trial court's order: (1) allowing Erquiaga to vote the 3,100
shares of Erquiaga Development Corporation without having
effected the transfer of those shares in his name in the
corporate books.
VII. RULING:
No. The Court found no reversible error in the Court of Appeals' decision in
annulling the trial court's order: (1) allowing Erquiaga to vote the 3,100
shares of Erquiaga Development Corporation without having effected the
transfer of those shares in his name in the corporate books; and (2)
authorizing Erquiaga to call a special meeting of the stockholders of the
Erquiaga Development Corporation and to vote the 3,100 shares, without the
pre-requisite registration of the shares in his name. It is a fundamental rule in
Corporation Law (Section 35) that a stockholder acquires voting rights only
when the shares of stock to be voted are registered in his name in the
corporate books.
Until registration is accomplished, the transfer, though valid between the
parties, cannot be effective as against the corporation. Thus, the unrecorded
transferee cannot enjoy the status of a stockholder; he cannot vote nor be
voted for, and he will not be entitled to dividends. The Corporation will be
protected when it pays dividend to the registered owner despite a previous
transfer of which it had no knowledge. The purpose of registration therefore
is two-fold; to enable the transferee to exercise all the rights of a stockholder,
and to inform the corporation of any change in share ownership so that it can
ascertain the persons entitled to the rights and subject to the liabilities of a
stockholder.
The order of respondent Court directing Erquiaga to return the sum of
P410,000 (or net P348,000 after deducting P62,000 due from Reynoso under
the decision) as the price paid by Reynoso for the shares of stock, with legal
rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with
the fruits (construed to mean not only dividends but also fruits of the
corporation's Hacienda San Jose) is in full accord with Art. 1385 of the Civil
Code
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition for review is granted. The payment of legal
interest by Erquiaga to Reynoso on the price of P410,000 paid by Reynoso
for Erquiaga's 3,100 shares of stock of the Erquiaga Development
Corporation should be computed as provided in the final judgment in Civil
Case No. 2446 up to September 30,1972, the date of said judgment. Since
Reynoso's judgment liability to Erquiaga for attorney's fees and damages in
the total sum of P62,000 should be set off against the price of P410,000 that
Erquiaga is obligated to return to Reynoso, the balance of the judgment in
favor of Reynoso would be only P348,000 which should earn legal rate of
interest after September 30,1972, the date of the judgment. However, the
payment of said interest by Erquiaga should await Reynoso's accounting of
the fruits received by him from the Hacienda San Jose. Upon payment of
P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall
be deemed cancelled. In all other respects, the decision of the Court of
Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to
costs.
I. SHORT TITLE: PNB V. HRCC
II. FULL TITLE: Philippine National Bank versus Hydro Resources
Contractors Corporation– G.R. No. 167530, March
13, 2013, J. Leonardo-De Castro
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
Petitioners DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a
result of the foreclosure, DBP and PNB acquired substantially all the assets
of MMIC and resumed the business operations of the defunct MMIC by
organizing Nonoc Mining and Industrial Corporation (NMIC). DBP and PNB
owned 57% and 43% of the shares of NMIC. The members of the Board of
Directors of NMIC were either from DBP or PNB.
Subsequently, NMIC engaged the services of Hercon, Inc., for Mine Stripping
and Road Construction Program. After computing the payments already
made by NMIC Hercon, Inc., found that NMIC still has an unpaid balance of
₱8,370,934.74. Hercon, Inc. made several demands on NMIC but these
demands were unheeded.
V. STATEMENT OF THE CASE:
A complaint for sum of money was filed in the RTC of Makati, seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for the amount owing
Hercon, Inc. Then, Hercon, Inc. was acquired by Hydro Resources
Contractors Corporation in a merger. This prompted the substitution of
HRCC for Hercon, Inc.
Thereafter, President Corazon Aquino issued Proclamation No. 50 creating
the APT for the expeditious disposition and privatization of certain
government corporations and/or the assets thereof. Pursuant to the said
Proclamation, DBP and PNB executed their respective deeds of transfer in
favor of the National Government including their respective stakes in NMIC.
The National Government transferred the said assets and liabilities to the
APT. Thus, the complaint was amended again to implead APT as a
defendant.
In its answer, NMIC claimed that HRCC had no cause of action. It also
asserted that its contract with HRCC was entered into by its then President
without any authority and the said contract allegedly failed to comply with
laws, rules and regulations concerning government contracts. For its part,
DBP and PNB’s raised that NMIC’s juridical personality is separate from that
of DBP and PNB. APT set up the following defenses in its answer: lack of
cause of action against it, lack of privity between Hercon, Inc. and APT, and
the National Government’s preferred lien over the assets of NMIC.
RTC Makati rendered a Decision in favor of HRCC. It pierced the corporate
veil of NMIC and held DBP and PNB solidarily liable with NMIC. The CA
affirmed RTC’s decision.
VI. ISSUE:
Whether or not there is sufficient ground to pierce the veil of
corporate fiction.
VII. RULING:
No, there is no sufficient proof to pierce the veil of corporate fiction. A
corporation is an artificial entity created by operation of law. It possesses the
right of succession and such powers, attributes, and properties expressly
authorized by law or incident to its existence. It has a personality separate
and distinct from that of its stockholders and from that of other corporations
to which it may be connected. It incurs its own liabilities and is legally
responsible for payment of its obligations and the corporate debt or credit is
not the debt or credit of the stockholder. This protection from liability for
shareholders is the principle of limited liability.
The corporate mask may be removed or the corporate veil pierced. The
doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
In this connection, case law lays down a three-pronged test to determine
the application of the alter ego theory, which is also known as the
instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal right;
and
(3) The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of.
The first prong is the "instrumentality" or "control" test. This test requires that
the subsidiary be completely under the control and domination of the parent.
It examines the parent corporation’s relationship with the subsidiary. It
inquires whether a subsidiary corporation is so organized and controlled and
its affairs are so conducted as to make it a mere instrumentality or agent of
the parent corporation such that its separate existence as a distinct corporate
entity will be ignored. It seeks to establish whether the subsidiary corporation
has no autonomy and the parent corporation, though acting through the
subsidiary in form and appearance, "is operating the business directly for
itself."
The second prong is the "fraud" test. This test requires that the parent
corporation’s conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful. It examines the relationship of the plaintiff to the
corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As
such, it requires a showing of "an element of injustice or fundamental
unfairness."
The third prong is the "harm" test. This test requires the plaintiff to show that
the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair
manner toward it, caused the harm suffered. A causal connection between
the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil
is pierced, it will have been treated unjustly by the defendant’s exercise of
control and improper use of the corporate form and, thereby, suffer damages.
This Court finds that none of the tests has been satisfactorily met in
this case. To summarize, piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements: control of the corporation
by the stockholder or parent corporation, fraud or fundamental unfairness
imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The absence of any of these
elements prevents piercing the corporate veil.
With respect to the control element, it refers to actual control which amounts
to "such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own,
and is but a conduit for its principal." While ownership by one corporation of
all or a great majority of stocks of another corporation and their interlocking
directorates may serve as indicia of control, by themselves and without more,
however, these circumstances are insufficient to establish an alter ego
relationship or connection between DBP and PNB on the one hand and
NMIC on the other hand, that will justify the puncturing of the latter’s
corporate cover. This Court has declared that "mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of
a corporation is not of itself sufficient ground for disregarding the separate
corporate personality." And that the "existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other public policy
considerations."
In this case, nothing in the records shows that the corporate finances,
policies and practices of NMIC were dominated by DBP and PNB in such a
way that NMIC could be considered to have no separate mind, will or
existence of its own but a mere conduit for DBP and PNB. On the contrary,
the evidence establishes that HRCC knew and acted on the knowledge that it
was dealing with NMIC, not with NMIC’s stockholders.
In relation to second element, there being a total absence of evidence
pointing to a fraudulent, illegal or unfair act committed against HRCC by DBP
and PNB under the guise of NMIC, there is no basis to hold that NMIC was a
mere alter ego of DBP and PNB.
As regards the third element, in the absence of both control by DBP and PNB
of NMIC and fraud or fundamental unfairness perpetuated by DBP and PNB
through the corporate cover of NMIC, no harm could be said to have been
proximately caused by DBP and PNB on HRCC for which HRCC could hold
DBP and PNB solidarily liable with NMIC.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petitions are hereby GRANTED. The complaint as
against Development Bank of the Philippines, the Philippine National Bank,
and the Asset Privatization Trust, now the Privatization and Management
Office, is DISMISSED for lack of merit. The Asset Privatization Trust, now the
Privatization and Management Office, as trustee of Nonoc Mining and
Industrial Corporation, now the Philnico Processing Corporation, is
DIRECTED to ensure compliance by the Nonoc Mining and Industrial
Corporation, now the Philnico Processing Corporation, with this Decision.
I. SHORT TITLE: GOSIACO V. CHING AND CASTA
II. FULL TITLE: Jaime U. Gosiaco versus Leticia Ching and Edwin
Casta – G.R. No. 173807, April 16, 2009, J. Tinga
III. TOPIC: Corporation Law – Incorporation and Organization of
Private Corporation
IV. STATEMENT OF FACTS:
Petitioner Gosiaco invested P8,000,000.00 with ASB Holdings, Inc. (ASB) by
way of loan. The money was loaned to ASB for a period of 48 days with
interest equivalent to ₱112,000.00. In exchange, ASB through its manager
Ching, issued two DBS checks for P8,000,000.00 and P112,000.00
respectively. The checks, both signed by Ching, were drawn against DBS
Bank Makati Head Office branch. ASB, through a letter, acknowledged that it
owed petitioner the abovementioned amounts.
Upon maturity of the ASB checks, Gosiaco went to the DBS Bank San Juan
Branch to deposit the two checks. However, the checks were dishonored and
payments were refused because of a stop payment order and for
insufficiency of funds. Petitioner informed respondents, through letters about
the dishonor of the checks and demanded replacement checks or the return
of the money placement but to no avail.
V. STATEMENT OF THE CASE:
Gosiaco filed a criminal complaint for violation of B.P. Blg. 22 before the
Metropolitan Trial Court of San Juan against the private respondents. Ching
was arraigned and tried and she denied liability and claimed that she was a
mere employee of ASB.
Gosiaco moved that ASB and its president, Luke Roxas, be impleaded as
party defendants. However, the same was denied by MTC.
MTC acquitted Ching of criminal liability but it did not absolve her from civil
liability because as a corporate officer of ASB she is civilly liable since she
was a signatory to the checks.
Both appealed to the RTC. Petitioner appealed to the RTC on the ground
that the MTC failed to hold ASB and Roxas either jointly or severally liable
with Ching. On the other hand, Ching moved for a reconsideration which was
subsequently denied. Thereafter, she filed her notice of appeal on the ground
that she should not be held civilly liable for the bouncing checks because
they were contractual obligations of ASB.
RTC rendered its decision sustaining Ching's appeal. The RTC affirmed the
MTCs ruling which denied the motion to implead ASB and Roxas for lack of
jurisdiction over their persons. The RTC also exonerated Ching from civil
liability and ruled that the subject obligation fell squarely on ASB.
Petitioner filed a petition for review with the Court of Appeals. The CA
affirmed the decision of the RTC and stated that the amount petitioner sought
to recover was a loan made to ASB and not to Ching. Roxas testimony
further bolstered the fact that the checks issued by Ching were for and in
behalf of ASB. The CA ruled that ASB cannot be impleaded in a BP22 case
since it is not a natural person and in the case of Roxas, he was not the
subject of a preliminary investigation. Lastly, the CA ruled that there was no
need to pierce the corporate veil of ASB since none of the requisites were
present.
VI. ISSUES:
1. Whether or not a corporate officer who signed a bouncing
check should be held civilly liable under B.P. Blg. 22.
2. Whether or not a corporation should be impleaded in a
B.P. Blg. 22 case.
3. Whether or not there is a basis to pierce the corporate veil
of ASB.
VII. RULING:
1. Yes, as a general rule a corporate officer who issues a bouncing corporate
check can only be held civilly liable when he is convicted. In the recent case
of Bautista v. Auto Plus Traders Inc., the Court ruled decisively that the civil
liability of a corporate officer in a B.P. Blg. 22 case is extinguished with the
criminal liability. We are not inclined through this case to revisit so recent a
precedent, and by rule of stare decisis Ching is discharge of any civil liability
arising from B.P. Blg. 22 case filed against her, on account of her acquittal in
the criminal charge. We recognize though the bind entwining the petitioner.
The records clearly show that it is ASB is civilly obligated to petitioner.
2. No, nowhere in B.P. Blg. 22 is it provided that a juridical person may be
impleaded as an accused or defendant in the prosecution for violations of
that law, even in the litigation of the civil aspect thereof.
Nonetheless, the substantive right of a creditor to recover due and
demandable obligations against a debtor-corporation cannot be denied or
diminished by a rule of procedure. Technically, nothing in Section 1(b) of
Rule 111 prohibits the reservation of a separate civil action against the
juridical person on whose behalf the check was issued. What the rules
prohibit is the reservation of a separate civil action against the natural person
charged with violating B.P. Blg. 22, including such corporate officer who had
signed the bounced check.
3. There was no need to pierce the corporate veil of ASB since none of the
requisites were present.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DENIED, without prejudice to the right of
petitioner Jaime U. Gosiaco to pursue an independent civil action against
ASB Holdings Inc. for the amount of the subject checks, in accordance with
the terms of this decision. No pronouncements as to costs.
Let a copy of this Decision be REFERRED to the Committee on Revision of
the Rules for the formulation of the formal rules of procedure to govern the
civil action for the recovery of the amount covered by the check against the
juridical person which issued it.
I. SHORT TITLE: SEÑERES V. COMELEC
II. FULL TITLE: Dr. Hans Christian M. Señeres, petitioner, versus
Commission on Elections and Melquiades A.
Robles, respondents – G.R. No. 178678, April 16,
2009, J. Velasco, Jr.
III. TOPIC: Board of Directors/Trustees/Officers – Corporation
Law
IV. STATEMENT OF FACTS:
In 1999, Melquiades Robles (Robles for brevity) was elected as Buhay
Hayaan Yumabong (BUHAY) party-list’s president and chairperson. Under
BUHAY’s constitution, all of its party officers shall have a term of three (3)
years, without re-election. BUHAY participated in the 2002 and 2004
elections, with Robles as its president. BUHAY’s manifestation to participate
in the party-list election (manifestation) and even the certificates of
nomination of representatives (CoN) for those years carried Robles’
signature as its president.
For the May 2007 elections, BUHAY submitted its manifestation and CoN
bearing Robles’ signature again. However, two (2) days prior to Robles’
submission of his nominations, Dr. Hans Christian Señeres (Señeres),
holding himself as the acting president and secretary-general of BUHAY,
also filed a CoN with the COMELEC. Señeres then filed a petition to deny
due course to Robles’ CoN with the COMELEC contending that: 1) said
nominations were null and void for they were made without authority for
Robles’ term already expired; 2) that he was the acting president of BUHAY
since August 17, 2004 when Robles vacated said position and; 3) that under
the 1987 Constitution, specifically Sec. 2(4) of Art. IX-B, Robles is now
disqualified from engaging into any partisan political activity by reason of his
appointment as the Acting Administrator of the LRT Authority.
BUHAY’s national council adopted a resolution expelling Señeres as party
member for his act of submitting a CoN for the party without authority and
nominating representatives not even members of the party. Subsequently,
Robles filed a petition for recognition of Jose Villanueva as BUHAY’s new
representative with the House of Representatives. Attached therein was the
expulsion order of Señeres. Robles also filed an Urgent Motion to declare
null and void the CoN filed by Señeres. Following BUHAY’s successful bid in
the May 2007 elections, COMELEC awarded BUHAY with three (3) House
seats.
V. STATEMENT OF THE CASE:
On April 17, 2007, Señeres filed a petition to deny due course to Robles’
CoN with the COMELEC. On July 19, 2007, the COMELEC en banc issued a
resolution declaring Robles as the lawful president of BUHAY and, as such,
was the one duly authorized to sign documents, particularly the manifestation
and CoN in the party’s behalf. It based its decision on the absence of any
party election to replace Robles and declared that Robles was acting as the
president in a hold-over capacity. Señeres, aggrieved by the COMELEC en
banc’s resolution, sought recourse to the Supreme Court through a petition
for certiorari, with a prayer for a TRO and/or preliminary injunction to nullify
and enjoin the implementation of said resolution.
VI. ISSUE:
Whether the hold-over principle applies in this case.
VII. RULING:
Yes, the hold-over principle applies in this case. Señeres’ contention that the
CoN signed by Robles is null and void is untenable. As a general rule,
officers and directors of a corporation hold over after the expiration of their
terms until such time as their successors are elected or appointed. The
pertinent portion of Sec. 23 of the Corporation Code provides:
Section 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 . . . .
who shall hold office for one (1) year until their successors are elected and
qualified.
The holdover doctrine accords validity to what would otherwise be deemed
as dubious corporate acts and gives continuity to a corporate enterprise in its
relation to outsiders. The voting members of BUHAY duly elected Robles as
party President in October 1999 and although his regular term as such
President expired in October 2002, no election was held to replace him and
the other original set of officers. Further, BUHAY’s constitution and by-laws
do not expressly or impliedly prohibit a hold-over situation. As such, since no
successor was ever elected or qualified, Robles remained the President of
BUHAY in a hold-over capacity.
The view is that one who continues with the discharge of the functions of an
office after the expiration of his or her legal term, having no successor
appointed or chosen in the meantime, is commonly regarded as a de
facto officer, even where no provision is made by law for his holding over and
there is nothing to indicate the contrary. By fiction of law, the acts of such de
facto officer are considered valid and effective. Hence, Robles merely acted
as a hold-over president for BUHAY and his acts of causing the submission
of the manifestation and the CoN is, therefore, valid and effective.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DISMISSED. Resolution E.M. No. 07-043 of
the COMELEC dated July 19, 2007 is AFFIRMED. No costs.
I. SHORT TITLE: ASSOCIATED BANK V. SPOUSES
PRONSTROLLER
II. FULL TITLE: Associated Bank (now United Overseas Bank
[Phils.]), petitioner versus Spouses Rafael and
Monaliza Pronstroller, respondents – G.R. No.
148444, July 14, 2008, J. Nachura
III. TOPIC: Doctrine of Apparent Authority – Corporation Law
IV. STATEMENT OF FACTS:
In 1988, Spouses Vaca executed a real estate mortgage in favor of
Associated Bank (AB) covering a parcel of land located in Quezon City. Due
to the Vacas’ failure to pay, the property was foreclosed and sold at an
auction where AB was the highest bidder. Spouses Vaca, however, filed an
action for the nullification of the REM and the foreclosure sale. On the other
hand, AB filed for a writ of possession which was denied by the RTC. On
appeal, the CA granted said writ which caused Spouses Vaca to appeal the
CA decision.
During the pendency of the aforementioned cases, AB advertised the
property for sale for the price of P9,700,000.00. Respondents Pronstroller
offered to buy the property for P7,500,000.00 through Atty. Soluta, AB’s Vice-
President, Corporate Secretary and a member of its Board of Directors which
was accepted by the bank. Subsequently, respondents tendered payment in
the amount of P750,000.00 or 10% of the purchase price as down payment.
On March, 18, 1993, AB, through Atty. Soluta and respondents, executed a
letter-agreement setting forth the purchase price as agreed upon, and the
requirement that the balance of the purchase price be deposited under
escrow agreement within ninety (90) days from date of the agreement. Prior
to the expiration of the 90-day period, respondents Pronstroller proposed that
the balance be made payable only upon service of a final decision of the
Supreme Court affirming AB’s right to possess subject property. Said
proposal was referred by Atty. Soluta to the bank’s Asset Recovery and
Remedial Management Committee (ARRMC) which merely deferred action.
A month after such proposal and after the lapse of the payment deadline,
Atty. Soluta, acting for AB, and respondents executed a second (2nd) letter-
agreement allowing the deferral of the payment of the balance till such time
that a favorable final decision of the Supreme Court be sent to the
respondents.
In early 1994, AB reorganized its management and Atty. Dayday became its
Assistant Vice-President while Atty. Soluta was relieved of his duties. Atty.
Dayday reviewed respondents’ record and learned of their failure to deposit
the balance. He also caused the resubmission of respondents’ proposal to
extend the time within which to make the payment which was finally denied
by the ARRMC. Afterwards, he informed respondents that their proposal for
extension was denied and that if they were still interested in purchasing the
property, to submit a new proposal. Respondents Pronstroller presented the
2nd letter-agreement wherein they were granted an extension but Atty.
Dayday claimed that Atty. Soluta was not authorized to give such extension.
Respondents Pronstroller then submitted a new offer, that they’ll pay
P3,000,000.00 upon acceptance of the offer, and that the balance of the
purchase price will be deposited after six (6) months. This was rejected by
AB. Instead, Atty. Dayday made a counteroffer that AB will accept the
respondents’ proposal only if they would pay 24.5% interest per annum on
the unpaid balance and that if the respondents disagrees to AB’s
counteroffer, they’ll be given a refund for the P750,000.00 they’ve previously
paid. Said counteroffer was rejected by respondents.
Subsequently, the SC affirmed AB’s right to possess the property which led
respondents to file an action for specific performance against AB to enforce
their 2nd letter-agreement. The respondents also caused the annotation of lis
pendens in the title of subject property. However, AB reiterated that the
agreement between them and respondents is already rescinded due to the
latter’s failure to pay the balance within the 90-day period. During the
pendency of the case for specific performance, AB sold the subject property
to Spouses Vaca who eventually registered the sale and started demolishing
the house erected on the subject property.
V. STATEMENT OF THE CASE:
Spouses Pronstroller filed an action for specific performance with the RTC of
Antipolo, Rizal against Associated Bank, praying that Associated Bank be
ordered to sell the subject property in accordance with their 2nd letter-
agreement which granted an extension for the payment of the balance
subject to the service of the SC’s favorable decision upholding Associated
Bank’s right to possess the property to Spouses Pronstroller. The RTC ruled
in favor of Spouses Pronstroller and nullified the rescission of the agreement
to sell. It ordered Associated Bank to accept the payment of the balance in
the amount of P6,750,000.00 and to deliver the property free from any
encumbrances and liens.
On Appeal, the CA affirmed the RTC’s ruling that Atty. Soluta has authority to
represent Associated Bank and held that it has no right to unilaterally rescind
the contract; otherwise, it would give the bank officers license to continuously
review and eventually rescind contracts entered into by previous officers. The
CA also declared that it is estopped from questioning the efficacy of the 2nd
letter-agreement because of its failure to repudiate the same for a period of
one year.
VI. ISSUES:
1. Whether Associated Bank is bound by the 2nd letter-
agreement signed by Atty. Soluta under the doctrine of
apparent authority.
2. Whether there was a valid rescission of the two (2) letter-
agreements by Associated Bank.
VII. RULING:
Yes, Associated Bank is bound by the 2nd letter-agreement. The general rule
is that, in the absence of authority from the board of directors, no person, not
even its officers, can validly bind a corporation. The power and responsibility
to decide whether the corporation should enter into a contract that will bind
the corporation is lodged in the board of directors. However, just as a natural
person may authorize another to do certain acts for and on his behalf, the
board may validly delegate some of its functions and powers to officers,
committees and agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or authorization
from the board, either expressly or impliedly, by habit, custom, or
acquiescence, in the general course of business.
The authority of a corporate officer or agent in dealing with third persons may
be actual or apparent. Apparent authority’s existence may be ascertained
through 1) the general manner in which the corporation holds out an officer
or agent as having the power to act, or in other words, the apparent authority
to act in general, with which it clothes him; or 2) the acquiescence in his acts
of a particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers. Associated Bank had previously
allowed Atty. Soluta to enter into the first agreement without a board
resolution expressly authorizing him; thus, it had clothed him with apparent
authority to modify the same via the second letter-agreement. Further, the
two (2) letter-agreements were written on a paper with AB’s letterhead. It is
not the quantity of similar acts which establishes apparent authority, but the
vesting of a corporate officer with the power to bind the corporation. By
holding Atty. Soluta to possess the authority to enter into the agreement
which led respondents to deal with him, AB is now estopped from denying
such authority.
As early as June 1993, or prior to the 90-day period within which to make the
full payment, respondents already requested for the extension subject to the
receipt of the SC’s decision confirming petitioners right to the subject
property. The matter was brought to AB’s attention and was in fact discussed
by the Board but the board merely deferred action on the request. It was only
after one year and after the banks reorganization that the board rejected
respondents’ request. AB’s inaction, coupled with the apparent authority of
Atty. Soluta to act on behalf of the corporation, validates the July 14
agreement and thus binds the corporation. All these taken together, lead to
no other conclusion than that the petitioner attempted to defraud the
respondents. This is bolstered by the fact that it forged another contract
involving the same property, with another buyer, the spouses Vaca,
notwithstanding the pendency of the instant case.
2. No, there is no valid rescission of the agreement to sell. While the
petitioner in the instant case may have the right, under the 1st agreement, to
unilaterally rescind the contract in case of respondents’ failure to comply with
the terms of the contract, the execution of the 2nd agreement prevented
petitioner from exercising the right to rescind. This is so because there was in
the first place, no breach of contract, as the date of full payment had already
been modified by the later agreement
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, the petition is DENIED. The Decision
of the Court of Appeals dated February 27, 2001 and its Resolution
dated May 31, 2001 in CA-G.R. CV No. 60315 are AFFIRMED.
I. SHORT TITLE: REPUBLIC V. SANDIGANBAYAN
II. FULL TITLE: Republic of the Philippines (Presidential Commission
on Good Government), petitioners. versus
Sandiganbayan, Bienvenido R. Tantoco, Jr. and
Dominador R. Santiago, respondents – G.R. No.
90478, November 21, 1991, J. Cruz
III. TOPIC: Stocks and Stockholders
IV: STATEMENT OF FACTS:
Private respondents are defendants in a civil case before Sandiganbayan
commenced by the PCGG. The case was denominated as one for
reconveyance, reversion, accounting, restitution and damages and was filed
pursuant to EO No. 14 of President Cory Aquino.
Instead of filing an answer, respondents filed a motion to strike out some
portions of the complaint and for bill of particulars of other portions. PCGG
filed an opposition thereto. Sandiganbayan then gave PCGG 45 days to
expand its complaint to make more specific certain allegations.
Respondents then presented a “motion for leave to file interrogatories”.
PCGG filed a motion to strike out the motion and interrogatories.
Sandiganbayan denied both motions.
Respondents filed with the Sandiganbayan a pleading and an “amended
interrogatories to plaintiff” which sought factual details relative to the specific
averments of PCGGS’s amended complaint, though such questions such as:
“is it plaintiff’s position or theory of the case that Tourist Duty Free Shops,
Inc., including its assets are beneficially owned by either or both defendants
Ferdinand and Imelda Marcos and that the defendants (private respondents
herein) as well as other stockholders of record of the same corporations are
mere “dummies” of said defendants Marcoses.
Sandiganbayan admitted the amended interrogatories. PCGG filed an
opposition. Private respondent filed a reply and opposition. Sandiganbayan
issued resolutions: first, denying reconsideration of the resolution allowing
production and inspection of documents and second, reiterating by
implication the permission to serve the amended interrogatories on PCGG.
V. STATEMENT OF THE CASE:
Petitioner filed petition for certiorari. The Court issued TRO directing
Sandiganbayan to desist from enforcing its questioned resolutions. PCGG
alleged that the interrogatories aren’t specific and do not name particular
individual/s to whom they are profounded, being addressed only to PCGG.
VI. ISSUE:
 Whether or not petitioner can object to the interrogatories
served on it in accordance with Rule 26.
VII. RULING:
No. Rule 26, Section 1 states that if the party served with interrogatories is a
juridical entity, such as a public or private corporation, the same shall be
answered by any officer thereof competent to testify in its behalf. There is
absolutely no reason why this proposition should not be applied by analogy
to the interrogatories served on the PCGG. That the interrogatories are
addressed only to PCGG, without naming any specific commissioner/officer
thereof is utterly of no consequence.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DENIED, without pronouncement as to cost.
The temporary restraining order issued on October 27, 1989 is hereby
LIFTED AND SET ASIDE.
I. SHORT TITLE: WESTMOND BANK V. INLAND CONSTRUCTION
II. FULL TITLE: Westmond Bank (formerly Associated Citizens Bank
and now United Overseas Bank, Phils.) and the
provincial sheriff of Rizal, petitioners, versus Inland
Construction and Development Corporation
respondents – G.R. No. 123650, March 23, 2009, J.
Carpio-Morales
III. TOPIC: Doctrine of Apparent Authority
IV: STATEMENT OF FACTS:
Respondent incurred loan obligations and other credit accommodations from
petitioner. As a security for the loans, respondent executed a Real Estate
Mortgage over three properties and issued Promissory Notes in petitioner’s
favor.
When the first and second promissory notes fell due, respondent defaulted.
Thus it authorized the bank to debit 350,000php from its savings account to
partially fulfill its obligation.
The president of Inland, Aranda, executed a Deed of Assignment where he
assigned all his rights and interests at Hanil-Gonzales Corporation in favor of
Abrantes, the executed vice president and general manager of Hanil-
Gonzales. In the same deed, Abrantes assumed other obligations of Inland
and Aranda, including the Promissory Note executed by Inland in favor of
petitioner amounting to 880,000php. In effect, Abrantes and Hanil-Gonzales
Corp. should make necessary arrangements with the petitioner for full
liquidation of said account.
Respondent received a notice of sherrif’s sale foreclosing the real estate
mortgage over its properties.
V. STATEMENT OF THE CASE:
Upon receipt of notice of sheriff’s sale, respondent filed an injunction suit
against petitioners before the RTC. Petitioner Bank countered that it had no
knowledge, nor it did give its conformity to the alleged assignment of
obligation covered by the promissory note.
RTC found that petitioner bank ratified the acts of its accounting officer, Calo,
when its executive committee failed to repudiate the assignment within a
reasonable time and even approved the restructuring of Hanil-Gonzales
Corp’s obligation which included 880,000php. Clearly, the bank knew of the
assumption of the loan and posed on objection and the positive act of
restructuring the loan of the assignee attest to its consent.
RTC ruled in favor of respondent. The Court of Appeals affirmed RTC’s
decision only insofar as it found the petitioner bank to have ratified the deed.
It ruled that petitioner bank had, either intentionally or negligently, been
habitually clothing Calo with apparent powers to perform acts in behalf of the
bank, that in the deed, the bank never attempted to repudiate Calo’s acts
until almost 7 years, when the bank cash department manager issued a
memorandum stating that Calo’s signature has no bearing since it has no
authority to sign for the bank.
VI. ISSUE:
Whether or not Calo was clothed with apparent authority to
transact for the petitioner bank.
VII. RULING:
Yes. General rule is, 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 let one of its officers, or any of its agents,
to act within the scope of apparent authority, it will be estopped from denying
such officers authority.
It was shown that Calo was the one assigned to transact on petitioner bank;s
behalf respecting load transactions and arrangements of Inland, as well as
those of Hanil-Gonzales and Abrantes. As such, there’s a presumption that
Calo had authority to sign the deed of assignment. It was also found that
Abrantes notied petitioner bank of his assumption of Inland’s obligation
through a letter, and petitioner sent a reply approving the same. Petitioner
did not prove by clear and convincing evidence that it didn’t cloth Calo with
apparent authority. Neither it did present any resolution from the board
confirming Calo’s lack of authority.
VIII. DISPOSITIVE PORTION:
Wherefore, the petitions are denied. The decision of the Court of Appeals in
CA-GR. CV. No. 39634 is affirmed.
I. SHORT TITLE: AFRICA V. PCGG, ET AL.
II. FULL TITLE: Victor Africa, versus. Presidential Commission on
Good Government, Jose Laureta, Melquiades
Gutierrez, Eduardo M. Villanueva, Eduardo De Los
Angeles And Roman Mabanta, Jr. - G.R. No.
83831; Presidential Commission on Good
Government And PCGG-Nominees/Designees:
Melquiades Gutierrez, Eduardo M. Villanueva,
Ramon Desuasido, Almario P. Velasco, Ranulfo P.
Payos And Jose P. Roxas, versus The Honorable
Sandiganbayan (Third Division), Jose L. Africa,
Manuel H. Nieto, Jr., Rafael Valdez And Victor
Africa- G.R. No. 85594; Republic of the Philippines
(Presidential Commission On Good Government),
versus The Honorable Sandiganbayan (Third
Division), Jose L. Africa, Manuel H. Nieto And Rafael
Valdez - G.R. No. 85597; Eduardo M. Villanueva,
versus The Honorable Sandiganbayan (Third
Division), Jose L. Africa, Manuel Nieto, Rafael C.
Valdez And Presidential Commission On Good
Government - G.R. No. 85621, January 9, 1992, J.
Regalado
III. TOPIC: Corporation Law- Stocks and Stockholders; Right to
Examine/ Inspect Records
IV. STATEMENT OF THE FACTS:
Shortly after the PCGG sequestered ETPI, the sequestration order was
partially lifted in when 40% of the shares of stock owned by Cable and
Wireless, Ltd. were freed from the effects of sequestration. The remaining
60% of the shares, however, remained under sequestration. Subsequently,
during the annual stockholders meeting pursuant to a PCGG Resolution
(January 28, 1988) which called for the resumption of the stockholders
meeting originally scheduled, Villanueva, as PCGG nominee, Mabanta, and
de los Angeles as nominees of the foreign investors, Cable and Wireless
Ltd., and Africa (who was absent) were elected as members of the board of
directors.
An organizational meeting was later held where Villanueva was elected as
president and general manager, while Desuasido, Velasco and Payos were
elected as acting corporate secretary, acting treasurer, and acting assistant
corporate secretary, respectively. The nomination and election of PCGG
nominees to the ETPI Board, as well as the election of its new officers,
triggered a chain of contentious proceedings before the Sandiganbayan (SB)
and the SC between the members of the ETPI Board and its stockholders, on
the one hand, and the PCGG's elected ETPI Board, on the other hand.
G.R. No. 83831: On June 30, 1988, Africa, who claims to be an employee of
ETPI (vice-president, general counsel, corporate secretary and special
assistant to the chairman), filed directly with the SC a petition for injunction,
seeking to enjoin the PCGG and its nominees and the newly-installed officers
of ETPI from implementing their alleged illegal, invalid act of ousting him from
his offices pending the determination the validity of their assumption offices
as directors/officers. He contends that the reasons of the PCGG-sponsored
board for ousting him (redundancy, need to conserve company funds and
loss of confidence) are flimsy, whimsical and arbitrary, and its clear intent to
harass him into refraining from questioning before several tribunals all the
invalid, illegal and immoral acts of said board which have caused and are still
causing ETPI damages because they constitute dissipation of assets.
Later, petitioner informed the Court that while a verbal agreement to maintain
the status quo was reached between petitioner's lawyers and of the PCGG,
Villanueva circulated an inter-office memorandum easing out the legitimate
members of the board from their rooms in the executive offices for the benefit
of the newly-installed members of the questioned PCGG board. Petitioner
was allegedly forcibly taken out of his office. As a consequence, petitioner
Africa sought to have then Commissioner declared in contempt of court.
G.R. Nos. 85597 and 85621: On September 6, 1988, respondents (including
petitioner in 83831) were allegedly the registered stockholders of ETPI,
instituted in SB a complaint for injunction and damages with prayer for a TRO
seeking to enjoin Villanueva from acting as "Director, President and/or
General Manager" and from exercising the powers and functions thereof, and
to stop PCGG from interfering with the management of ETPI. They contend
that the assumption of Villanueva to said positions was effected without due
process of law (PCGG using and voting the sequestered shares without legal
justification).
Villanueva filed a motion to dismiss on the grounds of lack of jurisdiction,
because the complaint partakes of the nature of a suit against the State
without its consent; that respondents are not the real parties in interest in the
action, which is actually a quo warranto proceeding; that the complaint is
premature for failure to exhaust administrative remedies; (same with the
contention of PCGG) and that the issues raised have already been passed
upon by the Supreme Court in G.R. No. 82188.
The PCGG, moved to defer the hearing until after the motion to dismiss of
Villanueva and the objection raised by PCGG be resolved. However, the SB
resolved to hear the evidence on the application for preliminary injunction
with the understanding that the incident shall not be resolved earlier than the
resolution of the motion to dismiss and the issue raised by PCGG. PCGG
and Villanueva filed separate petitions for prohibition with prayer for a writ of
preliminary injunction and/TRO with the Court (GR 85597 and 85621,
respectively). Both petitions assail the orders issued by the SB, as having
been issued with grave abuse of discretion. The court granted the same and
issued a TRO ordering SB to cease and desist from proceeding with its
hearing. The case was ordered consolidated with the other ETPI cases (G.R.
Nos. 83831, 85594 and 85621).
G.R. No. 85594: On September 23, 1988, respondents filed before the SB
another action for injunction and damages with prayer for a writ of preliminary
injunction and/or TRO. They questioned the acts and orders of the PCGG
leading to the election of petitioners to the ETPI Board. Respondents,
claiming to be the duly elected members of the ETPI Board of Directors
during a special stockholders meeting, prayed that petitioners be removed
from their ETPI positions, and that an injunction be issued to perpetually
restrain the PCGG from electing, designating and supporting the defendants
in their ETPI roles.
Petitioners, separately filed their respective motions to dismiss and opposed
the issuance of writ of preliminary injunction/TRO invoking substantially the
same grounds in G.R. 85597 and 85621 and the filing of the complaint is
barred by lis pendens. While the motions to dismiss remained pending and
prior to the hearing for the issuance of a writ of preliminary injunction/TRO,
the Clerk of Court of the SB issued, upon request of Africa, et al. a subpoena
ordering the PCGG to appear and testify before the SB during the hearing
and to produce the stock and transfer book and all stubs of the outstanding
stock certificates of ETPI. Thereafter, another subpoena duces tecum was
issued upon an amended request for subpoena ordering the Assistant
Solicitor General to appear before the SB and to produce the minutes of all
meetings of the Board of Directors and Stockholders of held from January
29, 1988 to date. Petitioners moved to quash both subpoenae, but the same
was denied.
A petition for certiorari (G.R. 85594), was filed by the petitioners before the
Court, assailing the orders as having been issued with grave abuse of
discretion on the ground that the SB has no jurisdiction over the main action
for damages since it is in truth a suit against the State without its consent.
The PCGG also prayed for the issuance of a TRO to enjoin the respondents
from enforcing/ executing the subpoenas, the Court granted the TRO. The
SB, in the meantime, proceeded with the main case and denied the motions
to dismiss by the PCGG and the petitioners. PCGG and its
nominees/designees filed an Urgent Supplemental Petition in G.R. 85594
assailing the denial by the SB of their motions to dismiss on the grounds
same as abovementioned.
All in all, the petitions have substantially the same relief sought that is to
nullify the acts and orders of PCGG which lead to the election of the new
members of the board and officers of ETPI and to enjoin them from
exercising the powers of the said positions.
V. STATEMENT OF THE CASE:
These four cases separately filed before this Court were consolidated
pursuant to our resolution of November 22, 1988 since they involve issues
arising from, incidental or related to the sequestration of Eastern
Telecommunications Philippines, Inc. (ETPI) by the Presidential Commission
on Good Government (PCGG) on March 14, 1986 and the consequent filing
by the PCGG on July 22, 1987 of an action for reconveyance, reversion,
accounting and restitution of the alleged ill-gotten ETPI shares and damages,
docketed as Civil Case No. 0009 in the Sandiganbayan.
VI. ISSUES:
1. Whether or not Sandiganbayan has jurisdiction over the
case.
2. Whether or not the issuance of the subpoenas over the
books of ETPI were valid.
VII. RULING:
1. Sandiganbayan has jurisdiction over the case. The law and jurisprudence
on the jurisdiction of the SB over cases for the recovery of "ill-gotten wealth"
are now settled. It shall also include all incidents arising from, incidental to, or
related to, such cases necessarily fall likewise under the SB’s exclusive and
original jurisdiction, subject to review on certiorari exclusively by the
Supreme Court.
The complaints instituted by Africa, et al. are in the nature of special and
original civil actions for injunction directed against the defendants therein and
specially seeking to restrain them from representing and acting as officers
and members of the Board of Directors of ETPI and to prevent the PCGG
from exercising acts of ownership and/or management over ETPI.
2. Yes, it is valid. In upholding the right of a stockholder of a sequestered
company to inspect and/or examine the records of a corporation pursuant to
Section 74 of the Corporation Code, the Court found nothing in Executive
Orders Nos. 1, 2 and 14, to indicate an implied amendment of the
Corporation Code, much less an implied modification of a stockholder's right
of inspection as guaranteed by Section 74 thereof. The only express
limitation on the right of inspection, according to the Court, is that (1) the right
of inspection should be exercised at reasonable hours on business days; (2)
the person demanding the right to examine and copy excerpts from the
corporate records and minutes has not improperly used any information
secured through any previous examination of the records of such
corporation; and (3) the demand is made in good faith or for a legitimate
purpose.
VIII. DISPOSITIVE PORTION:
IN VIEW OF THE FOREGOING, the petitions in G.R. Nos. 85594, 85597 and
85621 are hereby DISMISSED for lack of merit, and G.R. No. 83831 is
REFERRED to the Sandiganbayan for appropriate proceedings. The
Sandiganbayan is hereby ordered to consolidate G.R. No. 83831 and Civil
Cases Nos. 0048 and 0050 with Civil Case No. 0009. The temporary
restraining orders separately issued in G.R. No. 85594 and G.R. No. 85597
on November 15, 1988 are hereby LIFTED and SET ASIDE.
I. SHORT TITLE: V. BINSWANGER PHILIPPINES, INC AND ELIOT
II. FULL TITLE: Eric Godfrey Stanley Livesey versus Binswanger
Philippines, Inc. and Keith Elliot- G.R. No. 177493,
March 19, 2014, J. Brion
III. TOPIC: Corporation Law - Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
Petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal dismissal
with money claims against CBB Philippines Strategic Property Services, Inc.
(CBB) and Paul Dwyer. CBB was a domestic corporation engaged in real
estate brokerage and Dwyer was its President.
Livesey alleged that CBB hired him as Director and Head of Business Space
Development. He was later appointed as Managing Director. Allegedly,
despite the several deals for CBB he drew up, CBB failed to pay him a
significant portion of his salary. For this reason, he was compelled to resign.
(He claimed US$23,000.00 in unpaid salaries.)
CBB denied liability. It alleged that it engaged Livesey as a corporate officer,
he was elected Vice-President and thereafter, he became President. It
claimed that Livesey was later designated as Managing Director when it
became an extension office of its principal in Hongkong. CBB posited that the
labor arbiter (LA) had no jurisdiction as the complaint involved an intra-
corporate dispute.
The LA found that Livesey had been illegally dismissed it ordered CBB to
reinstate Livesey to his former position as Managing Director and to pay him
in accrued salaries and back salaries until reinstatement.
Thereafter, the parties entered into a compromise agreement which was
approved by the LA. Under the agreement, Livesey was to receive his money
claim in an installment basis. The agreement provided that unless and until
the agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise
dispose of all or substantially all of its assets or business; (2) suspend,
discontinue, or cease its entire, or a substantial portion of its business
operations; (3) substantially change the nature of its business; and (4)
declare bankruptcy or insolvency.
CBB paid Livesey the initial amount but not the next two installments as the
company ceased operations. Livesey moved for the issuance of a writ of
execution. LA granted the writ, but it was not enforced. He then filed a motion
for the issuance of an alias writ of execution, alleging that he learned that the
respondents organized another corporation (Binswanger) to evade its
liabilities. He claimed that there was evidence showing that CBB and
Binswanger Philippines, Inc. (Binswanger) are one and the same
corporation. Invoking the doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued against Binswanger
and Keith Elliot, CBB’s former President, and now Binswanger’s President
and CEO.
Compulsory Arbitration Ruling: It denied petitioner’s motion for an alias writ of
execution, holding that the doctrine of piercing the corporate veil was
inapplicable in the case since the stockholders of the corporations were not
the same. And that the LA’s decision is already final and can no longer be
altered as to include additional respondents.
NLRC: Reversed the ruling and declared the respondents jointly and
severally liable with CBB. Respondents filed a petition for certiorari (Rule 65)
to CA.
CA’s ruling: NLRCs decision is reversed. It emphasized that the mere fact
that Binswanger and CBB have the same President is not in itself sufficient to
pierce the veil of corporate fiction of the two entities, and that although Elliot
was formerly CBB’s President, this circumstance alone does not make him
answerable for CBB’s liabilities.
Respondent’s argument: That NLRC has no jurisdiction over the dispute it
being an intra-corporate dispute; that there was no employee-employer
relationship; and that there was an error in applying the doctrine of piercing
the veil of corporate fiction based only on mere assumptions.
V. STATEMENT OF THE CASE:
We resolve this petition for review on certiorari assailing the decision dated
August 18, 2006 and the resolution dated March 29, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 94461.
VI. ISSUES:
1. Whether or not the case is an intra-corporate dispute
therefore beyond the jurisdiction of the NLRC
2. Whether or not the doctrine of piercing the veil of
corporate fiction is applicable in the case
VII. RULING:
1. The issue is rendered moot and academic by the compromise agreement
between the parties. That CBB reneged in the fulfillment of its obligations
under the agreement is no reason to revive the issue and further frustrate the
full settlement of the obligation as agreed upon.
2. YES, it is applicable. Piercing the veil of corporate fiction is an equitable
doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. Under
the doctrine, the corporate existence may be disregarded where the entity is
formed or used for non-legitimate purposes, such as to evade a just and due
obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or intentions, in
which case, the fiction will be disregarded and the individuals composing it
and the two corporations will be treated as identical.
In the present case, there is an indubitable link between CBB’s closure and
Binswanger’s incorporation. CBB ceased to exist only in name; it re-emerged
in the person of Binswanger for an urgent purpose— to avoid payment by
CBB of the last two installments of its monetary obligation to Livesey, as well
as its other financial liabilities. Freed from its liabilities, Binswanger can
continue CBB’s real estate brokerage business.
It was not just coincidence that Binswanger is engaged in the same line of
business CBB embarked on: (1) it even holds office in the very same building
and on the very same floor where CBB once stood; (2) CBB’s key officers,
Elliot, no less, and Catral moved over to Binswanger, performing the tasks
they were doing at CBB; (3) notwithstanding CBB’s closure, Binswanger’s
Web Editor, in an e-mail correspondence, supplied the information that
Binswanger is "now known" as either CBB (Chesterton Blumenauer
Binswanger or as Chesterton Petty, Ltd., in the Philippines; (4) the use of
Binswanger of CBB’s paraphernalia (receiving stamp) in connection with a
labor case where Binswanger was summoned by the authorities, although
Elliot claimed that he bought the item with his own money; and (5)
Binswanger’s takeover of CBB’s project with the PNB.
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, we hereby GRANT the petition. The
decision dated August 18, 2006 and the Resolution dated March 29, 2007 of
the Court of Appeals are SET ASIDE. Binswanger Philippines, Inc. and Keith
Elliot (its President and CEO) are declared jointly and severally liable for the
second and third installments of CBB's liability to Eric Godfrey Stanley
Livesey under the compromise agreement dated October 14, 2002. Let the
case record be remanded to the National Labor Relations Commission for
execution of this Decision. Costs against the respondents.
I. SHORT TITLE: PACIFIC REHOUSE CORP. V. CA, EXPORT AND
INDUSTRY BANK ET.AL
II. FULL TITLE: Pacific Rehouse Corporation versus Court of
Appeals and Export and Industry Bank, Inc. – G.R.
No. 199687, March 24, 2014, J.Reyes
III. TOPIC: Piercing the Veil of Corporate Fiction/Alter Ego
Doctrine
IV. STATEMENT OF FACTS:
A complaint was instituted with the Makati City Regional Trial Court (RTC)
against EIB Securities Inc. (E–Securities) for unauthorized sale of
32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde
Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East
Asia Oil Company, Inc. RTC rendered judgment on the pleadings, directing
the E–Securities to return to the petitioners 32,180,000 DMCI shares, as of
judicial demand. On the other hand, petitioners are directed to reimburse the
defendant the amount of [P]10,942,200.00, representing the buyback price of
the 60,790,000 KPP shares of stocks at [P]0.18 per share. The Resolution
was ultimately affirmed by the Supreme Court and attained finality. However,
the Writ of Execution was returned unsatisfied.
V. STATEMENT OF THE CASE:
Pacific Rehouse moved for the issuance of an alias writ of execution to hold
Export and Industry Bank, Inc. (Export Bank) liable for the judgment
obligation as E–Securities is “a wholly–owned controlled and dominated
subsidiary of Export and Industry Bank, Inc., and is a mere alter ego and
business conduit of the latter. E–Securities opposed the motion, arguing that
it has a corporate personality that is separate and distinct from the
respondent.
The RTC concluded that E–Securities is a mere business conduit or alter ego
of Export Bank, the dominant parent corporation, which justifies piercing of
the veil of corporate fiction, and issued an alias writ of summons directing
defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully
comply therewith. It ratiocinated that being one and the same entity in the
eyes of the law, the service of summons upon E–Securities has bestowed
jurisdiction over both the parent and wholly–owned subsidiary.
Export Bank filed before the Court of Appeals (CA) a petition
for certiorari with prayer for the issuance of a temporary restraining order
(TRO) seeking the nullification of the RTC Order for having been made with
grave abuse of discretion amounting to lack or excess jurisdiction. The CA
reversed the RTC Order and explained that the alter ego theory cannot be
sustained because ownership of a subsidiary by the parent company is not
enough justification to pierce the veil of corporate fiction. There must be
proof, apart from mere ownership, that Export Bank exploited or misused the
corporate fiction of E–Securities. The existence of interlocking incorporators,
directors and officers between the two corporations is not a conclusive
indication that they are one and the same. The records also do not show that
Export Bank has complete control over the business policies, affairs and/or
transactions of E–Securities. It was solely E–Securities that contracted the
obligation in furtherance of its legitimate corporate purpose; thus, any fall out
must be confined within its limited liability.
VI. ISSUE:
Whether or not E-Securities is a mere alter ego Export Bank.
VII. RULING:
NO. An alter ego exists where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other. The control necessary to invoke the alter ego doctrine is
not majority or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its
principal.
The Court has laid down a three–pronged control test to establish when the
alter ego doctrine should be operative:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice
in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind, will or existence
of its own;
2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal right; and
3. The aforesaid control and breach of duty must [have] proximately
caused the injury or unjust loss complained of.
The absence of any one of these elements prevents ‘piercing the corporate
veil’ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, what is important
to know is the reality and not form, with how the corporation operated and the
other corporation’s relationship to that operation. Hence, all three elements
should concur for the alter ego doctrine to be applicable.
In this case, the alleged control exercised by Export Bank upon its subsidiary
E–Securities, by itself, does not mean that the controlled corporation is a
mere instrumentality or a business conduit of the mother company. Even
control over the financial and operational concerns of a subsidiary company
does not by itself call for disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate
fiction. Such fraudulent intent is lacking in this case. Furthermore, ownership
by Export Bank of a great majority or all of stocks of E-Securities and the
existence of interlocking directorates may serve as badges of control, but
ownership of another corporation, per se, without proof of actuality of the
other conditions are insufficient to establish an alter ego relationship or
connection between the two corporations, which will justify the setting aside
of the veil of corporate fiction.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for
having been rendered moot and academic. The petition in G.R. No. 201537,
meanwhile, is hereby DENIED for lack of merit. Consequently, the Decision
dated April 26, 2012 of the Court of Appeals in CA-G.R. SP No. 120979 is
AFFIRMED.
I. SHORT TITLE: ALBERT V. UNIVERSITY PUBLISHING
II. FULL TITLE: Mariano A. Albert versus University Publishing Co.,
Inc. - G.R. No. L-19118, January 30, 1965, J.
Bengzon
III. TOPIC: Incorporation and Organization of Private
Corporation
IV. STATEMENT OF FACTS:
Mariano A. Albert (Albert) and University Publishing Co., Inc. (University
Publishing), a corporation duly organized and existing under the laws of the
Philippines, through Jose M. Aruego (Aruego), its President, entered into a
contract to pay Albert the amount of P30,000.00 for the exclusive right to
publish his revised Commentaries on the Revised Penal Code and for his
share in previous sales of the book's first edition. It is agreed upon in the
contract that that failure to pay one installment would render the rest due.
University Publishing had undertaken to pay in eight quarterly installments,
however, failed to pay the second installment.
V. STATEMENT OF THE CASE:
Albert sued University Publishing for the breach of contract. University
Publishing admitted its corporate existence and execution and terms of the
contract dated July 19, 1948 but alleged that it was Albert who breached their
contract by failing to deliver his manuscript. Albert died before trial and Justo
R. Albert (Justo), his estate's administrator, was substituted for him. CFI
Manila rendered judgment in favor of Albert and a writ of execution was
issued against University Publishing. Albert However, a writ of execution was
petitioned by Justo against Aruego, as the real defendant, stating that there
is no such entity as University Publishing Co. Inc. Justo annexed to the
petition a certification from the SEC saying that their records contain no such
registered corporation. University Publishing countered in its manifestation
that Aruego is not a party to the case and therefore, Justo’s petition should
be denied. In truth, University Publishing actually did not want Aruego to be
considered a party to the case because there would then be a need to
institute a separate action against Aruego and if done, Justo can set up the
defense of prescription under the Statute of Limitations.
VI. ISSUES:
1. Whether or not Aruego is a party to the case.
2. Whether or not the University Publishing is a corporation
by estoppel.
VII. RULING:
1. Yes. Aruego is a party to the case. "University Publishing Co., Inc."
purported to come to court, answering the complaint and litigating upon the
merits. But as stated, "University Publishing Co., Inc." has no independent
personality; it is just a name. Jose M. Aruego was, in reality, the one who
answered and litigated, through his own law firm as counsel. He was in fact,
if not, in name, the defendant. He had control over the proceedings. Had
Aruego been named as party defendant instead of or together with the
corporation, there would be no room for debate as to his personal liability.
Since he was not so named, matters of due process have arisen. Parties to a
suit are persons who have a right to control the proceedings, to make
defense, to adduce and cross-examine witnesses and to appeal from a
decision. Acting as representative of a non-existent principal, Jose M. Aruego
was the real party to the contract sued upon, he was the one who reaped the
benefits resulting from it, so much so that partial payments of the
consideration were made by him, he violated its terms, thereby precipitating
the suit in question and that in the litigation he was the real defendant.
Perforce, in line with the ends of justice, responsibility under the judgment
falls on him.
2. No. University Publishing is not a corporation by estoppel. The
corporation-by-estoppel doctrine has not been invoked in this case. At any
rate, the same is inapplicable. Aruego represented a non-existent entity and
induced not only to Albert but even the court to believe in such
representation. He signed the contract as "President" of "University
Publishing Co., Inc.," stating that this was "a corporation duly organized and
existing under the laws of the Philippines," and obviously misled Albert into
believing the same. One who has induced another to act upon his wilful
misrepresentation that a corporation was duly organized and existing under
the law, cannot thereafter set up against his victim the principle of
corporation by estoppel.
VIII. DISPOSITIVE PORTION:
PREMISES CONSIDERED, the order appealed from is hereby set aside and
the case remanded ordering the lower court to hold supplementary
proceedings for the purpose of carrying the judgment into effect against
University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.
I. SHORT TITLE: RAZON V. IAC
II. FULL TITLE: Enrique Razon, petitioner, versus Intermediate
Appellate Court and Vicente B. Chuidian, in his
capacity as Administrator of the Estate of the
Deceased Juan T. Chuidian, respondents. - G.R.
No. 74306 March 16, 1992. J. Guiterrez, Jr.
III. TOPIC: Corporation law - Ownership of shares of stock
IV. STATEMENT OF FACTS:
E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the
purpose of participating in the bidding for the arrastre services in South
Harbor, Manila. The incorporators were Enrique Razon, Enrique Valles,
Luisa M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and
Salvador Perez de Tagle. The business, however, did not start operations
until 1966. According to the petitioner, some of the incorporators withdrew
from the said corporation. The petitioner then distributed the stocks
previously placed in the names of the withdrawing nominal incorporators to
some friends, among them the late Juan T. Chuidian to whom he gave 1,500
shares of stock. The shares of stock were registered in the name of Chuidian
only as nominal stockholder and with the agreement that the said shares of
stock were owned and held by the petitioner but Chuidian was given the
option to buy the same. In view of this arrangement, Chuidian in 1966
delivered to the petitioner the stock certificate covering the 1,500 shares of
stock of E. Razon, Inc. Since then, the Petitioner had in his possession the
certificate of stock until the time, he delivered it for deposit with the Philippine
Bank of Commerce under the parties' joint custody pursuant to their
agreement as embodied in the trial court's order. The petitioner maintains
that his aforesaid oral testimony as regards the true nature of his agreement
with the late Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is
sufficient to prove his ownership over the said 1,500 shares of stock.
V. STATEMENT OF THE CASE:
The then Court of First Instance of Manila, now Regional Trial Court of
Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306 is the
owner of the said shares of stock. The then Intermediate Appellate Court,
now Court of Appeals, however, reversed the trial court's decision and ruled
that Juan T. Chuidian, the deceased father of petitioner Vicente B. Chuidian
in G.R. No. 74315 is the owner of the shares of stock. Both parties filed
separate motions for reconsideration. Enrique Razon wanted the appellate
court's decision reversed and the trial court's decision affirmed while Vicente
Chuidian asked that all cash and stock dividends and all the pre-emptive
rights accruing to the 1,500 shares of stock be ordered delivered to him. The
appellate court denied both motions. Hence, these petitions.
VI. ISSUE:
Whether or not Enrique Razon is the owner of the 1500
shares of stock?
VII. RULING:
No. In the case of Embassy Farms, Inc. v. Court of Appeals, Supreme Court
ruled: ". . . For an effective, transfer of shares of stock the mode and manner
of transfer as prescribed by law must be followed. As provided under Section
3 of the Corporation Code, shares of stock may be transferred by delivery to
the transferee of the certificate properly indorsed. Title may be vested in the
transferee by the delivery of the duly indorsed certificate of stock . However,
no transfer shall be valid, except as between the parties until the transfer is
properly recorded in the books of the corporation (Sec. 63, Corporation Code
of the Philippines; Section 35 of the Corporation Law)
In the instant case, there is no dispute that the questioned 1,500 shares of
stock of E. Razon, Inc. are in the name of the late Juan Chuidian in the
books of the corporation. Moreover, the records show that during his lifetime
Chuidian was elected member of the Board of Directors of the corporation
which clearly shows that he was a stockholder of the corporation. (See
Section 30, Corporation Code)
From the point of view of the corporation, therefore, Chuidian was the owner
of the 1,500 shares of stock. In such a case, the petitioner who claims
ownership over the questioned shares of stock must show that the same
were transferred to him by proving that all the requirements for the effective
transfer of shares of stock in accordance with the corporation's by laws, if
any, were followed (See Nava v. Peers Marketing Corporation) or in
accordance with the provisions of law. The petitioner failed in both instances.
The petitioner did not present any by-laws which could show that the 1,500
shares of stock were effectively transferred to him. In the absence of the
corporation's by-laws or rules governing effective transfer of shares of stock,
the provisions of the Corporation Law are made applicable to the instant
case.
The law is clear that in order for a transfer of stock certificate to be effective,
the certificate must be properly indorsed and that title to such certificate of
stock is vested in the transferee by the delivery of the duly indorsed
certificate of stock. (Section 35, Corporation Code) Since the certificate of
stock covering the questioned 1,500 shares of stock registered in the name
of the late Juan Chuidian was never indorsed to the petitioner, the inevitable
conclusion is that the questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an indorsement of the
certificate of stock in view of his intimate friendship with the late Juan
Chuidian can not overcome the failure to follow the procedure required by
law or the proper conduct of business even among friends. To reiterate,
indorsement of the certificate of stock is a mandatory requirement of law for
an effective transfer of a certificate of stock.
VIII. DISPOSITIVE PORTION:
WHEREFORE, petition is DISMISSED. The questioned decision and
resolution of the then Intermediate Appellate Court, now the Court of
Appeals, are AFFIRMED. Costs against the petitioner.
I. SHORT TITLE: CLAVECILLIA V. ANTILLON
II. FULL TITLE: Clavecillia Radio System versus Hon. Agustin
Antillon, as City Judge of Municipal Court of
Cagayan de Oro City and New Cagayan Grocery -
G.R. No. L-22238, February 18, 1967. J. Regala
III. TOPIC: Corporation law – Principal office of a corporation
IV. STATEMENT OF FACTS:
On June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System alleging, in effect, that on March 12, 1963, the
following message, addressed to the former, was filed at the latter's Bacolod
Branch Office for transmittal thru its branch office at Cagayan de Oro:
“REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF
AGREEABLE SHALL SHIP LATER REPLY POHANG”
The Cagayan de Oro branch office having received the said message
omitted, in delivering the same to the New Cagayan Grocery, the word
"NOT" between the words "WASHED" and "AVAILABLE," thus changing
entirely the contents and purport of the same and causing the said
addressee to suffer damages. After service of summons, Clavecilla filed a
motion to dismiss the complaint on the grounds that it states no cause of
action and that the venue is improperly laid. Thereafter, the City Judge
denied the motion to dismiss for lack of merit and set the case for hearing.
The Clavecilla Radio System filed a petition for prohibition with preliminary
injunction praying that the City Judge, Honorable Agustin Antillon, be
enjoined from further proceeding with the case on the ground of improper
venue. In dismissing the case, the lower court held that the Clavecilla Radio
System may be sued either in Manila where it has its principal office or in
Cagayan de Oro City where it may be served. In appealing, the Clavecilla
Radio System contends that the suit against it should be filed in Manila
where it holds its principal office.
V. STATEMENT OF THE CASE:
This is an appeal from an order of the Court of First Instance of Misamis
Oriental dismissing the petition of the Clavecilla Radio System to prohibit the
City Judge of Cagayan de Oro from taking cognizance of Civil Case No.
1048 for damages.
VI. ISSUE:
Whether or not Clavecilla may be sued only in Manila and
not in Cagayan de Oro on the ground that it maintains its
principal office in Manila?
VII. RULING:
Yes. It is clear that the case for damages filed with the city court is based
upon tort and not upon a written contract. Section 1 of Rule 4 of the New
Rules of Court, governing venue of actions in inferior courts, provides in its
paragraph (b) (3) that when "the action is not upon a written contract, then in
the municipality where the defendant or any of the defendants resides or may
be served with summons."
Settled is the principle in corporation law that the residence of a corporation
is the place where its principal office is established. Since it is not disputed
that the Clavecilla Radio System has its principal office in Manila, it follows
that the suit against it may properly be filed in the City of Manila.
The fact that it maintains branch offices in some parts of the country does not
mean that it can be sued in any of these places. To allow an action to be
instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.
VIII. DISPOSITIVE PORTION:
The order appealed from is therefore reversed, but without prejudice to the
filing of the action in which the venue shall be laid properly. With costs
against the respondents-appellees.
I. SHORT TITLE: VILLAMOR V. UMALE
II. FULL TITLE: Alfredo L. Villamor, Jr. versus John S. Umale, In
Substitution of Hernando F. Balmores - G.R. No.
172843, September 24, 2014, J. Leonen
III. TOPIC: Corporation Law - Derivative Suits
IV. STATEMENT OF FACTS:
MC Home Depot (MC) occupied Rockland area in Pasig which was part of
the area owned by Mid-Pasig Development Corporation (Mid-Pasig). Pasig
Printing Corporation (PPC) obtained an option to lease portions of Mid-
Pasig's property, including the Rockland area.
PPC's board of directors issued a resolution waiving all its rights, interests,
and participation in the option to lease contract in favor of the law firm of Atty.
Alfredo Villamor, Jr. (Villamor).
PPC, represented by Villamor, entered into a memorandum of agreement
(MOA) with MC where the latter would continue to occupy the area as PPC's
sublessee for 4 years, renewable for another 4 years, at a monthly rental of
P4,500,000.00 plus goodwill of P18,000,000.00. In compliance, MC issued
20 post-dated checks representing rental payments for one year and the
goodwill money. The checks were given to Villamor who did not turn these or
the equivalent amount over to PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter
addressed to PPC's directors (petitioners herein) informing them that
Villamor should be made to deliver to PPC and account for MC's checks or
their equivalent value, but no actions were taken by the directors.
V. STATEMENT OF THE CASE:
Balmores filed with the Regional Trial Court (RTC) an intra-corporate
controversy complaint praying, among others, that a receiver be appointed,
but this was denied by the RTC.
Balmores, then, filed with the Court of Appeals (CA) a petition for certiorari. It
reversed the RTC's decision, and issued a new order placing PPC under
receivership and creating an interim management committee. It ruled that the
case filed by Balmores "[was] a derivative suit because there were
allegations of fraud or ultra vires acts ... by [PPC's directors]." According to
the CA, the RTC abandoned its duty to the stockholders in a derivative suit
when it refused to appoint a receiver or create a management committee, all
during the pendency of the proceedings, leaving the corporation under the
control of an outsider and its assets prone to dissipation. This amounts to
"despotic, capricious, or whimsical exercise of judicial power" on the part of
the trial court.
Petitioners filed separate motions for reconsideration. Both motions were
denied by the CA.
VI. ISSUE:
Whether or not the CA correctly characterized Balmores’ action
as a derivative suit.
RULING:
No, the CA incorrectly characterized Balmores’s action as a derivative suit.
A derivative suit is an action filed by stockholders to enforce a corporate
action. It is an exception to the general rule that the corporation's power to
sue is exercised only by the board of directors or trustees. Individual
stockholders may be allowed to sue on behalf of the corporation when the
"directors [or officers] are guilty of breach of . . . trust, [and] not of mere error
of judgment." In derivative suits, the real party in interest is the corporation,
and the suing stockholder is a mere nominal party. Thus, this court noted that
“in effect, the suit is an action for specific performance of an obligation, owed
by the corporation to the stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors or
management to adopt suitable measures for its protection.”
Rule 8, Sec. 1 of the Interim Rules of Procedure for Intra-Corporate
Controversies provides the five (5) requisites for filing derivative suits:
SECTION 1. Derivative action. - A stockholder or member may bring an
action in the name of a corporation or association, as the case may be,
provided, that:
1. He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of;
and
4. The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the
case.
The fifth requisite for filing derivative suits is implied: ...action brought by the
stockholder or member must be "in the name of corporation or association."
It is important that the corporation be made a party to the case. In Asset
Privatization Trust v. CA, it explained that “...the corporation must be joined
as party because it is its cause of action that is being litigated and because
judgment must be a res judicata against it.”
Balmores' action failed to satisfy all the requisites of a derivative suit.
Balmores did not implead PPC as party in the case nor did he allege that he
was filing on behalf of the corporation. He also failed to exhaust all available
remedies to obtain the reliefs he prayed for. Though he tried to communicate
with PPC's directors about the checks in Villamor's possession before he
filed an action with the trial court, respondent Balmores was not able to show
that this comprised “all the remedies available under the articles of
incorporation, by-laws, laws, or rules governing PPC.”
An allegation that appraisal rights were not available for the acts complained
of is another requisite for filing derivative suits which Balmores failed to
allege that appraisal rights were not available for the acts complained of.
Sec. 81 of the Corporation Code provides the instances of appraisal right.
Sec. 82 of the Corporation Code provides that the stockholder may exercise
the right if he or she voted against the proposed corporate action and if he
made a written demand for payment on the corporation within thirty (30) days
after the date of voting.
Furthermore, he described the nature of his action as an action under Rule 1,
Section l(a)(l) of the Interim Rules which refers to acts of the board,
associates, and officers, amounting to fraud or misrepresentation, which may
be detrimental to the interest of the stockholders, and not an action under
Rule 1, Section l(a)(4) of the Interim Rules, which refers to derivative suits.
While Rule 1, Section l(a)(l) of the Interim Rules are causes of a derivative
suit, it is not always the case that derivative suits are limited to such causes
or that they are necessarily derivative suits. Hence, they are separately
enumerated in Rule 1, Sec. 1 (a) of the Interim Rules:
SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to
be observed in civil cases involving the following:
1. Devices or schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to
fraud or misrepresentation which may be detrimental to the interest
of the public and/or of the stockholders, partners, or members of any
corporation, partnership, or association;
2. Controversies arising out of intra-corporate, partnership, or
association relations, between and among stockholders, members,
or associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders,
members, or associates, respectively;
3. Controversies in the election or appointment of directors, trustees,
officers, or managers of corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
Individual suits are filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a group or to the
corporation. If the cause of action belongs to a group of stockholders, a class
or representative suit may be filed to protect the stockholders in the group.
Balmores did not bring the action for the benefit of the corporation. Instead,
he was alleging that the acts of PPC's directors, specifically the waiver of
rights in favor of Villamor's law firm and their failure to take back the MC
checks from Villamor, were detrimental to his individual interest as a
stockholder. In filing an action, therefore, his intention was to vindicate
his individual interest and not PPC's or a group of stockholders'.
The essence of a derivative suit is that it must be filed on behalf of the
corporation. This is because the cause of action belongs, primarily, to the
corporation. The stockholder who sues on behalf of a corporation is merely a
nominal party.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petitions are GRANTED. The decision of the Court of
Appeals dated March 2, 2006 and its resolution dated May 29, 2006 are SET
ASIDE.
I. SHORT TITLE: RURAL BANK OF SALINAS V. CA
II. FULL TITLE: Rural Bank of Salinas, Inc., Manuel Salud,
Luzviminda Trias, and Francisco Trias versus Court
of Appeals, Securities and Exchange Commission,
Melania A. Guerrero, Luz Andico, Wilhemina G.
Rosales, Francisco M. Guerrero, Jr., and Francisco
Guerrero, Sr. - G.R. No. 96674, June 26, 1992, J.
Paras
III. TOPIC: Corporation Law - Transfer of Shares of Stock
IV. STATEMENT OF FACTS:
Clemente G. Guerrero 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 to execute the proper
documents, and to receive and sign receipts for the dispositions.
Melania, 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) and again for the remaining 1 share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, Melania presented to Rural Bank of Salinas the 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 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
Melania Guerrero.
V. STATEMENT OF THE CASE:
Melania filed with the Securities and Exchange Commission (SEC) an action
for mandamus against petitioners Rural Bank of Salinas, its President and
Corporate Secretary.
Petitioners alleged that upon the death of Clemente, 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.
Maripol Guerrero, a legally adopted daughter of the late Clemente and
Melania, filed a Motion for Intervention stating that (1) before the filing of the
petition for Mandamus, a Petition for the administration of the estate of the
late Clemente has been filed; (2) the Deeds of Assignment are fictitious and
antedated; (3) the said conveyances are donations since the considerations
are below the book value of the shares, the assignees being close relatives
of Melania; and (4) the transfer of the shares in question to assignees would
deprive her of her rightful share in the inheritance. The SEC hearing officer
denied the said motion for lack of merit. On appeal, the SEC En Banc
affirmed the decision of the hearing officer.
Intervenor Guerrero filed a complaint before the Court of First Instance for
the annulment of the Deeds of Assignment. Petitioners, on the other hand,
filed a Motion to Dismiss and/or to Suspend Hearing of SEC case until after
the question of whether the subject Deeds of Assignment are fictitious, void
or simulated is resolved in civil case. The SEC Hearing Officer denied said
motion.
The SEC Hearing Officer granted the writ of Mandamus directing petitioners
to cancel stock certificates and to issue new certificates in the names of
private respondents, except Melania.
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.
VI. ISSUES:
1. Whether or not the SEC has the power to adjudicate the
case.
2. Whether or not the respondent court erred in sustaining
the SEC 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.
VII. RULING:
1. Yes, Sec. 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 SEC to adjudicate.
2. No, 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 Sec.
63 of the Corporation Code, to wit:
. . . 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 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 Sec. 63 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, cited
in 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, mandamus will 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)
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 Sec. 63.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DISMISSED for lack of merit.
I. SHORT TITLE: YAMAMOTO V. NISHINO
II. FULL TITLE: Ryuichu Yamamoto versus Nishino Leather
Industries, Incorporated and Ikuo Nishono – G.R.
No. 150283, April 16, 2008, J. Carpio-Morales
III. TOPIC: Separate Juridical Personality
IV. STATEMENT OF FACTS:
In 1983, Ruichi Yamamoto (Petitioner), organized under Philippine laws
Wako Enterprises Manila, Inc., a leather tanning business. Later on in 1987,
Yamamoto and Ikuo Nishino (Respondent) entered into a joint venture
embodied in a Memorandum of Agreement whereunder Nishino would
acquire 70% of the authorized capital stock of Wako. Eventually Ikuo Nishino
and his brother, Yoshinobu Nishino acquired more than 70% of the
authorized capital stock and reduced Yamamoto’s equity to 10%. The
corporation was later renamed to Nishino Leather Industries, Inc. (NLII,
Respondent).
Pursuant to negotiations to the Nishinos’ planned takeover the company,
Yoshinobu Nishino, through his counsel sent a letter to Yamamoto offering to
the latter the return of equipment which were his capital contributions to
Wako.
Yamamoto attempted to recover the said equipment however, this attempt
was frustrated. This forced Yamamoto to file a complaint for replevin against
the respondents on January 15, 1992, before the Regional Trial Court of
Makati.
The RTC ruled in favor of Yamamoto and declared him as the rightful owner
and possessor of the equipment.
On appeal, the Court of Appeals reversed the RTC decision holding that the
equipment are corporate property of NLII and could not be retrieved without
the authority of the NLII Board of Directors. It also held that the doctrine of
piercing the veil of corporate fiction does not apply. Finally, that Yamamoto’s
invocation of the doctrine of promissory estoppel does not apply.
Yamamoto filed a Petition for Review on Certiorari.
V. STATEMENT OF THE CASE:
On January 15, 1992, Ryuichi Yamamoto filed a complaint for Replevin
against respondents to recover his capital contributions to Wako before the
RTC of Makati. The RTC ruled in favor of Yamamoto. On appeal, the Court
of Appeals reversed the RTC decision. Yamamoto filed this petition with the
Supreme Court.
VI. ISSUES:
1. Whether or not the veil of corporate fiction should be
pierced.
 2. Whether or not the doctrine of promissory estoppel
applies.
VII. RULING:
1. No. The veil of corporate personality may be pierced when the corporation
is merely an adjunct, a business conduit, or alter ego of a person, but the
mere ownership of a single stockholder of even all or nearly all of the capital
stocks of a corporation is not by itself a sufficient ground to disregard the
separate corporate personality. In order for the doctrine of piercing the veil of
corporate fiction to apply the following elements must be proven:
a. There must be complete domination, not only of finances but of
policy and business practice so that the corporate entity had not
separate mind, will or existence of its own.
b. Such domination or control was used by the defendant to commit
fraud or wrong, to perpetuate the violation of a right of positive
legal duty
c. Said breach of duty was the proximate cause of the injury
complained of.
The absence of either one of these elements prevents the application of the
doctrine. It is not the form which the courts consider, but rather, how the
corporation operated and the individual defendant’s relationship to that
operation.
In this case, Yamamoto failed to show by clear and convincing evidence the
presence of any of the elements aforementioned. There is no showing that
Nishino used the separate personality of NLII to unjustly act or do wrong in
contravention of Yamamoto’s rights.
2. No. Under the doctrine of promissory estoppel, estoppel may arise from
the making of a promise, even without consideration, if it was intended that
the promise should be relied upon and in fact it was relied upon, and if a
refusal to enforce it would be virtually to sanction the perpetuation of fraud or
injustice.
In this case, the letter to Yamamoto expressly advised him that he could take
out the machinery if he wanted to do so, provided that the value of said
machineries would be deducted from his capital contribution. It further
required Yamamoto to “give comments on all the above, soonest.” Thus, it
was not a promise, but a mere offer to Yamamoto, subject to his acceptance.
Without acceptance, a mere offer produces no obligation.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is Denied.
I. SHORT TITLE: BITONG V. CA
II. FULL TITLE: Nora A. Bitong versus Court of Appeals et.al. - G.R.
No. 123553, July 13, 1998, J. Bellosillo
III. TOPIC: Board of Directos/Trustees
IV. STATEMENT OF FACTS:
Nora Bitong filed a derivative suit before the SEC for the benefit of Mr. & Ms.
Publishing Company Incorporated, against Sps. Eugenia and Jose Apostol
(Respondents) for fraud, misrepresentation, disloyalty, evident bad faith,
conflict of interest, and mismanagement of the affairs of the said corporation.
In said suit, Bitong alleged that all transactions and agreements by Mr. & Ms.
with the Philippine Daily Inquirer (PDI) were not supported by any bond
and/or stockholders’ resolution, and that it made advances to PDI amounting
to Php3.276 Million without any board or stockholders’ resolution, contract, or
legal authority.
The private respondents contended that Bitong is a mere holder-in-trust of
JAKA shares, thus she was not the proper party to initiate a derivative suit.
However, due to political differences, the relationship between Bitong and the
private respondents became strained, and petitioner refused to speak with
respondent Eugenia Apostol.
At the hearing, Bitong testified that she acquired legal and beneficial
ownership of 997 out of 4,088 outstanding shares by virtue of a deed of sale
executed by JAKA in her favor on July 25, 1983, and recorded in the Stock
and Transfer Book of Mr. & Ms. Corporation, under Certificate of Stock No.
008.
The respondents on the other hand countered that Eugenia D. Apostol
signed Certificate of Stock No. 008 only on March 17 1989 and not in 1983.
Respondents also averred that the Stock and Transfer Book which Bitong
presented in evidence was not registered with the SEC, thus the entries
therein, which included Certificate of Stock No. 008 were fraudulent.
On December 6, 1990, the SEC Hearing Panel issued a writ of preliminary
injunction to enjoin the private respondents from disbursing any money
except for necessary expenses in the regular course of business. It held that
Bitong had legal personality to file a derivative suit for the benefit of Mr. &
Ms. Corporation, due to the respondents’ Affirmative Defenses recognizing
Bitong as a minor stockholder and holder-in-trust of JAKA shares
representing JAKA in the Board.
On August 3, 1993, the SEC Hearing Panel dismissed the derivative suit. It
ruled that there was no serious mismanagement of the corporation. It further
held that the real issue to be resolved was the alleged mismanagement and
not as to the matter of who the real-party-in-interest is. Bitong would only be
allowed to prosecute the derivative suit only to resolve the real issues, thus
for this objective, Bitong was considered to be the real party-in-interest.
On August 19, 1993, the Sps. Apostol sold the PDI shares in the name of
JAED Management Corporation to Edgardo Espiritu.
On August 25, 1993, Bitong appealed to the SEC en banc.
On January 24, 1994, the SEC en banc reversed the decision of the Hearing
Panel and ordered the private respondents to return to Mr. & Ms. Corporation
any funds and assets of the corporation which they disbursed, to return all
amounts irregularly or unlawfully advanced to PDI and other persons, and to
stop managing Mr. & Ms. Corporation due to fraud, mismanagement,
disloyalty, and conflict of interest. It also ruled that the sale of PDI shares to
Edgardo Espiritu was null and void, thus Mr. & Ms. Corporation is the lawful
owner of said shares.
The private respondents filed a petition for review with the Court of Appeals.
On the other hand, Edgardo Espiritu filed a Petition for Certiorari and
Prohibition before the Court of Appeals. The two petitions were consolidated
on December 8, 1994.
On August 31, 1995, the Court of Appeals reversed the SEC en banc’s
decision and held that Bitong did not own any share of stock in Mr. & Ms.
Corporation, thus she is not a real party-in-interest to prosecute the
derivative suit.
V. STATEMENT OF THE CASE:
Nora Bitong (Petitioner) filed a derivative suit for the benefit of Mr. & Ms.
Publishing Co., Inc. to hold the Sps. Eugenia and Jose Apostol liable for
fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and
mismanagement of the business of the corporation. On August 3, 1993, the
SEC Hearing Panel dismissed the derivative suit. On January 24, 1994, the
SEC en banc reversed the decision of the Hearing Panel and ruled in favor of
Bitong. The SEC en banc also declared the sale of PDI shares of JAED
Management to Edgardo Espiritu on August 19, 1993 as null and void. On
August 31, 1995, the Court of Appeals reversed the decision of the SEC en
banc and held that Bitong was not the real party-in-interest to prosecute.
VI. ISSUES:
1. Whether or not Nora Bitong has the legal personality to
initiate and prosecute a derivative suit for the benefit of Mr. &
Ms. Publishing Company, Inc.
2. Whether or not Nora Bitong was a valid stockholder.
VII. RULING:
1. No. The answer of the respondents taken as a whole, questions the legal
personality of Bitong to filed the derivative suit. Respondents’ statements in
their Affirmative Defenses were qualified with phrases such as “insofar as
they are limited, qualified and/or expanded by,” thus they cannot be
construed as judicial admissions. Furthermore, the fact that the respondents
sought to dismiss the suit on the ground that petitioner lacks legal interest to
initiate and prosecute the suit contradicts Bitong’s representation that she is
a real party-in-interest. Most importantly, Bitong was not a valid stockholder
at the time she initially instituted the derivative suit.
In this case, the Certificate of Stock which she allegedly owns was legally
issued on March 17, 1989, the date when it was actually signed by the
President of the corporation. Thus, Bitong was not a bona fide stockholder of
Mr. & Ms. prior to March 1989. This is contrary to her allegation that she had
been a stockholder since 1983, when Certificate of Stock No. 008 was
allegedly issued in her name. At the time the acts complained of were
committed, she was not qualified to institute a stockholder’s derivative suit.
2. No. Section 63 of the Corporation Code provides that a formal Certificate
of Stock can only be issued if it is signed by the President or Vice-President,
countersigned by the Secretary or Assistant Secretary, and sealed with the
Corporate Seal. There must likewise be delivery of the certificate. For par
value shares, the par value must be fully paid. For non-par value shares, the
full subscription must be fully paid. The original certificate must be
surrendered to the person requesting the issuance of a certificate. Once
issued, a certificate of stock operates as a continuing affirmation or
representation that the stock indicated therein is valid and genuine and it is
prima facie evidence that it was legally issued, unless rebutted by contrary
evidence. However, Parol Evidence may be presented to assail the validity of
an issuance of a certificate of stock.
In this case, the Certificate of Stock which she allegedly owns was legally
issued on March 17, 1989, the date when it was actually signed by the
President of the corporation. Thus, Bitong was not a bona fide stockholder of
Mr. & Ms. prior to March 1989. This is contrary to her allegation that she had
been a stockholder since 1983, when Certificate of Stock No. 008 was
allegedly issued in her name. At the time the acts complained of were
committed, she was not qualified to institute a stockholder’s derivative suit.

As the Chief Executive Officer of JAKA and being one of the witnesses to
the execution of the Decaration of Trust, Bitong was aware of this trust, thus
her allegation that the shares covered thereby were transferred to her was
not legally feasible because Certificate Of Stock No. 001 had already been
cancelled by virtue of the deed of sale to Apostol. Furthermore, the evidence
presented shows that JAKA retained its ownership of the questioned shares
because of its receipt of the dividends issued in December 1986. Dividends
are distributed to the substantial and beneficial owner of the stock at the
time.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is denied. The 31 August 1995 Decision of the Court
of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R.
No. SP 33291, and granting the petition for certiorari and prohibition filed by
respondent Edgardo U. Espiritu as well as annulling the 5 November 1993,
24 January 1993 and 18 February 1994 orders of the SEC En Banc in CA-
G.R. No. SP 33873, is affirmed. Costs against petitioner. So ordered.
I. SHORT TITLE: TENG V. SEC
II. FULL TITLE: Anna Teng versus SEC and Ting Ping Lay - G.R.
No. 184332, February 17, 2016, J. Reyes
III. TOPIC: Stocks and Stockholders
IV. STATEMENT OF FACTS:
This case has its origin in G.R. No. 129777 entitled TCL Sales Corp. and
Anna Teng v. Hon. CA and Ting Ping Lay.
Ting Ping purchased 480 shares of TCL Sales Corp. (TCL) from Peter Chiu
on Feb. 2, 1979; 1,400 shares on Sept. 22, 1985 from his brother Teng
Ching Lay (Ching Lay), who was also the Pres. and operations manager of
TCL; and 1,440 shares from Ismaelita Maluto on Sept. 2, 1989.
Upon Ching Lay's death in 1989, his son Henry Teng took over the
management of TCL. To protect his shareholdings with TCL, Ting Ping
requested TCL's CorSec, Anna Teng (Teng), to enter the transfer in the
Stock and Transfer Book of TCL for the proper recording of his acquisition.
He also demanded the issuance of new certificates of stock in his favor. TCL
and Teng, however, refused despite repeated demands. Because of their
refusal, Ting Ping filed a petition for mandamus with the SEC against TCL
and Teng.
SEC granted Ting Ping's petition, ordering TCL and Teng to record in the
Books of the Corporation the shares Ting Ping purchased and to issue
corresponding new certificates of stocks in Ting Ping’s name.
TCL and Teng appealed to SEC en banc, which, the latter affirmed the SEC
decision with modification, in that Teng was held solely liable for the payment
of moral damages and attorney's fees.
TCL and Teng filed a petition for review with CA which the latter dismissed
the petition for having been filed out of time and for finding no cogent and
justifiable grounds to disturb the findings of the SEC en banc. Hence, the
petition for review on certiorari under Rule 45 before SC. On Jan. 5, 2001,
SC promulgated its Decision in G.R. No. 129777, which denied the petition.
After the finality of SC's decision, the SEC issued a writ of execution
addressed to the Sheriff of RTC Manila.
V. STATEMENT OF THE CASE:
On Feb. 4, 2004, Teng filed a complaint for interpleader with RTC Manila, Br.
46 where Teng sought to compel Henry and Ting Ping to interplead and
settle the issue of ownership over the 1,400 shares, which were previously
owned by Ching Lay. The deputized sheriff held in abeyance the further
implementation of the writ of execution pending outcome of the civil case.
RTC Manila Br. 46 finding Henry to have a better right to the shares of stock
formerly owned by Ching Lay, except as to those covered by Stock
Certificate covering 262.5 shares, among others.
An Ex Parte Motion for the Issuance of Alias Writ of Execution was filed by
Ting Ping where he sought the partial satisfaction of SEC en banc Order,
ordering TCL and Teng to record the 480 shares he acquired from Chiu and
the 1,440 shares he acquired from Maluto, and for Teng's payment of the
damages awarded in his favor.
Acting upon the motion, the SEC issued an Order granting partial
enforcement and satisfaction of the Decision 7/20/94, as modified by the
SEC en banc's Order 6/11/96. On the same date, the SEC issued an alias
writ of execution.
Teng and TCL filed their respective motions to quash the alias, which was
opposed by Ting Ping, who is willing to surrender the original stock
certificates of Chiu and Maluto to facilitate and expedite the transfer of the
shares in his favor. Teng pointed out, that the annexes in Ting Ping's
opposition did not include the subject certificates of stock, surmising that they
could have been lost or destroyed. Ting Ping belied this, claiming that his
counsel already communicated with TCL's counsel regarding the surrender
of the said certificates of stock. Teng filed a counter manifestation where she
pointed out a discrepancy between the total shares of Maluto based on the
annexes, which is only 1305 shares, as against the 1440 shares acquired by
Ting Ping based on the SEC Order 8/9/06.
On May 25, 2007, SEC denied the motions to quash filed by Teng and TCL,
and affirmed its Aug. 9, 2006 Order.
Teng filed a petition for certiorari and prohibition under Rule 65 ROC. SEC,
through the OSG, filed a Comment which Teng moved to expunge.
On April 29, 2008, CA dismissed the petition and denying the motion to
expunge SEC's comment.
VI. ISSUE:
Whether or not the surrender of the certificates of stock is a
requisite before registration of the transfer may be made in
the corporate books and for the issuance of new certificates
in its stead.
VII. RULING:
The resent dispute involves the execution of SC's decision in G.R. No.
129777 but only with regard to Chiu's and Maluto's respective shares. The
subject of the orders of execution issued by the SEC pertained only to these
shares and SC's decision will revolve only on these shares.
A certificate of stock is a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named in the document
is the owner of a designated number of shares of its stock. It is prima
facie evidence that the holder is a shareholder of a corporation. A certificate,
however, is merely a tangible evidence of ownership of shares of stock. It is
not a stock in the corporation and merely expresses the contract between the
corporation and the stockholder. The shares of stock evidenced by said
certificates, meanwhile, are regarded as property and the owner of such
shares may, as a general rule, dispose of them as he sees fit, unless the
corporation has been dissolved, or unless the right to do so is properly
restricted, or the owner's privilege of disposing of his shares has been
hampered by his own action.
Sec. 63 Corporation Code prescribes the manner by which a share of stock
may be transferred: 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 showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation.
Under the provision, certain minimum requisites must be complied with for
there to be a valid transfer of stocks, to wit: (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 3rd parties, the transfer must be recorded in the books
of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner
or his duly authorized representative that is the operative act of transfer of
shares from the original owner to the transferee. In "a sale of shares of stock,
physical delivery of a stock certificate is one of the essential requisites for the
transfer of ownership of the stocks purchased." The delivery contemplated in
Sec. 63, however, pertains to the delivery of the certificate of shares by
the transferor to the transferee, that is, from the original stockholder
named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of
absolute conveyance of ownership. "Shares of stock may be transferred by
delivery to the transferee of the certificate properly indorsed. Title may be
vested in the transferee by the delivery of the duly indorsed certificate of
stock."
It is clear that Teng's position does not have legal basis. (that Ting Ping must
first surrender Chiu's and Maluto's respective certificates of stock before the
transfer to Ting Ping may be registered in the books of the corporation) The
delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not
a requisite before the conveyance may be recorded in its books. To compel
Ting Ping to deliver to the corporation the certificates as a condition for the
registration of the transfer would amount to a restriction on the right of Ting
Ping to have the stocks transferred to his name, which is not sanctioned by
law. The only limitation imposed by Sec. 63 is when the corporation holds
any unpaid claim against the shares intended to be transferred.
The right of a transferee/assignee to have stocks transferred to his name is
an inherent right flowing from his ownership of the stocks. If a corporation
refuses to make such transfer without good cause, it may, in fact, even be
compelled to do so by mandamus. With more reason in this case where SC,
in G.R. No. 129777, already upheld Ting Ping's definite and uncontested
titles to the subject shares. TCl and Teng could not repudiate these
documents. Hence, the transfer of shares to Ting Ping must be recorded
on the corporation's stock and transfer book.
In the same vein, Teng cannot refuse registration of the transfer on the
pretext that the photocopies of Maluto's certificates of stock submitted by
Ting Ping covered only 1,305 shares and not 1,440. The respective duties of
the corporation and its secretary to transfer stock are purely ministerial.
Nevertheless, to be valid against third parties and the corporation, the
transfer must be recorded or registered in the books of corporation. There
are several reasons why registration of the transfer is necessary: (1) to
enable the transferee to exercise all the rights of a stockholder; (2) to inform
the corporation of any change in share ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of a stockholder;
and (3) to avoid fictitious or fraudulent transfers, among others. In this case,
given SC's decision in GR. No. 129777, registration of the transfer of Chiu's
and Maluto's shares in Ting Ping's favor is a mere formality in confirming the
latter's status as a stockholder of TCL.
Upon registration of the transfer in the books of the corporation, the
transferee may now then exercise all the rights of a stockholder, which
include the right to have stocks transferred to his name. The stock and
transfer book is the basis for ascertaining the persons entitled to the rights
and subject to the liabilities of a stockholder. Where a transferee is not yet
recognized as a stockholder, the corporation is under no specific legal duty to
issue stock certificates in the transferee's name.
The manner of issuance of certificates of stock is generally regulated by the
corporation's by-laws. Sec. 47 CoC states: "a private corporation may
provide in its by-laws for x x x the manner of issuing stock certificates." Sec.
63, meanwhile, provides that "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." SC outlined the procedure for the issuance of new certificates of stock
in the name of a transferee:
1. The certificates must be signed by the Pres. or VP, countersigned by
the Sec. or Asst. Sec, and sealed with the seal of the corporation. xxx
2. Delivery of the certificate is an essential element of its issuance. xxx
3. The par value, as to par value shares, or the full subscription as to no
par value shares, must first be fully paid.
4. The original certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from a
stockholder.
The surrender of the original certificate of stock is necessary before the
issuance of a new one so that the old certificate may be cancelled. A
corporation is not bound and cannot be required to issue a new certificate
unless the original certificate is produced and surrendered. Surrender and
cancellation of the old certificates serve to protect not only the corporation
but the legitimate shareholder and the public as well, as it ensures that there
is only one document covering a particular share of stock.
Ting Ping manifested from the start his intention to surrender the subject
certificates of stock to facilitate the registration of the transfer and for the
issuance of new certificates in his name. It would be sacrificing substantial
justice if SC were to grant the petition simply because Ting Ping is yet to
surrender the subject certificates for cancellation instead of ordering in this
case such surrender and cancellation, and the issuance of new ones in his
name.
Teng, and TCL have already deterred for so long Ting Ping's enjoyment of
his rights as a stockholder. As early as 1989, Ting Ping already requested
Teng to enter the transfer of the subject shares in TCL's Stock and Transfer
Book; in 2001, SC in G.R. No. 129777, resolved Ting Ping's rights as a valid
transferee and shareholder; in 2006, the SEC ordered partial execution of the
judgment; and in 2008, CA affirmed SEC's order of execution. SC will not
allow Teng and TCL to frustrate Ting Ping's rights any longer.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DENIED. The Decision dated April 29, 2008
and Resolution dated August 28, 2008 of the CA in CA-G.R. SP No. 99836
are AFFIRMED.
Respondent Ting Ping Lay is hereby ordered to surrender the certificates of
stock covering the shares respectively transferred by Ismaelita Maluto and
Peter Chiu. Petitioner Anna Teng or the incumbent corporate secretary of
TCL Sales Corporation, on the other hand, is hereby ordered, under pain of
contempt, to immediately cancel Ismaelita Maluto's and Peter Chiu's
certificates of stock and to issue new ones in the name of Ting Ping Lay,
which shall include Ismaelita Maluto's shares not covered by any existing
certificate of stock but otherwise validly transferred to Ting Ping Lay.
Costs against petitioner Anna Teng.
I. SHORT TITLE: THOMSON V. CA
II. FULL TITLE: Marsh Thomson, petitioner, versus Court of Appeals
and the American Champer of Commerce of the
 Philippines, Inc., respondents - G.R. No. 116631,
October 28, 1998, J. Quisumbing
II. TOPIC: Stocks and Stockholders
IV. STATEMENT OF FACTS:
Petitioner Marsh Thomson (Thomson) was the EVP and, later on, the
Management Consultant of American Chamber of Commerce of the
Philippines, Inc. (AmCham) for over 10 years. (1979-1989).
While Thomson was still working with AmCham, 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 Thomson. However, through the intercession of
Burridge, AmCham paid for the share but had it listed in Thomson's name.
This was made clear in an employment advice (Jan. 13, 1986), wherein
Thomson was informed by AmCham as follows:
11. If you so desire, the Chamber is willing to acquire for your use a
membership in the Manila Polo Club. The timing of such acquisition
shall be subject to the discretion of the Board based on the Chamber's
financial position. All dues and other charges relating to such
membership shall be for your personal account. If the membership is
acquired in your name, you would execute such documents as
necessary to acknowledge beneficial ownership thereof by the
Chamber.
On April 25, 1986, Burridge transferred said proprietary share to Thomson,
as confirmed in a letter of notification to the MPC.
Upon his admission as a new member of the MPC, Thomson paid the
transfer fee of P40,000.00 from his own funds; but AmCham subsequently
reimbursed this amount. On Nov. 19, 1986, MPC issued a Proprietary
Membership Certificate Number in favor of Thomson but the latter failed to
execute a document recognizing AmCham's beneficial ownership over said
share.
Following AmCham's policy and practice, there was a yearly renewal of
employment contract between Thomson and AmCham. Separate letters of
employment advice in various dates mentioned the MPC share. But
Thomson never acknowledged that AmCham is the beneficial owner of the
share as requested in follow-up requests, particularly on Mar. 4, 1988:
9) The Manila Polo Club membership provided by the Chamber for you
and your family will continue on the same basis, to wit: all dues and
other charges relating to such membership shall be for your personal
account and, if you have not already done so, you will execute such
documents as are necessary to acknowledge that the Chamber is the
beneficial owner of your membership in the Club.
When Thomson's contract of employment was up for renewal, he notified
AmCham that he would no longer be available as EVP after Sept. 30, 1989.
Still, AmCham asked Thomson to stay on for another 6 months. Thomson
indicated his acceptance of the consultancy arrangement with a counter-
proposal in his letter: “11.) Retention of the Polo Club share, subject to my
reimbursing the purchase price to the Chamber, or P110,000.00.” However,
AmCham rejected Thomson's counter-proposal.
Pending the negotiation for the consultancy arrangement, AmCham executed
a Release and Quitclaim, stating that "AMCHAM, its directors, officers and
assigns, employees and/or representatives do hereby release, waive,
abandon and discharge Thomson from any and all existing claims that the
AMCHAM, its directors, officers and assigns, employees and/or
representatives may have against Thomson." The quitclaim, expressed in
general terms, did not mention specifically the MPC share.
On April 5, 1990, AmCham, sent a letter to Thomson demanding the return
and delivery of the MPC share which "AmCham owns and placed in
Thomson's name.
V. STATEMENT OF THE CASE:
RTC
On May 15, 1990, Am Cham filed a complaint against Thomson praying that
RTC Makati render judgment ordering Thomson "to return the MPC share to
AmCham and transfer said share to the nominee of AmCham.
On Feb. 28, 1992, RTC rendered judgment stating that:
1) The ownership of the contested MPC share is adjudicated in favor of
Thomson; and;
2) Thomson shall pay AmCham the sum of P300,000.00
RTC awarded the MPC share to Thomson on the ground that the Articles of
Incorporation and By-laws of MPC prohibit artificial persons, such as
corporations, to be club members.
Based on the evidence presented by both parties, it was the intention of the
parties that a membership to MPC was to be secured by AmCham for
Thomson’s use. The latter was to execute the necessary documents to
acknowledge ownership of the Polo membership in favor of Thomson.
However, when the parties parted ways in disagreement and with some
degree of bitterness, Thomson had second thoughts and decided to keep the
membership for himself.

CA
AmCham appealed to CA. The latter reversed RTC’s decsision and ordered
Thomson to transfer the MPC share to the nominee of AmCham. CA held
that AmCham purchased the MPC share for the use of Thomson and the
latter expressly conformed thereto. By such express conformity of Thomson,
he was bound to recognize AmCham as the owner of the said share for a
contract has the force of law between the parties. Thomson conceded the
true ownership of the MPC share to AmCham when (1) he offered to buy
said share from the AmCham upon the termination of his employment; (2) he
obliged himself to return said share after his 6 month consultancy contract
had elapsed, unless its return was earlier requested in writting and (3) he
admitted that the proprietary share listed as one of the assets of AmCham in
its 1988 Corporate Income Tax Return, which he signed as the latter's EVP
(prior to its filing), refers to the MPC Share.
CA denied Thomson’s MR. Hence this petition.
VI. ISSUES:
Whether or not the CA erred in ordering Thomson to transfer
said share to AmCham’s nominees.
VII. RULING:
Thomson contends that the AOI and By-laws of Manila Polo Club prohibit
corporate membership. However, AmCham does not insist nor intend to
transfer the club membership in its name but rather to its designated
nominee.
The Manila Polo Club does not necessarily prohibit the transfer of proprietary
shares by its members. The Club only restricts membership to deserving
applicants in accordance with its rules, when the amended AOI states that:
"No transfer shall be valid except between the parties, and shall be
registered in the Membership Book unless made in accordance with these
Articles and the By-Laws". Thus, as between parties herein, there is no
question that a transfer is feasible. Moreover, authority granted to a
corporation to regulate the transfer of its stock does not empower it to restrict
the right of a stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure to be followed in
effecting transfer.
In this case, Thomson was the nominee of AmCham to hold the share and
enjoy the privileges of the club. But upon the expiration of Thomson's
employment as officer and consultant of AmCham, the incentives that go with
the position, including use of the MPC share, also ceased to exist. It now
behooves Thomson to surrender said share to AmCham's next nominee,
another natural person. Obviously this arrangement of trust and confidence
cannot be defeated by Thomson's citation of the MPC rules to shield his
untenable position, without doing violence to basic tenets of justice and fair
dealing.
However, we still have to ascertain whether the rights of herein parties to the
trust still subsist. It has been held that so long as there has been no denial or
repudiation of the trust, the possession of the trustee of an express and
continuing trust is presumed to be that of the beneficiary, and the statute of
limitations does not run between them. With regard to a constructive or a
resulting trust, the statute of limitations does not begin to run until the trustee
clearly repudiates or disavows the trust and such disavowal is brought home
to the other party, "cestui que trust". The statute of limitations runs generally
from the time when the act was done by which the party became chargeable
as a trustee by operation of law or when the beneficiary knew that he had a
cause of action, in the absence of fraud or concealment.
Noteworthy in the instant case, there was no declared or explicit repudiation
of the trust existing between the parties. Such repudiation could only be
inferred as evident when Thomson showed his intent to appropriate the MPC
share for himself. Specifically, this happened when he requested to retain the
MPC share upon his reimbursing the purchase price of P110,000, a request
denied promptly by AmCham. Eventually, Thomson refused to surrender the
share despite the written demand of AmCham. This act could then be
construed as repudiation of the trust. The statute of limitation could start to
set in at this point in time. But AmCham took immediate positive action. On
May 15, 1990, AmCham filed an action to recover the MPC share. Between
the time of implicit repudiation of the trust on Oct. 9, 1989, as evidenced by
Thomson's letter of said date, and AmCham's institution of the action to
recover the MPC share, only about 7 months had lapsed. Our laws on the
matter provide that actions to recover movables shall prescribe 8 years from
the time the possession thereof is lot, unless the possessor has acquired the
ownership by prescription for a less period of 4 years if in good faith. Since
AmCham filed the necessary action on time and the defense of good faith is
not available to Thomson, there is no basis for any purported claim of
prescription, after repudiation of the trust, which will entitle Thomson to
ownership of the disputed share. As correctly held by CA, Thomson has the
obligation to transfer now said share to the nominee of AmCham.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals of May 19, 1994, is AFFIRMED.
I. SHORT TITLE: CONCORDE CONDOMINIUM V. BACULIO
II. FULL TITLE: Concorde Condominium, Inc., by itself and
comprising the unit owners of Concorde
Condominium Building versus Augusto H. Baculio;
New Ppi Corporation; Asian Security and
Investigation Agency and its security guards; Engr.
Nelson B. Morales, in his capacity as Building
Official of the Makati City Engineering Department;
Supt. Ricardo C. Perdigon, in his capacity as City
Fire Marshal of the Makati City Fire Station; F/C
Supt. Santiago E. Laguna, in his capacity as
Regional Director of the Bureau of Fire Protection-
Ncr, and any and all persons acting with or under
them - G.R. No. 203678, February 17, 2016, J.
Peralta
III. TOPIC: Stocks and Stockholders
IV. STATEMENT OF FACTS:
On April 16, 2012, petitioner Concorde Condominium, Inc., by itself and
comprising the Unit Owners of Concorde Condominium Building, {petitioner)
filed with the Regional Trial Court of Makati City a Petition for Injunction [with
Damages with prayer for the issuance of a Temporary Restraining Order Writ
of Preliminary (Prohibitory) Injunction, and Writ of Preliminary Mandatory
Injunction] against respondents New PPI Corporation and its President
Augusto H. Baculio; Asian Security and Investigation Agency and its security
guards, Engr. Nelson B. Morales in his capacity as Building Official of the
Makati City Engineering Department; Supt. Ricardo C. Perdigon in his
capacity as City Fire Marshal of the Makati City Fire Station; F/C Supt.
Santiago E. Laguna, in his capacity as Regional Director of the Bureau of
Fire Protection - NCR, and any and all persons acting with or under them
(respondents). Petitioner seeks (1) to enjoin respondents Baculio and New
PPI Corporation from misrepresenting to the public, as well as to private and
government offices/agencies, that they are the owners of the disputed lots
and Concorde Condominium Building, and from pushing for the demolition of
the building which they do not even own; (2) to prevent respondent Asian
Security and Investigation Agency from deploying its security guards within
the perimeter of the said building; and (3) to restrain respondents Engr.
Morales, Supt. Perdigon and F/C Supt. Laguna from responding to and
acting upon the letters being sent by Baculio, who is a mere impostor and
has no legal personality with regard to matters concerning the revocation of
building and occupancy permits, and the fire safety issues of the same
building. It also prays to hold respondents’ solidarily liable for actual
damages, moral damages, exemplary damages, attorney's fees, litigation
expenses and costs of suit.
V. STATEMENT OF THE CASE:
On April 16, 2012, petitioner Concorde Condominium, Inc., by itself and
comprising the Unit Owners of Concorde Condominium Building, {petitioner)
filed with the Regional Trial Court of Makati City a Petition for Injunction [with
Damages with prayer for the issuance of a Temporary Restraining Order
(TRO), Writ of Preliminary (Prohibitory) Injunction, and Writ of Preliminary
Mandatory Injunction] against respondents New PPI Corporation and its
President Augusto H. Baculio; Asian Security and Investigation Agency and
its security guards, Engr. Nelson B. Morales in his capacity as Building
Official of the Makati City Engineering Department; Supt. Ricardo C.
Perdigon in his capacity as City Fire Marshal of the Makati City Fire Station;
F/C Supt. Santiago E. Laguna, in his capacity as Regional Director of the
Bureau of Fire Protection - NCR, and any and all persons acting with or
under them (respondents).
VI. ISSUE:
Whether or not the case involves intra-corporate controversy
cognizable by Special Commercial Court.
VII. RULING:
No. The petition for injunction with damages indicates no intra-corporate
relations exists between the opposing parties, namely (1) petitioner
condominium corporation, by itself and comprising all its unit owners, on the
one hand, and (2) respondent New PP1 Corporation which Baculio claims to
be the owner of the subject properties, together with the respondents
Building Official and City Fire Marshal of Makati City, the Regional Director of
the Bureau of Fire Protection, and the private security agency, on the other
hand. Moreover, the petition deals with the conflicting claims of ownership
over the lots where Concorde Condominium Building stands and the parking
lot for unit owners, which were developed by Pulp and Paper Distributors,
Inc. (now claimed by respondent Baculio as the New PPI Corporation), as
well as the purported violations of the National Building Code which resulted
in the revocation of the building and occupancy permits by the Building
Official of Makati City. Clearly, as the suit between petitioner and
respondents neither arises from an intra-corporate relationship nor does it
pertain to the enforcement of their correlative rights and obligations under the
Corporation Code, and the internal and intra-corporate regulatory rules of the
corporation.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition for review on certiorari is granted. The Order dated
June 28, 2012 and Resolution dated September 20, 2012 issued by the
Regional Trial Court of Makati City, Branch 149, in Civil Case No. 12-309,
are hereby reversed and set aside. Civil Case No. 12-309 is reinstated in the
docket of the same branch which is further ordered to resolve the case with
reasonable dispatch.
I. SHORT TITLE: CIR V. CA
II. FULL TITLE: Commissioner of Internal Revenue versus The Court
of Appeals, Court of Tax Appeals and A. Soriano
Corp. - G.R. No. 108576, January 20,1999, J.
Martinez
III. TOPIC: Stocks and Stockholders
IV. STATEMENT OF FACTS:
Don Andres Soriano, a citizen and resident of the United States, formed the
corporation A. Soriano Y Cia, predecessor of ANSCOR, with
a P1,000,000.00 capitalization divided into 10,000 common shares at a par
value of P100/share. ANSCOR is wholly owned and controlled by the family
of Don Andres, who are all non-resident aliens.In 1937, Don Andres
subscribed to 4,963 shares of the 5,000 shares originally issued.On
September 12, 1945, ANSCORs authorized capital stock was increased
to P2,500,000.00 divided into 25,000 common shares with the same par
value. Of the additional 15,000 shares, only 10,000 was issued which were
all subscribed by Don Andres, after the other stockholders waived in favor of
the former their pre-emptive rights to subscribe to the new issues. This
increased his subscription to 14,963 common shares. A month later, Don
Andres transferred 1,250 shares each to his two sons, Jose and Andres, Jr.,
as their initial investments in ANSCOR. Both sons are foreigners.By 1947,
ANSCOR declared stock dividends. On December 30, 1964 Don Andres
died. The records revealed that he has a total shareholdings of 185,154
shares 50,495 of which are original issues and the balance of 134,659
shares as stock dividend declarations. Correspondingly, one-half of that
shareholdings or 92,577 shares were transferred to his wife, Doa Carmen
Soriano, as her conjugal share. The other half formed part of his estate.A day
after Don Andres died, ANSCOR increased its capital stock to P20M and in
1966 further increased it to P30M. In the same year (December 1966), stock
dividends worth 46,290 and 46,287 shares were respectively received by the
Don Andres estate[ and Doa Carmen from ANSCOR. Hence, increasing their
accumulated shareholdings to 138,867 and 138,864 common shares each.
On December 28, 1967, Doa Carmen requested a ruling from the United
States Internal Revenue Service (IRS), inquiring if an exchange of common
with preferred shares may be considered as a tax avoidance scheme under
Section 367 of the 1954 U.S. Revenue Act By January 2, 1968, ANSCOR
reclassified its existing 300,000 common shares into 150,000 common and
150,000 preferred shares. The IRS opined that the exchange is only
recapitalization scheme and not tax avoidance. Consequently, on March 31,
1968 Doa Carmen exchanged her whole 138,864 common shares for
138,860 of the newly reclassified preferred shares. The estate of Don Andres
in turn, exchanged 11,140 of its common shares for the remaining 11,140
preferred shares, thus reducing its (the estate) common shares to 127,727.
On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed
28,000 common shares from the Don Andres estate. By November 1968, the
Board further increased ANSCORs capital stock to P75M divided into
150,000 preferred shares and 600,000 common shares. About a year later,
ANSCOR again redeemed 80,000 common shares from the Don Andres
estate, further reducing the latters common shareholdings to 19,727. As
stated in the board Resolutions, ANSCORs business purpose for both
redemptions of stocks is to partially retire said stocks as treasury shares in
order to reduce the company’s foreign exchange remittances in case cash
dividends are declared.
V. STATEMENT OF THE CASE:
In 1973, after examining ANSCORs books of account and records, Revenue
examiners issued a report proposing that ANSCOR be assessed for
deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the
1939 Revenue Code[ for the year 1968 and the second quarter of 1969
based on the transactions of exchange and redemption of stocks. The
Bureau of Internal Revenue (BIR) made the corresponding assessments
despite the claim of ANSCOR that it availed of the tax amnesty under
Presidential Decree (P.D.) 23 which were amended by P.D.s 67 and
157 However, petitioner ruled that the invoked decrees do not cover Sections
53 and 54 in relation to Article 83(b) of the 1939 Revenue Act under which
ANSCOR was assessed ANSCORs subsequent protest on the assessments
was denied in 1983 by petitioner. Subsequently, ANSCOR filed a petition for
review with the CTA assailing the tax assessments on the redemptions and
exchange of stocks. In its decision, the Tax Court reversed petitioners ruling,
after finding sufficient evidence to overcome the prima facie correctness of
the questioned assessments. In a petition for review, the CA, as mentioned,
affirmed the ruling of the CTA
VI. ISSUE:
Whether or not ANSCORS redemption of stocks from its
stockholders as well as the exchange of common with
preferred shares can be considered as equivalent to the
distribution of taxable dividend, making the proceeds thereof
taxable.
VII. RULING:

Yes. Stock dividends, strictly speaking, represent capital and do not
constitute income to its recipient. So that the mere issuance thereof is not yet
subject to income tax as they are nothing but an enrichment through increase
in value of capital investment. However, the redemption or cancellation of
stock dividends, depending on the time and manner it was made, is
essentially equivalent to a distribution of taxable dividends, making the
proceeds thereof taxable income to the extent it represents profits. The
exception was designed to prevent the issuance and cancellation or
redemption of stock dividends, which is fundamentally not taxable, from
being made use of as a device for the actual distribution of cash dividends,
which is taxable.
VIII. DISPOSITIVE PORTION:
Wherefore, premises considered, the decision of the Court of Appeals is
modified in that ANSCORs redemption of 82,752.5 stock dividends is herein
considered as essentially equivalent to a distribution of taxable dividends for
which it is liable for the withholding tax-at-source. The decision is affirmed in
all other respects.
I. SHORT TITLE: ANG-ABAYA, ET AL. V. ANG
II. FULL TITLE: Ma. Belen Flordeliza C. Ang-Abaya, Francis Jason
A. Ang, Hannah Zorayda A. Ang, and Vicente G.
Genato versus Eduardo G. Ang - G.R. No. 178511,
December 4, 2008, J. Ynares-Santiago
III. TOPIC: Corporation Law – Examination of Corporate Books
and Records
IV. STATEMENT OF FACTS:
Petitioners and private respondent are shareholders, officers and members
of the board of directors of family-owned corporations, namely Vibelle
Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato).
Prior to the present case, VMC, Genato, and Oriana Manufacturing
Corporation (Oriana) filed a case for damages with prayer for issuance of a
temporary restraining order (TRO) and/or writ of preliminary injunction
against private respondent and some other persons alleging, among others,
of conniving to fraudulently wrest control or management of the corporations.
During the pendency of the said case, private respondent sought permission
for the inspection of the corporate books of VMC and Genato arguing that
there is a failure to update him as regards the financial and business
activities of the corporations. However, petitioners denied such request on
the ground that private respondent would use the information obtained from
said inspection for purposes inimical to the corporations' interests. They also
pointed out private respondent’s lavish lifestyle, which is funded by personal
loans and cash advances from the family corporations.
V. STATEMENT OF THE CASE:
Private respondent filed a complaint against petitioners for violating Section
74, in relation to Section 144, of the Corporation Code of the Philippines.
Meanwhile, the trial court granted the permanent injunction applied for by
VMC, Genato, and Oriana. However, the same was annulled by the appellate
court on the ground that private respondent was imprudently declared in
default.
As to the complaint filed by private respondent, the City Prosecutor of
Malabon recommended that petitioners be charged with two counts of
violation of Sec. 74 of the Corporation Code. On petition for Review before
the Department of Justice, the recommendation was reversed and set aside.
The case was then elevated before the Court of Appeals which ruled that the
Secretary of Justice committed grave abuse of discretion amounting to lack
or excess of jurisdiction in reversing the Resolutions of the Malabon City
Prosecutor. It found that private respondent can demand said examination as
a stockholder of both corporations and sufficiently raised legitimate questions
that necessitated inspection of the corporate books and records.
VI. ISSUE:
Whether or not petitioners may be held liable under Sec. 74
of the Corporation Code for refusing to allow private
respondent to examine the corporate books and records.
VII. RULING:
No, petitioners may not be held liable under Sec. 74 of the Corporation Code
for refusing to allow private respondent to examine the corporate books and
records.
The Court, contrary to private respondent’s argument, held that the
stockholder's right to inspect corporate books is not without limitations. It
explained 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 the case, petitioners specifically alleged that private respondent’s demand
for an inspection of the corporations' books is based on the latter's attempt in
bad faith at having his more than P165 million advances from the
corporations written off; that he is unjustly demanding that he be given the
office of Jason, or the Vice Presidency for Finance and Corporate Secretary;
that he is usurping rights belonging exclusively to the corporations; and his
attempts at coercing the corporations, their directors and officers into giving
in to his baseless demands involving specific corporate assets. The Court
found that these allegations are supported by official and other documents.
Hence, their refusal is justified on the grounds that private respondent was
not acting in good faith and for a legitimate purpose in making his demand for
inspection of the corporate books.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the Petition for Review on Certiorari is GRANTED. The
March 6, 2007 Decision and June 19, 2007 Resolution of the Court of
Appeals in CA-G.R. SP No. 94708 are REVERSED and SET ASIDE. The
July 26, 2005 and March 29, 2006 Resolutions of the Secretary of Justice
directing the withdrawal of the information filed against petitioners for
violation of Section 74 of the Corporation Code are accordingly
REINSTATED and AFFIRMED.
I. SHORT TITLE: PANTRANCO EMPLOYEES ASSOCIATION, INC.
V. NLRC, ET AL.,
II. FULL TITLE: Pantranco Employees Association (PEA-PTGWO)
and Pantranco Retrenched Employees Association
(PANREA) versus National Labor Relations
Commission (NLRC), Pantranco North Express, Inc.
(PNEI), Philippine National Bank (PNB), Philippine
National Bank-Management and Development
Corporation (PNB-Madecor), and Mega Prime
Realty and Holdings Corporation (Mega Prime) -
G.R. No. 170689, March 17, 2009, J. Nachura
III. TOPIC: Corporation Law – Corporation’s Distinct and
Separate Personality/Doctrine of Piercing the Veil of
Corporate Fiction
IV. STATEMENT OF FACTS:
Gonzales Family is the owner of two corporations – PNEI and Macris Realty
Corp. (Macris). PNEI is engaged in transportation services with its terminal
standing on the Pantranco Properties registered under the name of Macris.
Unfortunately, the family incurred huge financial losses prompting them to
transfer full ownership over PNEI and Macris to one of their creditors,
National Investment Development Corporation (NIDC), a subsidiary of PNB.
Macris subsequently became a new PNB subsidiary, the PNB-Madecor.
PNEI, on the other hand, was sold by NIDC to North Express Transport, Inc.
(NETI) which was then placed under sequestration by the PCGG. Eventually,
PNEI ceased its operation and various labor claims were commenced by its
former employees.
V. STATEMENT OF THE CASE:
Pursuant to the favorable decisions awarded to PNEI’s former employees,
the Labor Arbiter issued Writ of Execution commanding the NLRC Sherrifs to
levy on the assets of PNEI and also to proceed against PNB, PNB-Madecor,
and Mega Prime. The sherrifs then proceeded to levy upon the Pantranco
Properties. PNB, PNB-Madecor, and Mega Prime filed Motions to Quash the
Writ.
On September 10, 2002, the Labor Arbiter declared that the subject
Pantranco properties were owned by PNB-Madecor. It being a corporation
with a distinct and separate personality, its assets could not answer for the
liabilities of PNEI. Considering, however, that PNB-Madecor executed a
promissory note in favor of PNEI for P7,884,000.00, the writ of execution to
the extent of the said amount was concerned was considered valid. On
appeal, the same was affirmed by the NLRC and the Court of Appeals.
VI. ISSUE:
Whether or not the labor claims by the former employees of
PNEI may be enforced against PNB, PNB-Madecor, and
Mega Prime.
VII. RULING:
No, the labor claims by the former employees of PNEI may not be enforced
against PNB, PNB-Madecor, and Mega Prime.
The Court held that subject property is not owned by the judgment debtor,
that is, PNEI. Nowhere in the records was it shown that PNEI owned the
Pantranco properties. It stressed that PNB, PNB-Madecor, and Mega Prime
are corporations with personalities separate and distinct from that of PNEI
and absent any valid reason, their separate identities must be maintained
and they cannot be treated as one.
The Court also explained that merging the personality of PNEI with PNB
simply because the latter acquired the former is unwarranted. It reiterated the
rule that where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the
debts and liabilities of the transferor.
In this case, the Court also had the opportunity to reiterate the three (3) basic
areas where the doctrine of piercing the corporate veil applies, namely: 1)
defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
3) alter ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
Finding that none of the circumstances is present in the case, the Court ruled
that piercing the veil of corporate fiction is unwarranted.
VIII. DISPOSITIVE PORTION:
WHEREFORE, premises considered, the petitions are hereby DENIED for
lack of merit.
I. SHORT TITLE: SIAIN ENTERPRISES, INC. V. CUPERTINO
REALTY CORP.
II. FULL TITLE: Siain Enterprises, Inc. versus Cupertino Realty Corp.
and Edwin R. Catacutan – G.R. No. 170782, June
22, 2009, J. Nachura
III. TOPIC: Corporation Law – Separate Juridical Personality
IV. STATEMENT OF FACTS:
Siain Enterprises, Inc. (Siain) obtained a loan of P37,000,000.00 from
Cupertino Realty Corporation (Cupertino) covered by a promissory note
signed by their respective presidents, Cua Leleng (Leleng) and Wilfredo Lua
(Lua). As a security for the loan, a real estate mortgage over two (2) parcels
of land and other immovable, such as equipment and machineries was
executed by the petitioner. The parties then executed an amendment to
promissory note which provided for a seventeen percent (17%) interest per
annum on the loan. A second promissory note was signed in favor of
Cupertino for P160,000,000.00. Leleng signed it as maker, on behalf of
petitioner, and as co-maker, liable to Cupertino in her personal capacity. The
parties executed an amendment of real estate mortgage to reflect the total
loan of P197,000,000.00. However, Siain wrote Cupertino and repeatedly
demanded the release of the loan increase covered by the amendment of
real estate mortgage.
On the other hand, Cupertino argued that petitioner had long obtained the
proceeds of the loan and declared petitioner’s demand as made to abscond
from a just and valid obligation. As a result, Cupertino instituted extrajudicial
foreclosure proceedings over the properties subject of the amended real
estate mortgage. The auction sale was scheduled with respondent Notary
Public Edwin R. Catacutan commissioned to conduct the same.
V. STATEMENT OF THE CASE:
Petitioner Siain filed a complaint with prayer for a restraining order to enjoin
Notary Public Catacutan from proceeding with the public auction. The
Regional Trial Court (RTC) rendered a decision dismissing petitioner’s
complaint and ordering it to pay Cupertino actual and exemplary damages,
and attorney’s fees. On appeal, the Court of Appeals (CA) affirmed the
RTC’s ruling. Both the lower courts upheld the validity of the amended real
estate mortgage. In giving credence to Cupertino’s evidence that the
additional loan proceeds were received by Siain, the lower courts applied the
doctrine of piercing the veil of corporate fiction to preclude petitioner from
disavowing receipt of the additional loan and paying its obligation under the
amended real estate mortgage.
VI. ISSUE:
Whether or not the lower courts’ application of the doctrine of
piercing the veil of corporate fiction is proper.
VII. RULING:
Yes, the doctrine of piercing the veil of corporate fiction is properly applied.
As a general rule, a corporation will be deemed a separate legal entity until
sufficient reason to the contrary appears. The rule is not absolute. A
corporation’s separate and distinct legal personality may be disregarded and
the veil of corporate fiction pierced when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.
Cupertino presented overwhelming evidence that petitioner and its affiliate
corporations had received proceeds of the loan increase which was then
made the consideration for the Amended Real Estate Mortgage. That Siain,
Yuyek Manufacturing Corporation, Siain Transport are characterized by
oneness of operations vested in the person of their common president, Cua
Leleng, and unity in the keeping and maintenance of their corporate books
and records through their common bookkeeper. Thus, it was shown that
these corporations are mere alter-ego of their president Leleng.
VIII. DISPOSITIVE PORTION:
Wherefore, premises considered, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the
petitioner.
I. SHORT TITLE: LANUZA, JR. V. BF CORPORATION
II. FULL TITLE: Gerardo Lanuza, JR. and Antonio O. Obles versus
BF Corporation, Shangri-la Properties, Inc., Alfredo
C. Ramos, Rufo B. Colayco, Maximo G. LicaucoIII,
and Benjamin C. Ramos. – G.R. No. 174938,
October 1, 2014, J. Leonen
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
BF Corporation (BF) entered into agreements with Shangri-La Properties,
Inc. (Shangri-la) for the construction of a mall and a multilevel parking
structure along EDSA. Despite Shangri-la’s default in payment, it induced BF
to continue with the construction of the buildings using its own funds and
credit. Accordingly, Shangri-la misrepresented that it had funds to pay for its
obligation with BF, and that delay in payment was simply a matter of delayed
processing of the latter’s billing statements. BF eventually completed the
construction of the buildings, and Shangri-la took possession thereof while
still owing an outstanding balance to the former. Notwithstanding BF’s
repeated demands, Shangri-la refused to pay the balance owed to it.
V. STATEMENT OF THE CASE:
BF filed a collection suit with the Regional Trial Court (RTC) against Shangri-
la and the members of its board of directors. The RTC denied the motion to
suspend proceedings in view of BF’s failure to submit its dispute to
arbitration, in accordance with the arbitration clause in its contract filed by
Shangri-la. As a result, Shangri-la and some of its directors impleaded in the
case filed a petition for certiorari with the Court of Appeals (CA). The CA
granted the petition for certiorari and ordered the submission of the dispute to
arbitration. Aggrieved, BF filed a petition for review on certiorari before the
Court. The Court affirmed the CA’s decision, directing that the dispute be
submitted for arbitration.
In another issue, BF instituted an arbitration proceeding where both parties
failed to agree as to the law that should govern the said proceedings. The
trial court ordered the parties to conduct the proceedings in accordance with
Republic Act No. 876. Shangri-la filed an omnibus motion and BF filed an
urgent motion for clarification, both seeking to clarify the term, “parties” and
whether Shangri-la’s director should be included in the arbitration
proceedings. The trial court issued the order directing service order of
service of demands upon all defendants in BF’s complaint. Accordingly,
Shangri-la’s directors were interested parties who must also be included in
the arbitration proceedings to give them the opportunity to ventilate their side
of the controversy, safeguard their interest and fend off their respective
positions. Petitioners’ motion for reconsideration was denied. Thus, they filed
a petition for certiorari with the CA. However, their petition and subsequent
motion for reconsideration was both dismissed.
VI. ISSUE:
Whether or not petitioners should be made parties to the
arbitration proceedings, pursuant to the arbitration clause
provided in the contract between BF Corporation and
Shangri-la Properties to determine the distinction between
the latter’s personality and its board of directors.
VII. RULING:
Yes, petitioners may be compelled to submit to the arbitration proceedings in
accordance with their agreement, in order to determine if the distinction
between Shangri-la’s personality and their personalities should be
disregarded. A corporation is an individual with a personality that is distinct
and separate from other persons including its stockholders, officers,
directors, representatives, and other juridical entities. Because a
corporation’s existence is only by fiction of law, it can only exercise its rights
and powers through its directors, officers, or agents, who are all natural
persons.
A consequence of a corporation’s separate personality is that consent by a
corporation through its representatives is not consent of the representative,
personally. It obligations, incurred through official acts of its representatives,
are its own. A stockholder, director, or representative does not become a
party to a contract just because a corporation executed a contract through
that stockholder, director or representative. Hence, a corporation’s
representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations
and liabilities incurred on or in behalf of the corporation.
A submission to arbitration is a contract. As such, the Agreement, containing
the stipulation on arbitration, binds the parties thereto, as well as their
assigns and heirs. As a general rule, a corporation’s representative who did
not personally bind himself or herself to an arbitration agreement cannot be
forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. However, there are instances
when the distinction between personalities of directors, officers,
representatives and of the corporation are disregarded.
Piercing the corporate veil is warranted when the separate personality of a
corporation is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of
statutes, or confuse legitimate issues. It is also warranted in alter ego cases
where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
When corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one person,
such that when the corporation is adjudged liable, these persons, too
become liable as if they were the corporation. When there are allegations of
bad faith or malice against corporate directors or representatives, it becomes
the duty of courts or tribunals to determine if these persons and the
corporation should be treated as one. Without a trial, courts and tribunals
have no basis determining whether the veil of corporate fiction should be
pierced.
When the courts disregard the corporation’s distinct and separate personality
from its directors or officers, the courts do not say that the corporation, in all
instances and for all purposes, is the same as its directors, stockholders,
officers and agents. Courts merely discount the distinction and treat them as
one, in relation to a specific act, in order to extend the terms of the contract
and the liabilities for all damages to erring corporate officials who participated
in the corporation’s illegal acts.
In this case, the Arbitral Tribunal rendered a decision finding that BF failed to
prove the existence of circumstances that render petitioner’s and the other
director’s solidarily liable.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is DENIED. The Court of Appeals’s decision of May
11, 2006 and resolution of October 5, 2006 are AFFIRMED.
I. SHORT TITLE: HACIENDA CATAYWA V. LOREZO
II. FULL TITLE: Hacienda Cataywa/Manuel Villanueva, owner,
Joemarie Villanueva, manager, Mancy and Sons
Enterprises, Inc. versus Rosario
Lorezo, Respondent. - G.R. No. 179640, March 18,
2015, J. Peralta
III. TOPIC: Piercing the Veil of Corporate Fiction
IV. STATEMENT OF FACTS:
Rosario Lorezo was informed by the Social Security System (SSS) Western
Visayas Group that she cannot avail the retirement benefits since she has
only paid for 16 months, which is 104 months short of the minimum
requirement of 120 months to be entitled to the benefit. Her employment
under Hacienda Cataywa could not be confirmed as well because Manuel
Villanueva was permanently residing in Manila and Joemarie Villanueva
denied having managed the farm. She was also advised of her options:
continue paying contributions as voluntary member; request for refund; leave
her contributions in-trust with the System or file a petition before the Social
Security Commission (SSC) so that liabilities, if any, of her employer may be
determined.
V. STATEMENT OF THE CASE:
Lorezo filed her Amended Petition dated September 30, 2003, before the
SSC. She alleged that she was employed as laborer in Hda. Cataywa
managed by Jose Marie Villanueva in 1970 but was reported to the SSS only
in 1978. She alleged that SSS contributions were deducted from her wages
from 1970 to 1995, but not all were remitted to the SSS which, subsequently,
caused the rejection of her claim. She also impleaded Talisay Farms, Inc. by
virtue of its Investment Agreement with Mancy and Sons Enterprises. She
also prayed that the veil of corporate fiction be pierced since she alleged that
Mancy and Sons Enterprises and Manuel and Jose Marie Villanueva are one
and the same.
Petitioners Manuel and Jose Villanueva refuted in their answer, the allegation
that not all contributions of respondent were remitted. Petitioners alleged that
all farm workers of Hda. Cataywa were reported their contributions were duly
paid and remitted to SSS. It was the late Domingo Lizares, Jr. who managed
and administered the hacienda. While, Talisay Farms, Inc. filed a motion to
dismiss on the ground of lack of cause of action in the absence of an
allegation that there was an employer-employee relationship between Talisay
Farms and respondent.
The SSC rendered its Resolution1 finding Lorezo as a regular employee of
Hda. Cataywa, ordering the petitioners to pay all delinquent contributions
1 WHEREFORE, PREMISES CONSIDERED, this Commission finds, and so holds,
that Rosario M. Lorezo was a regular employee subject to compulsory coverage of
Hda. Cataywa/Manuel Villanueva/ Mancy and Sons Enterprises, Inc. within the
period of 1970 to February 25, 1990. In view thereof, the aforenamed respondents
are hereby ordered to pay jointly and severally, within thirty (30) days from receipt
within the proven employment period, and ordering SSS to pay Lorezo her
retirement benefit.
Petitioners filed a Motion for Reconsideration before the SSC which was
denied. Aggrieved, it elevated the case to the CA where the case was
dismissed outrightly due to technicalities. Following the denial of petitioner’s
Motion for Reconsideration of the CA, they filed with the Supreme Court a
petition for review on certiorari.
VI. ISSUE:
Whether or not the SSC committed reversible error in finding
that Mancy & Sons Enterprises, Inc. and Manuel Villanueva
are one and the same
VII. RULING:
Yes. SSC committed reversible error in finding that Mancy & Sons
Enterprises, Inc. and Manuel Villanueva are one and the same.
This Court agrees with the petitioners that there is no need to pierce the
corporate veil. Respondent failed to substantiate her claim that Mancy and
Sons Enterprises, Inc. and Manuel and Jose Marie Villanueva are one and
the same. She based her claim on the SSS form wherein Manuel Villanueva
appeared as employer. However, this does not prove, in any way, that the
corporation is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate
issues, warranting that its separate and distinct personality be set aside.
Also, it was not alleged nor proven that Mancy and Sons Enterprises, Inc.
functions only for the benefit of Manuel Villanueva, thus, one cannot be an
alter ego of the other.
While a corporation may exist for any lawful purpose, the law will regard it as
an association of persons or, in case of two corporations, merge them into
hereof, all delinquent contributions within the proven employment period computed in
accordance with the then prevailing minimum wage (at 11 months per year) in the
amount of P8,293.90, the 3% per month penalty on the delayed payment of
contributions in the amount of P59,786.10 (computed as of September 9, 2005),
pursuant to Section 22 of the SS Law and the damages in the amount of P32,356.21
for misrepresentation of the real date of employment, pursuant to Section 24 (b) of
the said statute.
The SSS, on the other hand, is ordered to pay (subject to existing rules and
regulations) petitioner Rosario M. Lorezo her retirement benefit, upon the filing of the
claim therefor, and to inform this Commission of its compliance herewith.
SO ORDERED.
one, when its corporate legal entity is used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of corporate fiction. The doctrine
applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the
mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
To disregard the separate juridical personality of a corporation, the
wrongdoing must be established clearly and convincingly. It cannot be
presumed.
This Court has cautioned against the inordinate application of this doctrine,
reiterating the basic rule that "the corporate veil may be pierced only if it
becomes a shield for fraud, illegality or inequity committed against a third
person.
The Court has expressed the language of piercing doctrine when applied to
alter ego cases, as follows: Where the stock of a corporation is owned by
one person whereby the corporation functions only for the benefit of such
individual owner, the corporation and the individual should be deemed the
same.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition for review on certiorari dated September 28,
2007 of petitioners Hda. Cataywa, Manuel Villanueva, et al. is
hereby DENIED. Consequently, the resolution by the Social Security
Commission is hereby AFFIRMED with MODIFICATIONS that the delinquent
contributions should be computed as six months per year of service, and the
case against Manuel and Jose Marie Villanueva be DISMISSED. SO
ORDERED.
I. SHORT TITLE: MSCI-NACUSIP V. NATIONAL WAGES AND
PRODUCTIVITY COMMISSION
II. FULL TITLE: MSCI-NACUSIP Local Chapter versus National
Wages and Productivity Commission and Monomer
Sugar Central, Inc. - G.R. No. 125198, March 3,
1997, J. Hermosisima, Jr.
III. TOPIC: Paid-up capital of corporations
IV. STATEMENT OF FACTS:
On January 11, 1990, Asturias Sugar Central, Inc. (ASCI, for brevity),
executed a Memorandum of Agreement with Monomer Trading Industries,
Inc. (MTII, for brevity), whereby MTII shall acquire the assets of ASCI by way
of a Deed of Assignment provided that an entirely new organization in place
of MTII shall be organized, which new corporation shall be the assignee of
the assets of ASCI.
By virtue of this Agreement, a new corporation was organized and
incorporated on February 15, 1990 under the corporate name Monomer
Sugar Central, Inc. or MSCI, the private respondent herein.
On January 16, 1991, MSCI applied for exemption from the coverage of
Wage Order No. RO VI-01 issued by the Board on the ground that it is a
distressed employer. In support thereto, MSCI submitted its audited financial
statements and income tax returns duly stamped "received" by the Bureau of
Internal Revenue (BIR) and the Securities and Exchange Commission (SEC)
for the period beginning February 15, 1990 and ending August 31, 1990,
including the quarterly financial statements and income tax returns for the
two quarters ending November 30, 1990 and February 28, 1991.
MSCI-NACUSIP Local Chapter (Union, for brevity), in opposition, maintained
that MSCI is not distressed; that MSCI applicant has not complied with the
requirements for exemption; and that the financial statements submitted by
MSCI do not reflect the true and valid financial status of the company, and
that the paid-up capital would have been higher than P5 million and thus
impairment would have been lower than 25% had the pre-organization
agreement between ASCI and MTII been complied with.
After hearings on the application for exemption, the Board denied MSCI’s
application based on the finding that applicant's losses of P3,400,738.00 for
the period February 15, 1990 to August 31, 1990 constitute an impairment of
only 5.25% of its paid-up capital of P64,688,528.00, cannot be said to be
sufficient to meet the required 25% in order to qualify for the exemption, as
provided in NWPC Guidelines No. 01, Series of 1992 entitled REVISED
GUIDELINES ON EXEMPTION FROM COMPLIANCE WITH THE
PRESCRIBED WAGE/COST OF LIVING ALLOWANCE INCREASES
GRANTED BY THE REGIONAL TRIPARTITE WAGES AND
PRODUCTIVITY BOARDS2.
2 "SECTION 3. CRITERIA FOR EXEMPTION
The following criteria shall be used to determine whether the applicant-
establishment is qualified for exemption:
xxx xxx xxx
3. For Distressed Establishments:
a. In the case of a stock corporation, partnership, single proprietorship, non-stock,
non-profit organization or cooperative engaged in a business activity or charging fees
for its services
V. STATEMENT OF THE CASE:
MSCI filed a Motion for Reconsideration which was denied by the Board. An
appeal was raised before the respondent Commission which reversed and
set aside the orders of the Board and granted MSCI’s application for
exemption for a period of one year. A petition for certiorari under Rule 65 was
filed by petitioners before the Supreme Court.
VI. ISSUE:
What is the correct paid-up capital of MSCI for the pertinent
period covered by the application for exemption P5 million
or P64,688,528.00?
VII. RULING:
The correct paid-up capital is P5 million.
By express provision of Section 13, paid-up capital is that portion of the
authorized capital stock which has been both subscribed and paid. To
illustrate, where the authorized capital stock of a corporation is worth P1
million and the total subscription amounts to P250,000.00, at least 25% of
this amount, namely, P62,500.00 must be paid up per Section 13. The
latter, P62,500.00, is the paid-up capital or what should more accurately be
termed as "paid-up capital stock."
In the case under consideration, there is no dispute, and the Board even
mentioned in its August 17, 1993 Decision, that MSCI was organized and
incorporated on February 15, 1990 with an authorized capital stock of P60
million, P20 million of which was subscribed. Of the P20 million subscribed
capital stock, P5 million was paid-up. This fact is only too glaring for the
Board to have been misled into believing that MSCI's paid-up capital stock
was P64 million plus and not P5 million.
a.1 When accumulated losses for the last 2 full accounting periods and interim period,
if any, immediately preceding the effectivity of the Order have impaired by at least 25
percent the:
Paid-up capital at the end of the last full accounting period preceding the effectivity of
the Order, in the case of corporations:
Total invested capital at the beginning of the last full accounting period preceding the
effectivity of the Order in the case of partnerships and single proprietorships.
xxx xxx xxx"

Not all funds or assets received by the corporation can be considered paid-
up capital, for this term has a technical signification in Corporation Law. Such
must form part of the authorized capital stock of the corporation, subscribed
and then actually paid up.
The Commission aptly observed that the loans and advances of MTII to
respondent MSCI cannot be treated as investments unless the
corresponding shares of stocks are issued. But as it turned out, such loans
and advances were in fact treated as liabilities of MSCI to MTII as shown in
its 1990 audited financial statements. The treatment by the Board of these
loans as part of MSCI's capital stock without satisfying certain mandatory
requirements is proscribed under Section 38 of the Corporation Code.
The requirements set forth in Section 38 of the Corporation Code, which are
condition precedents before the capital stock of a corporation may be
increased, were unquestionably not observed in this case. Henceforth, the
paid-up capital stock of MSCI for the period covered by the application for
exemption still stood at P5 million. The losses, therefore, amounting
to P3,400,738.00 for the period February 15, 1990 to August 31, 1990
impaired MSCI's paid-up capital of P5 million by as much as 68%. Likewise,
the losses incurred by MSCI for the interim period from September 1, 1990 to
November 30, 1990, as found by the Commission, per MSCI's quarterly
income statements, amounting to P13,554,337.33 impaired the company's
paid-up capital of P5 million by a whopping 271.08%,[8] more than enough to
qualify MSCI as a distressed employer. Respondent Commission thus acted
well within its jurisdiction in granting MSCI full exemption from Wage Order
No. RO VI-01 as a distressed employer.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DISMISSED. Costs against petitioner. SO
ORDERED.
I. SHORT TITLE: SAMAHAN NG OPTOMETRISTS V. ACEBEDO
II. FULL TITLE: Samahan ng Optometrists sa Pilipinas versus
Acebedo International Corporation and the Hon.
Court of Appeals - G.R. No. 117097, March 21,
1997, J. Hermosisima, Jr.
III. TOPIC: Incorporation and Organization of Private
Corporations
IV. STATEMENT OF FACTS:
On February 22, 1991, Acebedo International Corporation (Acebedo) filed an
application with the Office of the Mayor of Candon, Ilocos Sur, for the
issuance of a permit for the opening and operation of a branch of the
Acebedo Optical in that municipality. The application was opposed by the
Samahan ng Optometrists sa Pilipinas (SOP) which contended that
respondent is a juridical entity not qualified to practice optometry. Acebedo
filed its answer, arguing it is not the corporation, but the optometrists
employed by it, who would be practicing optometry.
V. STATEMENT OF THE CASE:
Mayor of Candon created a committee, composed of public respondents
Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio de Peralta, to pass
on Acebedo’s application. The committee rendered a decision denying the
application for a mayor's permit to operate a branch in Candon and ordering
and to close its establishment within fifteen (15) days from receipt of the
decision.
Acebedo was ordered to close its establishment within ten (10) days from
receipt of the order. Thus, Acebedo filed with the Court of Appeals a petition
for certiorari; the CA ruled that the corporation is not an optical clinic. Nor is it
— but rather the optometrists employed by it who are — engaged in the
practice of optometry and indeed, the Optometry Law does not prohibit
corporations, like Acebedo, from employing licensed optometrists.
Private respondent does not deny that it employs optometrists whose role in
the operations of its optical shops is to administer the proper eye
examination in order to determine the correct type and grade of lenses to
prescribe to persons purchasing the same from private respondent's optical
shops. Petitioners vehemently insist that in so employing said optometrists,
private respondent is in effect itself practicing optometry. Such practice,
petitioners conclude, is in violation of RA. No. 1998.
VI. ISSUE:
Whether or not Acebedo violates R.A. No. 1998 and the
Corporation Code of the Philippines when it employs
optometrists to engage in the practice of optometry under its
name and for its behalf.
VII. RULING:
No. The fact that private respondent hires optometrists who practice their
profession in the course of their employment in private respondent's optical
shops, does not translate into a practice of optometry by private respondent
itself. Private respondent is a corporation created and organized for the
purpose of conducting the business of selling optical lenses or eyeglasses,
among others. The clientele of private respondent understably, would largely
be composed of persons with defective vision and thus need the proper
lenses to correct the same and enable them to gain normal vision. The
determination of the proper lenses to sell to private respondent's clientele
entails the employment of optometrists who have been precisely trained for
that purpose. Private respondent's business is not the determination itself of
the proper lenses needed by persons with defective vision. Private
respondent's business, rather, is the buying and importing of eyeglasses and
lenses and other similar or allied instruments from suppliers thereof and
selling the same to consumers. All told, there is no law that prohibits the
hiring by corporations of optometrists or considers the hiring by corporations
of optometrists as a practice by the corporation itself of the profession of
optometry.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant petition is hereby DISMISSED.
I. SHORT TITLE: SECURITY BANK V. CUENCA
II. FULL TITLE: Security Bank and Trust Company,
Inc., petitioner, versus Rodolfo M.
Cuenca, respondent - G.R. No. 138544, October 3,
2000, J. Panganiban
III. TOPIC: Board of Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Sta. Ines Melale Corporation (‘Sta. Ines’) is a corporation engaged in logging
operations. It was a holder of a Timber License Agreement issued by the
DENRO. Security Bank and Trust Co. granted appellant Sta. Ines a credit
line in the amount of (P8,000,000.00) with a term until November 30, 1981 to
assist the latter in meeting the capitalization requirements of its logging
operations. To secure payment, it executed a chattel mortgage over some of
its machineries and equipment. As an additional security, its President and
Chairman of the Board of Directors Rodolfo Cuenca, executed an Indemnity
agreement in favor of Security Bank whereby he bound himself jointly and
severally with Sta. Ines.
Cuenca resigned as President and Chairman of the Board of Directors of
defendant-appellant Sta. Ines and were sold at a public auction to Adolfo
Angala. Before and after this, Sta Ines availed of its credit line. Sta Ines
encountered difficulty in making the amortization payments on its loans and
requested SBTC for a completere structuring of its indebtedness.
Security Bank (SBTC) accommodated SIMC’s request and signified its
approval, wherein SBTC and Sta. Ines, without notice to or the prior consent
of Cuenca, agreed to restructure the past due obligations of Sta. Ines.
V. STATEMENT OF THE CASE:
Appellant SIMC defaulted in the payment of its restructured loan obligations
to SBTC despite demands made upon appellant SIMC and CUENCA. Thus,
SBTC filed a complaint for collection of sum of money on 14 June 1993,
resulting after trial on the merits in a decision by the court a quo, x x x from
which Cuenca appealed.
VI. ISSUE:
Whether or not the 1989 Loan Agreement novated the
original credit accommodation and Cuenca’s liability under
the Indemnity Agreement.
VII. RULING:
YES. The 1989 Loan Agreement extinguished the obligation obtained under
the 1980 credit accomodation. This is evident from its explicit provision to
"liquidate" the principal and the interest of the earlier indebtedness. Several
incompatibilities between the 1989 Agreement and the 1980 original
obligation demonstrate that the two cannot coexist. While the 1980 credit
accommodation had stipulated that the amount of loan was not to exceed ₱8
million, the 1989 Agreement provided that the loan was ₱12.2 million. The
periods for payment were also different.
Also noteworthy is that Cuenca did not impliedly waive his consent to his for
the novated credit accommodation. While Cuenca held himself liable for the
credit accommodation or any modification thereof, such clause should be
understood in the context of the ₱8 million limit and the November 30, 1981
term. It did not give the bank or Sta. Ines any license to modify the nature
and scope of the original credit accommodation, without informing or getting
the consent of respondent who was solidarily liable.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
I. SHORT TITLE: PNCC SKYWAY WORKERS ORGANIZATION V.
PNCC SKYWAY
II. FULL TITLE: PNCC Skyway Traffic Management and Security
Division Workers Organization (PSTMSDWO),
represented by its President, Rene Soriano versus
PNCC Skyway Corporation - G.R. No. 171231,
February 17, 2010. J. Peralta
III. TOPIC: Authority of the Union President to sign the
verification and certification against forum shopping
IV. STATEMENT OF FACTS:
PNCC Workers Organization (The Union/Petitioner) and the PNCC Skyway
(The employer/respondent) entered into their collective bargaining
agreement. Under the said agreement, the employer shall schedule the
vacation leaves for the employees, taking into consideration their
preferences of schedule. Also in the agreement was that the employees shall
bear the expenses of the renewal of their license as security personnel.
When the employer issued a memorandum of the schedule of the vacation
leaves, the employees assailed the validity of its implementation. The
employees contended that they should have the option in scheduling and
whether to use it or let it be converted to cash at the end of the year. Another
contention was that the employer should be the one to bear the expenses for
the renewal of the licenses of the employees. The parties maintained their
disagreement.
V. STATEMENT OF THE CASE:
Because of the disagreement, the matter was brought to the NCMB. The
NCMB ruled in favor of the petitioners. It was brought to the CA via certiorari.
The CA annulled the decision of the NCMB. Then, the petitioners appealed it
in the SC. The respondent raises the procedural defect of the petition, that
the Union President who signed the verification and certification against
forum shopping did not have the authority to do so for the Union. The
respondent said that the board resolution authorizing the president was
issued in June 2006, while the petition was filed in February 2006.
VI. ISSUE:
Whether or not the late board resolution authorizing the
President is fatal to the petition.
VII. RULING:
In this case, it is not. The petitioner’s June 2006 board resolution was a mere
reiteration of the authority given to the union president which was given in
October 2005. The resolution provides that:
“WHEREAS, in a meeting duly called for October 2005, the Union decided to
file a Motion for Reconsideration and if the said motion be denied, to file a
petition before the Supreme Court”
Thus, the union president, representing the union, was clothed with authority
to file the petition on February 2006. The rule on certification against forum
shoping has also been relaxed by the Supreme Court in a number of cases
under justifiable circumstances. The purpose of certification against forum
shopping is that the party litigant shall not be allowed to pursue simultaneous
remedies in different fora. In the case at bar, the SC ruled that the union
president has sufficient authority to sign the verification and certification
against forum shopping for the following reasons: First, the resolution in June
2006 was a mere reiteration of the October 2005 authority given via board
resolution, Second, the union president is in a position to verify the
truthfulness and correctness of the allegations in the petition, and Third,
assuming the the union president Soriano has no authority to file the petition
in February 2006, the passing of the board resolution in June 2006
authorizing him to represent the union is deemed a ratification of his prior
execution, on Feberuary 2006, of the verification and certificate against
forum shopping, thus curing any defects thereof. Ratification in agency is the
adoption or confirmation by one person of an act performed on his behalf by
another without authority. As to the merits of the case, the SC partially
granted the petition. The vacation leave rule in the CBA is clear, but the
bearing of expenses on renewal of employees’ licenses must be upon the
employer.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is PARTIALLY GRANTED.
I. SHORT TITLE: MAJORITY STOCK HOLDERS OF RUBY
CORPORATION V. MIGUEL LIM
II. FULL TITLE: Majority Stockholders of Ruby Industrial corporation
versus Miguel Lim, in his personal capacity as
Stockholder of Ruby Industrial Corporation and
representing the Minority Stockholders of Ruby
Industrial Corporation and the Management
Committee of Ruby Industrial Corporation - G.R.
No. 165887, June 6, 2011. J. Villarama
III. TOPIC: Increasing the subscription of the Authorized Capital
Stocks; Extension of Corporate term; Pre-emptive
right
IV. STATEMENT OF FACTS:

In 1983, Ruby Corporation is already experiencing severe financial losses. It
filed a petition for suspension of payments with the Securities and Exchange
Commission which granted it. A management committee was formed to
manage and control Ruby Corp. and study and evaluate a rehabilitation plan.
2 rehabilitation plans were submitted, one from Benhar (by the majority
stockholders), and another is the Alternative (by the minority).
V. STATEMENT OF THE CASE:
In 1988, the Benhar rehabilitation plan was approved. It was appealed by the
minority thru Lim. Then the SEC granted injunction to the enforcement of the
plan. It was appealed to the CA, up to the SC, and the SC upheld the
injunction. A revised Benhar plan was again presented but was contested by
the minority and the unsecured creditors. But still, the majority executed the
Benhar plan. Part of it is the infusion of capital which increased the
subscribed shares in favor of the majority. The minority argued that they
were not notified when the 1991 meeting for the implementation of the
increase of subscription. In 1996, Lim received a notice of stockholders
meeting which include matters of extending the corporate term for another 25
years (which is supposed to end in 1997) and election of the directors. In
1998, the revised Benhar plan was nullified by the court.
VI. ISSUES:
1. Whether or not the increase of subscription was valid.
2. Whether or not the extension of the corporate term is
valid.
RULING:
1. No. The issuance of unissued shares out of the original authorized capital
stock pursuant to a rehabilitation plan, the propriety and validity of which was
on question by the minority stockholders and subsequently disapproved by
the court, amounts to unlawful dilution of the minority stockholders share. It
also violated the pre-emptive right of the minority for not having been given
time to exercise it. The SC said also that even assuming that the pre-emptive
right was denied, the issuance of shares may still be questioned 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.
2. No. Among the requirements for extension of corporate term is a vote of
2/3 of the Outstanding Capital Stock. The ratification by the majority
stockholders of the board resolution for the extension was seriously disputed
by the minority stockholders (The 2/3 OCS was obtained by the majority only
because of their wrongful increase of subscribed shares under the invalid
subscription). The notice and quorum requirement were insufficient and
doubtful. No extension was validly made. The term has expired, which calls
for the liquidation of the corporation.
VIII. DISPOSITIVE PORTION:
Wherefore, the petition is denied. The SEC is ordered to transfer the case to
the RTC, which is directed to supervise the liquidation of the Ruby Corp.
I. SHORT TITLE: METROPOLITAN BANK AND TRUST COMPANY
V. CENTRO DEVELOPMENT CORPORATION,
ET AL.
II. FULL TITLE: Metropolitan Bank and Trust Company versus
Centro Development Corporation, Chongking
Kehyeng, Manuel Co Kehyeng and Quirino
Kehyeng - G.R. No. 180974, June 13, 2012, J.
Sereno
III. TOPIC: Corporation Law – Powers of the Corporation
IV. STATEMENT OF FACTS:
On 20 March 1990, in a special meeting of the board of directors of
respondent Centro Development Corporation (Centro), its president Go Eng
Uy was authorized to mortgage its properties and assets to secure the
medium-term loan of ₱84 million of Lucky Two Corporation and Lucky Two
Repacking. The properties and assets consisted of a parcel of land with a
building and improvements located at Salcedo St., Legaspi Village, Makati
City, and covered by Transfer Certificate of Title Nos. 139880 and139881.
This authorization was subsequently approved on the same day by the
stockholders. Maria Jacinta V. Go, the corporate secretary, issued a
Secretary’s
Certificate.
On 21 March 1990, respondent Centro, represented by Go Eng Uy, executed
a Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands.
Under the MTI, respondent Centro, together with its affiliates Lucky Two
Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to
obtain from time to time loans and other credit accommodations from certain
creditors for corporate and other business purposes. To secure these
obligations from different creditors, respondent Centro constituted a
continuing mortgage on all or substantially all of its properties and assets
enumerated above unto and in favor of BPI, the trustee. Should respondent
Centro or any of its affiliates fail to pay their obligations when due, the trustee
shall cause the foreclosure of the mortgaged property.

On 31 March 1993, Centro and BPI amended the MTI to allow an additional
loan of ₱36million and to include San Carlos Milling Company, Inc. (San
Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two
Repacking. Then, on 28 July 1994, Centro and BPI again amended the MTI
for another loan of ₱24 million, bringing the total obligation to ₱144 million.
Meanwhile, during the period April 1998 to December 1998, San Carlos
obtained loans in the total principal amount of ₱812,793,513.23 from
petitioner Metrobank. San Carlos failed to pay these outstanding obligations
despite demand. Thus, petitioner, as trustee of the MTI, enforced the
conditions thereof and initiated foreclosure proceedings, denominated as
Foreclosure No. S-04-11, on the mortgaged properties. On 22 June 2000,
petitioner Metrobank filed a Petition for Extrajudicial Foreclosure of Mortgage
with the executive judge of the Regional Trial Court (RTC) of Makati City.
Petitioner alleged that the total amount of the Promissory Notes that San
Carlos executed in favor of the former amounted to ₱812,793,513.23. As of
30 April 2000, the total outstanding obligation, inclusive of interests and
penalties, was ₱1,178,961,181.45.
Before the scheduled foreclosure date, on 3 August 2000, respondents
herein filed a Complaint for the annulment of the 27 September 1994 MTI
with a prayer for a temporary restraining order (TRO) and preliminary
injunction at Branch 138 of the RTC of Makati City. Docketed as Civil Case
No. 00-942, the Complaint was against petitioner, Go Eng Uy, Alexander V.
Go, Ramon V. Go, Maria Jacinta Go and Enriqueto Magpantay.
The bone of contention in Civil Case No. 00-942 was that since the
mortgaged properties constituted all or substantially all of the corporate
assets, the amendment of the MTI failed to meet the requirements of Section
40 of the Corporation Code on notice and voting requirements. Under this
provision, in order for a corporation to mortgage all or substantially all of its
properties and assets, it should be authorized by the vote of its stockholders
representing at least 2/3 of the outstanding capital stock in a meeting held for
that purpose. Furthermore, there must be a written notice of the proposed
action and of the time and place of the meeting. Thus, respondents alleged,
the representation of Go Eng Uy that he was authorized by the board of
directors and/or stockholders of Centro was false.
After trial on the merits, the RTC dismissed the Complaint. On 30 August
2007, the CA promulgated the assailed Decision.
V. STATEMENT OF THE CASE:
President of Go Centro Development Corporation (Centro), Eng Uy was
authorized to mortgage its properties and assets to secure the medium-term
loan. Centro and BPI amended the MTI to allow an additional loan and to
include San Carlos Milling Company, Inc., as a borrower in addition to
Centro, Lucky Two Corp. and Lucky Two Repacking. San Carlos failed to
pay these outstanding obligations hence Metrobank as the successor trustee
initiated foreclosure of the mortgaged executed for the loan. Before the
scheduled foreclosure date, respondents herein filed a Complaint for the
annulment of the 27 September 1994 MTI with a prayer for a temporary
restraining order (TRO) and preliminary injunction at Branch 138 of the RTC
of Makati City. RTC dismissed the Complaint. It held that the evidence
presented by respondents was insufficient to support their claim that there
were no meetings held authorizing the mortgage of Centro’s properties.
Respondents subsequently filed an appeal with the CA they filed an Urgent
Motion for the Issuance of a Temporary Restraining Order and Writ of
Preliminary Injunction seeking to restrain petitioner, the clerk of court, the ex-
off officio sheriff of the RTC, and their agents from foreclosing and selling at
public auction on the mortgaged properties. Respondents Centro and San
Carlos later filed a Complaint and prayed for the nullification of the
foreclosure proceedings and prayed for the issuance of a TRO/injunction.
The CA promulgated the assailed Decision in CA-G.R.
CV No. 80778 and found that only a quorum was present during the
stockholders’ meeting on 12 August 1994. The appellate court thus held that
the 2/3 vote required by Section 40 was not met. It ruled that the minority
stockholders were deprived of their right to dissent from or to approve the
proposed mortgage, considering that they had not been notified in writing of
the meeting in which the corporate action was to be discussed. Hence this
present petition.
VI. ISSUE:
Whether the requirements of Section 40 of the Corporation
Code was complied with in the execution of the MTI.
VII. RULING:
No. The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V.
Go reads as follows:
“I, JACINTA V. GO, Corporate Secretary of CENTRO
DEVELOPMENT CORPORATION, a corporation duly
organized and existing under our laws with principal
office located at the 2nd Floor Centro Building, 180
Salcedo St., Legaspi Village, Makati, Metro Manila, do
hereby certify that during a special meeting of the
board of Directors of the Corporation held at its main
office in Makati, Metro Manila on August 12, 1994, at
3:00 p.m., at which meeting a quorum was present,
the following resolution was approved and adopted:
Resolution No. 005, s. 1994
APPOINTING METROBANK TRUST BANKING
GROUP AS THE NEW TRUSTEE FORTHE
EXISTING MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in
connection with the existing Mortgage Trust Indenture
of real estate property covered by Transfer Certificate
of Title Nos. 139880 and 139881 situated at 180
Salcedo St., Legaspi Village, Makati, Metro Manila,
with an area of 1,608 square meters more or less, the
Corporation be [sic], as itis hereby authorized, to
appoint Metrobank Trust Banking Group (Metrobank)
as the new trustee for the existing mortgage trust
indenture presently held by the Bank of the Philippines
Islands;
RESOLVED FURTHER, that the President, Mr. Go
Eng Uy be, as he is hereby, authorized and
empowered to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in
behalf of the Company which are necessary and
pertinent thereto;
RESOLVED FINALLY, that any resolution or
resolutions heretofore adopted by this Board,
inconsistent with the provisions hereof be, as they
hereby are amended and/or revoked accordingly.”
That at the meeting of the Stockholders of said
corporation held on August 12, 1994 at4:00 p.m., at
which meeting a quorum was present and acting
throughout, the following resolution was unanimously
approved:
“STOCKHOLDERS RESOLUTION
RESOLVED, that the stockholders approve, ratify and
confirm, as they have hereby approved, ratified and
confirmed, the board resolution dated August 12, 1994
appointing Metrobank Trust Banking Group as the new
trustee, presently held by the Bank of the Philippine
Islands, for the existing MTI of real estate property
covered by Transfer Certificate of Title Nos. 139880
and 139881 situated at 180 Salcedo St., Legaspi
Village, Makati, Metro Manila with an area of 1,608
square meters, and that the President, Mr. Go Eng Uy,
to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in
behalf of the Company which are necessary and
pertinent thereto; xxx.”
Reading carefully the Secretary’s Certificate, it is clear that the main purpose
of the directors Resolution was to appoint petitioner as the new trustee of the
previously executed and amended MTI. Going through the original and the
revised MTI, the Court find no substantial amendments to the provisions of
the contract. We agree with petitioner that the act of appointing a new trustee
of the MTI was a regular business transaction. The appointment necessitated
only a decision of at least a majority of the directors present at the meeting in
which there was a quorum, pursuant to Section 25 of the Corporation Code.
The second paragraph of the directors Resolution No. 005, s. 1994, which
empowered Go Eng Uy to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company
which are necessary and pertinent thereto, must be construed to mean that
such power was limited by the conditions of the existing mortgage, and not
that a new mortgage was thereby constituted Moreover, it is worthy to note
that respondents do not assail the previous MTI executed with BPI. They do
not question the validity of the mortgage constituted over all or substantially
all of respondent Centro’s assets pursuant to the 21 March 1994 MTI in the
amount of ₱84 million. Nor do they question the additional loans increasing
the value of the mortgage to ₱144 million; or the use of Centros properties as
collateral for the loans of San Carlos, Lucky Two Corporation, and Lucky
Two Repacking.
Thus, Section 40 of the Corporation Code finds no application in the present
case, as there was no new mortgage to speak of under the assailed directors
Resolution. Nevertheless, while the Court uphold the validity of the
stockholders Resolution appointing Metrobank as successor-trustee, this is
not to say that we uphold the validity of the extrajudicial foreclosure of the
mortgage.
VIII. DISPOSITIVE PORTION:
WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY
GRANTED. The Mortgage Trust Indenture is declared VALID. Nonetheless,
for reasons stated herein, the Decision of the Court of Appeals in CA-G.R.
CV No. 80778, declaring the foreclosure proceedings in Foreclosure No. S-
04-011 over TCT Nos. 139880 and139881 of no force and effect, is
AFFIRMED. Likewise, the cancellation of the Certificates of Title in the name
of petitioner Metropolitan Bank and Trust Company and the denial of the
payment of damages are also AFFIRMED.
I. SHORT TITLE: BLBT V. BITANGA
II. FULL TITLE: Batangas Laguna Tayabas Bus Company, Inc.,
Dolores A. Potenciano, Max Joseph A. Potenciano,
Mercedelin A. Potenciano, and Delfin C. Yorro
versus Benjamin M. Bitanga, Renato L. Leveriza,
Laureano A. Siy, James A. Olayvar,
Eduardo A. Azucena, Monina Grace S. Lim, and
Gemma M. Santos - G. R No. 137934, August 10,
2001, J. Ynares-Santiago
III. TOPIC: Corporation Law – Stocks and Stockholders
IV. STATEMENT OF FACTS:
The Potencianos, Delfin C. Yorro, and Maya Industries, Inc., entered
into a Sale and Purchase Agreement, whereby, they sold to BMB Property
Holdings, Inc represented by its President, Benjamin Bitanga, their shares of
stock in BLTB representing 47.98% of the total outstanding capital stock of
BLTB. Barely a month after the Agreement was executed, Bitanga and
Monina Grace Lim were elected as new directors. During a meeting of the
Board, the newly elected directors scheduled the annual stockholders’
meeting. Before the scheduled meeting, Michael Potenciano wrote Bitanga,
requesting for a postponement of the stockholders’ meeting due to the
absence of a thirty-day advance notice. However, there was no response on
whether or not the request for postponement was favorably acted upon. On
the scheduled date of the meeting, a notice of postponement of the
stockholders’ meeting was published in the Manila Bulletin.
In as much as there was no notice of postponement prior to that, a total of
286 stockholders arrived and attended the meeting. The majority of the
stockholders present rejected the postponement and voted to proceed with
the meeting. The Potenciano group was re-elected to the Board of Directors,
however, the Bitanga group refused to relinquish their positions and
continued to act as directors and officers of BLTB. The Bitanga group filed
with the SEC a complaint for Damages which, however, was denied.
Likewise, the Potenciano group filed a Complaint for Injunction and Damages
with Preliminary Injunction and Temporary Restraining Oder with the SEC
which issued a TRO enjoining the Bitanga group from acting as officers
and directors of BLTB.
The Bitanga group filed another complaint which was granted. It declared
that the stockholders’ meeting was void on the grounds that, first, Michael
Potenciano had himself asked for its postponement due to improper notice;
and, second, there was no quorum, since BMB Holdings, Inc., represented
by the Bitanga group, which then owned 50.26% of BLTB’s shares
having purchased the same from the Potenciano group, was not present
at the said meeting. The Potenciano group filed a petition for certiorari
with the SEC En Banc. The SEC En Banc set aside the Order of the Hearing
Panel and issued the writ of preliminary injunction prayed
for. The Bitanga group immediately filed a petition for certiorari with the Court
of Appeals which reversed the assailed Orders of the SEC En Banc and
reinstating the Order of the Hearing Panel. The Court of Appeals denied the
Motions for Reconsideration .Hence, this petition
V. STATEMENT OF THE CASE:
Petitioner’s shares of stocks representing 47.98% of the total
outstanding capital stock of BLTB were sold to BMB Property Holdings, Inc.
A stockholder’s meeting was scheduled but it was declared void by the SEC
Hearing Panel due to improper notice and, second, there was no quorum
since BMB Holdings represented by Bitanga group which then owned
50.26% of BLTB’s shares having purchased the same from the Potenciano
Group, was not present during the meeting. Potenciano group filed a petition
for Certiorari with SEC En Banc which set aside the order of the Hearing
Panel and issued a writ of preliminary injunction filed by the petitioners. The
Bitanga group immediately files a petition for certiorari with the Court of
Appeals which reversed the Orders of SEC En Banc reinstating the Order of
the Hearing Panel of SEC. Petitioners filed a motion for reconsideration but
was denied.
VI. ISSUE:
Whether or not the stockholder’s meeting held on May 19,
1998 was void since BMB Holdings, Inc., represented by
Bitanga group was not present at the meeting.
VII. RULING:
The validity of the BLTB stockholders' meeting held on May 19, 1998 was
sustained, in light of the time-honored doctrine in corporation law that a
transfer of shares is not valid unless recorded in the books of the corporation.
It is not disputed that the transfer of the shares of the group of Dolores
Potenciano to the Bitanga group has not yet been recorded in the books of
the corporation. Hence, the group of Dolores Potenciano, in whose names
those shares still stand, were the ones entitled to attend and vote at the
stockholders' meeting of the BLTB on 19 May 1998. This being the case, the
Hearing Panel committed grave abuse of discretion in holding otherwise and
in concluding that there was no quorum in said meeting.
The Court is in full accord with the SEC En Banc on this matter. Indeed, until
registration is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, the unrecorded
transferee, the Bitanga group in this case, cannot vote nor be voted for. The
purpose of registration, therefore, is two-fold: to enable the transferee to
exercise all the rights of a stockholder, including the right to vote and to be
voted for, and to inform the corporation of any change in share ownership so
that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can
be properly counted to determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee. On the other hand, a
person who has purchased stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure such a standing by having
the transfer recorded on the corporate books. Until the transfer is registered,
the transferee is not a stockholder but an outsider.
VIII. DISPOSITIVE PORTION:
WHEREFORE, in view of all the foregoing, the instant petitions for review are
GRANTED. The Decision of the Court of Appeals dated November 23, 1998
in CA-G.R. SP No. 48374 and its resolution dated March 25, 1999 are SET
ASIDE. The Orders of the SEC En Banc dated July 21, 1998 and July 27,
1998 in SEC Case No. EB 611 are ordered REINSTATED.
I. SHORT TITLE: RURAL BANK OF LIPA CITY V. COURT OF
APPEALS
II. FULL TITLE: The Rural Bank of Lipa City, Inc., the Officers and
Directors, Bernardo Bautista, Jaime Custodio,
Octavio Katigbak, Francisco Custodio, and Juanita
Bautista of the Rural Bank of Lipa City, Inc. versus
Honorable Court of Appeals, Honorable Commission
En Banc, Securities and Exchange Commission,
Honorable Enrique L. Flores, Jr., In his capacity as
Hearing Officer, Reynaldo Villanueva, Sr., Avelina
M. Villanueva, Catalino Villanueva, Andres
Gonzales, Aurora Lacerna, Celso Laygo, Edgardo
Reyes, Alejandra Tonogan and Elena Usi - G.R. No.
124535. September 28, 2001
III. TOPIC: Stocks and Stockholders
IV. STATTEMENT OF FACTS:
Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City
assigned his shares, as well as those of 8 other shareholders under his
control with a total of 10,467 shares, in favor of the stockholders of the
Bank represented by its directors Bernardo Bautista, Jaime Custodio and
Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his
wife, Avelina, executed an Agreement wherein they acknowledged their
indebtedness to the Bank in the amount of P4,000,000.00, and stipulated
that said debt will be paid out of the proceeds of the sale of their real property
described in the Agreement. At a meeting of the Board of Directors of
theBank on 15 November 1993, the Villanueva spouses assured the Board
that their debt would be paid on or before December 31 of that same year;
otherwise, the Bank would be entitled to liquidate their shareholdings,
including those under their control and any deficiency shall be secured by
other collateral sufficient therefor. The Villanuevas failed to make good their
obligation, thereafter their shares of stock were converted into Treasury
Stocks. Later, the Villanuevas, through their counsel, questioned the legality
of the conversion of their shares.
Subsequently, the Villanuevas were not notified of the meeting electing new
board of directors and officers. . The new set of officers of the Bank informed
Atty. Ignacio, counsel for the Villanueva spounses that the latter were no
longer entitled to notice of the said meeting since they had relinquished their
rights as stockholders in favor of the Bank. Consequently, the Villanueva
spouses filed with the Securities and Exchange Commission (SEC), a
petition for annulment of the stockholders' meeting and election of directors
and officers on 15 January 1994, with damages and prayer for preliminary
injunction (SEC Case 02-94-4683_. Joining them as co-petitioners.
V. STATEMENT OF THE CASE:
The Villanueva spouses, along with respondents in the case at bar, filed with
the Securities and Exchange Commission (SEC), a petition for annulment of
the stockholders meeting and election of directors and officers on January
15, 1994, with damages and prayer for preliminary injunction enjoining the
petitioners herein, from acting as directors and officers of the Bank, and from
performing their duties and functions as such. The same was granted
prompting the Bank along with its officers and directors to oppose the writ of
preliminary injunction. A petition for Certiorari and Annulment with Damages
was filed by the Rural Bank, its directors and officers. Petitioners argue that
by virtue of the Deed of Assignment, private respondents had relinquished to
them any and all rights they may have had as stockholders of the Bank.
VI. ISSUE:
 Whether or not there was valid transfer of the shares to the
Bank that would deprive the Villanueva spouses to exercise
their rights as stockholders.
VII. RULING:
NO. For a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be
delivery of the stock certificate: (b) The certificate must be endorsed by the
owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance with any of
these requisites has not been clearly and sufficiently shown. Still, while the
assignment may be valid and binding on the bank, et al. and the Villanuevas,
it does not necessarily make the transfer effective. Consequently, the bank et
al., as mere assignees, cannot enjoy the status of a stockholder, cannot vote
nor be voted for, and will not be entitled to dividends, insofar as the assigned
shares are concerned. Parenthetically, the Villanuevas cannot, as yet, be
deprived of their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is resolved with finality.
VIII. DISPOSITIVE PORTION:
WHEREFORE, in view of all the foregoing, the instant petition for review on
certiorari is DENIED. The Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 38861 are hereby AFFIRMED. The case is ordered
REMANDED to the Regional Trial Court of Batangas City, Branch 32, for
proper disposition. The temporary restraining order issued by the SEC
Hearing Officer dated January 13, 1995 is ordered LIFTED.
I. SHORT TITLE: ESGUERRA, ET AL. V. HOLCIM PHILIPPINES,
INC.
II. FULL TITLE: Ligaya Esguerra, Lowell Esguerra and Liesell
Esguerra versus Holcim Philippines, Inc. - G.R. No.
182571, September 2, 2013, J. Reyes
III. TOPIC: Powers of Corporation
IV. STATEMENT OF FACTS:
Esguerra filed an action to annul the Free Patent in the name of de Guzman
alleging himself to be the owner over the disputed lot in Matiktik, Norzagaray,
Bulacan. De Guzman sold the lot to herein respondents who utilized the land
extracted limestones from it. The Court granted such action and remanded
the case to the Trial Court for execution. During the execution, Esguerra
claimed that the royalties due them amounted to ₱10.00 per metric ton.
Thus, for the 9,187,257.67 metric tons18 of limestone which HOLCIM
allegedly acquired, the petitioners should receive a total royalty of
₱91,872,576.72.
The RTC denied HOLCIM’s motion for reconsideration and motion for ocular
inspection. It held that the petitioners proved their entitlement to the royalties
totaling to ₱91,872,576.72.
V. STATEMENT OF THE CASE:
HOLCIM filed a Petition for Certiorari (with Urgent Applications for Temporary
Restraining Order and/or Writ of Preliminary Injunction)33 with the CA. The
latter granted the petition which prompted petitioners to filed the case before
the Supreme Court. One of the claims of the petitioner is that HOLCIM’s
petition for certiorari in the CA failed to comply with the rules on Verification
and Certification of Non-Forum Shopping because the latter did not secure
and/or attach a certified true copy of a board resolution authorizing any of its
officers to file said petition. Thus, the CA should have dismissed outright
HOLCIM’s petition before it.
VI. ISSUE:
Whether or not the Court of Appeals gravely erred in not
dismissing Holcim’s petition for certiorari on the ground of
lack of board resolution authorizing the filing of the petition
VII. RULING:
NO. The general rule is that a corporation can only exercise its powers and
transact its business through its board of directors and through its officers
and agents when authorized by a board resolution or its bylaws. The power
of a corporation to sue and be sued is exercised by the board of directors.
The physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by
corporate bylaws or by a specific act of the board. Absent the said board
resolution, a petition may not be given due course. However, this admits to
exceptions such as in the case at bar when the corporation performed acts in
substantial compliance to such requirement. While the board resolution may
not have been attached, HOLCIM complied just the same when it attached
the Secretary’s Certificate dated July 17, 2006, thus proving that O’Callaghan
had the authority from the board of directors to appoint the counsel to
represent them in Civil Case No. 725-M-89. HOLCIM compliance was in
good faith since after the petitioners pointed out the said defect, HOLCIM
submitted the Secretary’s Certificate dated July 17, 2006, confirming the
earlier Secretary’s Certificate dated June 9, 2006.

VIII. DISPOSITIVE PORTION:
WHEREFORE, the Decision dated August 31, 2007 and the Resolution
dated April 14, 2008 of the Court of Appeals in CA-G.R. SP No. 94838 are
hereby AFFIRMED.
I. SHORT TITLE: PHILIPPINE RACE HORSE V. PIEDRAS NEGRAS
II. FULL TITLE: Philippine Race Horse Trainerês Association, Inc.
versus Piedras Negras Construction and
Development Corporation – G.R. No. 192659,
December 2, 2015, J. Peralta
III. TOPIC: Corporation Law - Board of
Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
On October 3, 2000, PRHTAI, through its president, Rogelio J. Catajan,
entered into a contract (first contract) with Fil-Estate Properties, Inc. (Fil-
Estate) for the development of the Royal Homes Subdivision Project. It
involved the construction of 170 housing units for P67,453,000.00. Fil-Estate
then later assigned its rights and obligations under the project to PNCDC, its
subcontractor. On October 13, 2004, a contract (second contract) was forged
between PRHTAI and PNCDC for P80,324,788.00. On August 23, 2005,
PRHTAI and PNCDC signed another contract (third contract) for the
construction of the same 170 housing units, but this time for the revised
amount of P101,150,000.00.
PNCDC issued a Certificate of Completion and Acceptance in favor of
PRHTAI. Come January 18, 2008, PNCDC demanded for the payment of the
remaining balance. PRHTAI acknowledged its obligation but explained that it
was experiencing financial difficulties. Meanwhile, on April 28, 2008, a new
set of directors and officers was elected at PRHTAI. Said new officers
requested for copies of the documents relative to the project. Subsequently,
they initiated inquiries on the subject housing project with the former officers
and employees as well as the lending institutions involved in said project.
V. STATEMENT OF THE CASE:
Unable to collect the remaining balance, PNCDC filed on March 4, 2009 a
request for arbitration/complaint with the CIAC against PRHTAI for the
payment of P14,571,618.24. CIAC Arbitral Tribunal ruled that the third
contract between PRHTAI and PNCDC is unenforceable and that there was
even overpayment on the part of PRHTAI. The CA overturned the CIAC’s
decision. It directed Philippine Race Horse Trainer’s Association, Inc. to pay
Piedras Negras Construction and Development Corporation the balance of
the final contract in the amount of P6,473,727.59 with legal interest of 6% per
annum from finality of this decision
VI. ISSUE:
Whether or not Catajan exceeded his authority when it
agreed to pay PNCDC an increased contract price in the
amount of P101,150,000.00.
VII. RULING:
The CA held that contracts entered into by a corporate officer or obligations
assumed by such officer for and in behalf of the corporation are binding on
said corporation, if such officer has acted within the scope of his authority, or
even if such officer has exceeded the limits of his authority, the corporation
still ratifies such contracts or obligations. The doctrine of apparent authority
provides that a corporation will be estopped from denying the agent’s
authority if it knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, and it holds him out to the public
as possessing the power to do those acts. Apparent authority is derived not
merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers. It requires presentation of
evidence of similar acts executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with the power to bind the
corporation. The doctrine does not apply, however, if the principal did not
commit any act or conduct which a third party knew and relied upon in good
faith as a result of the exercise of reasonable prudence. In the present case,
the aforementioned circumstances are lacking and, indubitably, neither did
PNCDC act in good faith. Also, it must be stressed that the board of
directors, not the president, exercises corporate power. While in the absence
of a charter or bylaw provision to the contrary the president is presumed to
have authority, the questioned act should still be within the domain of the
general objectives of the company’s business and within the scope of his or
her usual duties. Here, PRHTAI is an association of professional horse
trainers in the Philippine horse racing industry organized as a non- stock
corporation and it is committed to the uplifting of the economic condition of
the working sector of the racing industry. It is not in its ordinary course of
business to enter into housing projects, especially not in such scale and
magnitude so massive as to amount to P101,150,000.00.

VIII. DISPOSITIVE PORTION:
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The
Court of AppealsÊ Decision dated March 18, 2010 and its June 22, 2010
Resolution in C.A.-G.R. S.P. No. 110337 are hereby REVERSED and SET
ASIDE. The Construction Industry Arbitration Commission Arbitral Tribunal
Award dated July 30, 2009 is hereby AFFIRMED with MODIFICATION as to
the legal rate due, which must be six percent (6%) per annum of the amount
awarded from the time of the finality of this Decision until its full satisfaction.
I. SHORT TITLE: PONCE V. ALSONS CEMENT CORPORATION
II. FULL TITLE: Vicente C. Ponce versus Alsons Cement
Corporation and FRANCISCO M. Giron, Jr. – G.R.
No. 105774, December 10, 2002, J. Quisumbing
III. TOPIC: Corporation Law ─ Corporate Books and Records
IV. STATEMENT OF FACTS:
The late Fausto G. Gaid was an incorporator of Victory Cement Corporation
(VCC), having subscribed to and fully paid 239,500 shares of said
corporation. On February 8, 1968, Vicente Ponce and Fausto Gaid executed
a “Deed of Undertaking” and “Indorsement” whereby the latter acknowledges
that the former is the owner of said shares and he was therefore
assigning/endorsing the same to Ponce. On April 10, 1968, VCC was
renamed Floro Cement Corporation (FCC). On October 22, 1990, FCC was
renamed Alsons Cement Corporation (ACC for brevity). From the time of
incorporation of VCC up to the present, no certificates of stock corresponding
to the 239,500 subscribed and fully paid shares of Gaid were issued in the
name of Fausto G. Gaid and/or Ponce. Despite repeated demands, the
defendants refused and continue to refuse without any justifiable reason to
issue to Ponce the certificates of stocks corresponding to the 239,500 shares
of Gaid, in violation of Ponce’s right to secure the corresponding certificate of
stock in his name.
V. STATEMENT OF THE CASE:
On January 25, 1996, plaintiff Vicente C. Ponce, filed a complaint with the
SEC for mandamus and damages Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. Instead of filing an answer,
respondents moved to dismiss the complaint. SEC Hearing Officer Enrique L.
Flores, Jr. granted the motion to dismiss. The SEC En Banc reversed the
appealed Order and directed the Hearing Officer to proceed with the case.
The Court of Appeals held that in the absence of any allegation that the
transfer of the shares between Fausto Gaid and Vicente C. Ponce was
registered in the stock and transfer book of ALSONS, Ponce failed to state a
cause of action. Thus, the complaint for mandamus should be dismissed for
failure to state a cause of action.
VI. ISSUE:
Whether or not the transfer of shares of stock not recorded
in the stock and transfer book of the corporation is
nonexistent insofar as the corporation is concerned and no
certificate of stock can be issued in the name of the
transferee.
VII. RULING:
Pursuant to the Corporation Code, a transfer of shares of stock not recorded
in the stock and transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the one hand, and
its shareholders and third persons on the other, the corporation looks only to
its books for the purpose of determining who its shareholders are. It is only
when the transfer has been recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one of its stockholders.
From this time, the consequent obligation on the part of the corporation to
recognize such rights as it is mandated by law to recognize arises.
A mere indorsement by the supposed owners of the stock, in the absence of
express instructions from them, cannot be the basis of an action for
mandamus and that the rights of the parties have to be threshed out in an
ordinary action. Before a transferee may ask for the issuance of stock
certificates, he must first cause the registration of the transfer and thereby
enjoy the status of a stockholder insofar as the corporation is concerned. A
corporate secretary may not be compelled to register transfers of shares on
the basis merely of an indorsement of stock certificates. A corporate
secretary may not be compelled to issue stock certificates without such
registration.
Furthermore, one may own shares of corporate stock without possessing a
stock certificate. A certificate of stock is not necessary to render one a
stockholder in a corporation. But a certificate of stock is the tangible evidence
of the stock itself and of the various interests therein. The certificate is the
evidence of the holder’s interest and status in the corporation, his ownership
of the share represented thereby. The certificate is in law, an equivalent of
such ownership. It expresses the contract between the corporation and the
stockholder, but it is not essential to the existence of a share in stock or the
creation of the relation of shareholder to the corporation. In fact, it rests on
the will of the stockholder whether he wants to be issued stock certificates,
and a stockholder may opt not to be issued a certificate. Lastly, the law does
not prescribe a period within which the registration should be effected, the
action to enforce the right does not accrue until there has been a demand
and a refusal concerning the transfer.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is DENIED for lack of merit. The decision of the
Court of Appeals, in CA-G.R. SP No. 46692, which set aside that of the
Securities and Exchange Commission En Banc in SEC-AC No. 545 and
reinstated the order of the Hearing Officer, is hereby AFFIRMED.
I. SHORT TITLE: ONG YONG V. TUI
II. FULL TITLE: Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L.
Ong, William T. Ong, Willie T. Ong, and Julie Ong
Alonzo versus David S. Tiu, Cely Y. Tiu, Moly Yu
Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu,
Lourdes C. Tiu, Intraland Resources Development
Corp., Masagana Telamart, Inc., Register of Deeds
of Pasay City, and the Securities and Exchange
Commission - G.R. No. 144476. April 8, 2003, J.
Corona
III. TOPIC: Trust Fund Doctrine
IV. STATEMENT OF FACTS:
The construction of the Masagana Citimall in Pasay City was threatened with
stoppage and incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned by the Tius,
encountered dire financial difficulties.
The Tius invited the Ongs, to invest in FLADC. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC.
Furthermore, they agreed that the Tius were entitled to nominate the Vice-
President and the Treasurer plus five directors while the Ongs were entitled
to nominate the President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were
given the right to manage and operate the mall.
The business harmony between the Ongs and the Tius in FLADC, however,
was shortlived because the Tius rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of (1) refusing to credit to them the
FLADC shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and performing
their duties as Vice-President and Treasurer, respectively, and (3) refusing to
give them the office spaces agreed upon.
In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact
assumed the positions of Vice-President and Treasurer of FLADC but that it
was they who refused to comply with the corporate duties assigned to them.
On the most important issue of their alleged failure to credit the Tius with the
FLADC shares commensurate to the Tius property contributions, the Ongs
asserted that, although the Tius executed a deed of assignment for the
1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to pay P
570,690 for capital gains tax and documentary stamp tax. Without the
payment thereof, the SEC would not approve the valuation of the Tius
property contribution (as opposed to cash contribution). This, in turn, would
make it impossible to secure a new Transfer Certificate of Title (TCT) over
the property in FLADCs name. In any event, it was easy for the Tius to
simply pay the said transfer taxes and, after the new TCT was issued in
FLADCs name, they could then be given the corresponding shares of
stocks. On the 151 square-meter property, the Tius never executed a deed of
assignment in favor of FLADC. The Tius initially claimed that they could not
as yet surrender the TCT because it was still being reconstituted by the
Lichaucos from whom the Tius bought it. The Ongs later on discovered that
FLADC had in reality owned the property all along, even before their Pre-
Subscription Agreement was executed in 1994. This meant that the 151
square-meter property was at that time already the corporate property of
FLADC for which the Tius were not entitled to the issuance of new shares of
stock.
V. STATEMENT OF THE CASE:
The Tuis rescinded the contract and petition before SEC its confirmation
which was favourable. SEC en banc affirmed the decision. Upon appeal by
the Ongs, the CA still affirmed the decision. A petition for review before the
SC was filed. A decision was rendered in favor of the Tuis. Hence this Motion
for Reconsideration before the SC
VI. ISSUE:
Whether or not rescission is proper.
VII. RULING:
NO. FLADC was originally incorporated with an authorized capital stock of
500,000 shares with the Tius owning 450,200 shares representing the paid-
up capital. When the Tius invited the Ongs to invest in FLADC as
stockholders, an increase of the authorized capital stock became necessary
to give each group equal (50-50) shareholdings as agreed upon in the Pre-
Subscription Agreement. The authorized capital stock was thus increased
from 500,000 shares to 2,000,000 shares with a par value of P100 each, with
the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more
shares in addition to their 450,200 shares to complete 1,000,000 shares.
Thus, the subject matter of the contract was the 1,000,000 unissued shares
of FLADC stock allocated to the Ongs. Since these were unissued shares,
the parties Pre-Subscription Agreement was in fact a subscription contract as
defined under Section 60, Title VII of the Corporation Code:
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 (Italics supplied).
A subscription contract necessarily involves the corporation as one of the
contracting parties since the subject matter of the transaction is property
owned by the corporation its shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription Agreement) whereby the
Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the
Ongs and the Tius. Otherwise stated, the Tius did not contract in their
personal capacities with the Ongs since they were not selling any of their
own shares to them. It was FLADC that did.
Considering therefore that the real contracting parties to the subscription
agreement were FLADC and the Ongs alone, a civil case for rescission on
the ground of breach of contract filed by the Tius in their personal capacities
will not prosper. Assuming it had valid reasons to do so, only FLADC (and
certainly not the Tius) had the legal personality to file suit rescinding the
subscription agreement with the Ongs inasmuch as it was the real party in
interest therein. Article 1311 of the Civil Code provides that contracts take
effect only between the parties, their assigns and heirs Therefore, a party
who has not taken part in the transaction cannot sue or be sued for
performance or for cancellation thereof, unless he shows that he has a real
interest affected thereby.
The Corporation Code, SEC rules and even the Rules of Court provide for
appropriate and adequate intra-corporate remedies, other than rescission, in
situations like this. Rescission is certainly not one of them, specially if the
party asking for it has no legal personality to do so and the requirements of
the law therefor have not been met.A contrary doctrine will tread on
extremely dangerous ground because it will allow just any stockholder, for
just about any real or imagined offense, to demand rescission of his
subscription and call for the distribution of some part of the corporate assets
to him without complying with the requirements of the Corporation Code.
Rescission will violate the Trust Fund Doctrine and the procedures for the
valid distribution of assets and property under the Corporation Code.
VII. DISPOSITIVE PORTION:
WHEREFORE, the motion for reconsideration, dated March 15, 2002, of
petitioners Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William
Ong, Willie Ong and Julie Ong Alonzo and the motion for partial
reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby
GRANTED. The Petition for Confirmation of the Rescission of the Pre-
Subscription Agreement docketed as SEC Case No. 02-96-5269 is hereby
DISMISSED for lack of merit. The unilateral rescission by the Tius of the
subject Pre-Subscription Agreement, dated August 15, 1994, is hereby
declared as null and void.
I. SHORT TITLE: BARBA V. LICEO DE CAGAYAN UNIVERSITY
II. FULL TITLE: Ma. Mercedes L. Barba versus Liceo De Cagayan
University - G.R. No. 193857, November 28, 2012,
J. Villarama, Jr.
III. TOPIC: Board of Directors/Trustees/Officers
IV. STATEMENT OF FACTS:
Petitioner was hired as medical officer/school physician by Respondent.
Later on, she was chosen by respondent to be the recipient of a scholarship
grant to pursue a three-year residency training in VMMC.
Thereafter, she was appointed Acting Dean and eventually appointed as
Dean of the College of Physical Therapy by respondent’s President, Dr. Jose
Ma. R. Golez.
Because of drastic decreased of number of student enrollees in her
department during her tenure, she was informed that her deanship will
terminate upon the end of schoolyear. Thereafter, the college ceased
operations and petitioner went on leave.
A letter was sent to petitioner informing her to return to work as full-time
faculty professor/member as also indicated in the grant of scholarship as an
agreement.
Petitioner however claims for separation pay as there exists a demotion
which constitutes dismissal.
V. STATEMENT OF THE CASE:
Labor arbiter decided in favor of respondent finding no constructive
dismissal. NLRC reversed the decision stating that there are functions and
obligations and certain allowances and benefits given to a College Dean but
not to an ordinary professor, which constitutes demotion to dismissal.
Respondent filed an appeal before CA which decided that there was no
constructive dismissal but did not touch upon the petitioners issue on
Jurisdiction of LA and NLRC, considering her appointment is a corporate
office. On motion for reconsideration, the CA reversed its own ruling,
favorably to petitioner, this time conceding to the fact that LA or NLRC has
no jurisdiction.
VI. ISSUE:
Whether or not her appointment is a corporate office which
divest jurisdiction from LA and NLRC.
VII. RULING:
NO. In respondent’s by-laws, there are four officers specifically mentioned,
namely, a president, a vice president, a secretary and a treasurer. In
addition, it is provided that there shall be other appointive officials, a College
Director and heads of departments whose appointments, compensations,
powers and duties shall be determined by the board of directors. It is worthy
to note that a College Dean is not among the corporate officers mentioned in
respondent’s by-laws. Petitioner, being an academic dean, also held an
administrative post in the university but not a corporate office as
contemplated by law. Petitioner was not directly elected nor appointed by the
board of directors to any corporate office but her appointment was merely
approved by the board together with the other academic deans of respondent
university in accordance with the procedure prescribed in respondent’s
Administrative Manual.
Moreover, the CA, in its amended decision erroneously equated the position
of a College Director to that of a College Dean thereby concluding that
petitioner is an officer of respondent.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition for review on certiorari is GRANTED. The
Amended Decision dated March 29, 2010 and Resolution dated September
14, 2010 of the Court of Appeals in CA-G.R. SP No. 02508-MIN are hereby
SET ASIDE. The earlier Decision dated October 22, 2009 of the Court of
Appeals in said case is REINSTATED and UPHELD.
I. SHORT TITLE: HEIRS OF UY V. INTERNATIONAL EXCHANGE
BANK
II. FULL TITLE: Heirs of Fe Tan Uy (Represented by her heir,
Mauling Uy Lim) versus International Exchange
Bank - G.R. No. 166282; Goldkey Development
Corporation versus International Exchange Bank -
G.R. 166283, February 13, 2013, J. Mendoza
III. TOPIC: Corporation Law – Piercing the Veil of Corporate
Fiction
IV. STATEMENT OF FACTS:
On several occasions, respondent iBank granted loans to Hammer Garments
covered by promissory notes and deeds of assignment. These were made
pursuant to the letter-agreement between iBank and Hammer, represented
by Chua, its president, granting Hammer a P25 M line.
The loans were secured by a P9M real estate mortgage executed by
Goldkey Development Corporation over several of its properties and a P25M
surety agreement signed by Chua and his wife.
As of October 1997, Hammer had an outstanding obligation of P25.4 M to
iBank. Hammer defaulted in the payment of its loans, prompting iBank to
foreclose of Goldkey’s third-party real estate mortgage.
During the foreclosure sale, the properties were sold for P12M, leaving an
unpaid balance of P13M.
V. STATEMENT OF THE CASE:
A complaint for sum of money was filed by iBank against Hammer, Chua, his
wife and Goldkey before the RTC of Makati. The court also granted iBank’s
application for the issuance of a writ of preliminary attachment.
While the RTC made the pronouncement that Chua’s wife’s signature was a
forgery, it nevertheless held her liable for the outstanding obligation of
Hammer because she was an officer and stockholder of the said corporation.
The RTC agreed with Goldkey that its liability was limited to the properties
mortgaged.
However, it came to the conclusion that Goldkey and Hammer were one and
the same entity because both were family corporations of Chua, both
corporations shared the same office, assets were co-mingled. As such, the
piercing of the veil of corporate fiction was warranted. Uy was found liable to
iBank together with Chua, Hammer and Goldkey for the deficiency.
The case was elevated to the Court of Appeals where the latter affirmed the
findings of the RTC.
Before the Court are two consolidated petitions for review on certiorari
assailing the August 16, 2004 Decision and the December 2, 2004
Resolution of the Court of Appeals.
VI. ISSUES:
1. Whether Uy can be held liable to iBank for the loan
obligation of Hammer as an officer and stockholder of the
said corporation
2. Whether Goldkey can be held liable for the obligation of
Hammer for being a mere alter ego of the latter.
VII. RULING:
1. No. Uy is not liable. The heirs of Uy claim that she had cut all ties with
Hammer and her husband long before the execution of the loan.
A director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation. Nevertheless,
this legal fiction may be disregarded if it is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues.
Sec. 31 of the Corporation Code states that solidary
liability will then attach to the directors, officers or employees of the
corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing the
corporate affairs; and (c) are guilty of conflict of interest to the prejudice
of the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented
to patently unlawful acts of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) the complainant must clearly and
convincingly prove such unlawful acts, negligence or bad faith.
In this case, petitioners are correct to argue that it was not alleged, much
less proven, that Uy committed an act as an officer of Hammer that would
permit the piercing of the corporate veil. A reading of the complaint reveals
that with regard to Uy, iBank did not demand that she be held liable for the
obligations of Hammer because she was a corporate officer who committed
bad faith or gross negligence in the performance of her duties such that the
lifting of the corporate mask would be merited. What the complaint simply
stated is that she, together with her errant husband Chua, acted as surety of
Hammer, as evidenced by her signature on the Surety Agreement which was
later found by the RTC to have been forged.
Considering that the only basis for holding Uy liable for the payment of the
loan was proven to be a falsified document, there was no sufficient
justification for the RTC to have ruled that Uy should be held jointly and
severally liable to iBank for the unpaid loan of Hammer. Neither did the CA
explain its affirmation of the RTC’s ruling against Uy.
At most, Uy could have been charged with negligence in the performance of
her duties as treasurer of Hammer by allowing the company to contract a
loan despite its precarious financial position. Furthermore, if it was true, as
petitioners claim, that she no longer performed the functions of a treasurer,
then she should have formally resigned as treasurer to isolate herself from
any liability that could result from her being an officer of the corporation.
Nonetheless, these shortcomings of Uy are not sufficient to justify the
piercing of the corporate veil which requires that the negligence of the officer
must be so gross that it could amount to bad faith and must be established
by clear and convincing evidence.
It behooves this Court to emphasize that the piercing of the veil of corporate
fiction is frowned upon and can only be done if it has been clearly
established that the separate and distinct personality of the corporation is
used to justify a wrong, protect fraud, or perpetrate a deception.
2. Goldkey is a mere alter ego of Hammer. Goldkey theorizes that iBank is
estopped from expanding Goldkey’s liability beyond the real estate mortgage.
It adds that it did not authorize the execution of the said mortgage. Finally, it
passes the blame on to iBank for failing to exercise the requisite due
diligence in properly evaluating Hammer’s creditworthiness before it was
extended an omnibus line. The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that iBank duly
inspected the viability of Hammer and satisfied itself that the latter was a
good credit risk based on the Financial Statement submitted. In addition,
iBank required that the loan be secured by Goldkey’s Real Estate Mortgage
and the Surety Agreement with Chua and Uy. The records support the
factual conclusions made by the RTC and the CA.
To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing
Goldkey for the satisfaction of the unpaid obligation of Hammer because it
had already limited its liability to the real estate mortgage, is completely
absurd.
Goldkey needs to be reminded that it is being sued not as a consequence of
the real estate mortgage, but rather, because it acted as an alter ego of
Hammer. Accordingly, they must be treated as one and the same entity,
making Goldkey accountable for the debts of Hammer. In fact, it is Goldkey
who is now precluded from denying the validity of the Real Estate Mortgage.
The records clearly show that it was Hammer, of which Chua was the
president and a stockholder, which contracted a loan from iBank. What iBank
sought was redress from Goldkey by demanding that the veil of corporate
fiction be lifted so that it could not raise the defense of having a separate
juridical personality to evade liability for the obligations of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when
two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities
and treat them as identical or one and the same.
While the conditions for the disregard of the juridical entity may vary, the
following are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil:
(1) Stock ownership by one or common ownership of both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.
It was apparent that Goldkey was merely an adjunct of Hammer and, as
such, the legal fiction that it has a separate personality from that of Hammer
should be brushed aside as they are, undeniably, one and the same
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004
Decision and the December 2, 2004 Resolution of the Court of Appeals in
CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from
any liability arising from the debts incurred by Hammer from iBank. Hammer
Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey
Development Corporation are jointly and severally liable to pay International
Exchange Bank the sum of ₱13,420,177.62 representing the unpaid loan
obligation of Hammer as of December 12, 1997 plus interest. No costs.
I. SHORT TITLE: HALLEY V. PRINTWELL
II. FULL TITLE: Donnina C. Halley, Petitioner, versus Printwell, Inc.,
Respondent –G.R. No. 157549, May 30, 2011, J.
Benjamin
III. TOPIC: Corporation Law – Trust Fund Doctrine
IV. STATEMENT OF FACTS:
Halley was an incorporator and original director of Business Media
Philippines, Inc. (BMPI), which, at its incorporation had an authorized capital
stock of P3M divided into 300,000 shares each with a par value of P10.00 of
which 75,000 were initially subscribed.
Printwell engaged in commercial and industrial printing. BMPI commissioned
Printewell for the printing of the magazine Philippines, Inc. that BMPI
published and sold. For that purpose, Printwell extended 30-day credit
accomodations to BMPI.
From October 1988 to July 1989, BMPI placed with Printwell several orders
on credit, evidenced by invoices and delivery receipts totaling P316, 342.7.
Considering that BMPI paid only P25,000, Printwell sued BMPI for the
collection of the unpaid balance of P291,342 in the RTC.
The defendants averred that BMPI had a separate personality from those of
its stockholders and that they all had paid their subscriptions evidenced by
official receipts.
V. STATEMENT OF THE CASE:
On November 1993, the RTC rendered a decision in favor of Printwell,
rejecting the allegation of payment in full in view of an irregularity in the
issuance of the ORs whereby the serial number of the receipt allegedly
presented was lower than those issued on a later date.

It likewise applied the trust fund doctrine in declaring the defendant
stockholders liable to Printwell pro rata.
The Court of Appeals affirmed the RTC, holding that the defendants resort to
the corporate personality would create an injustice because Printwell would
thereby be at a loss against whom it would assert the right to collect. The CA
stated that premised on the trust fund doctrine, an inference could be made
that the funds, which consist of the payment of subscriptions of the
stockholders, is where the creditors can claim monetary considerations for
the satisfaction of their claims. If these funds which ought to be fully
subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to
collect from the corporation of its liability.
VI. ISSUE:
Whether or not Halley is liable for her unpaid subscription.
VII. RULING:
Yes. Although a corporation has a personality separate and distinct from
those of its stockholders, directors, or officers, such separate and distinct
personality is merely a fiction created by law for the sake of convenience and
to promote the ends of justice. The corporate personality may be
disregarded, and the individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or cover for fraud
or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders.
As a general rule, a corporation is looked upon as a legal entity, unless and
until sufficient reason to the contrary appears. Thus, the courts always
presume good faith, and for that reason accord prime importance to the
separate personality of the corporation, disregarding the corporate
personality only after the wrongdoing is first clearly and convincingly
established. It thus behooves the courts to be careful in assessing the milieu
where the piercing of the corporate veil shall be done.
The Supreme Court clarifies that the trust fund doctrine is not limited to
reaching the stockholders unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not only the capital stock, but
also other property and assets generally regarded in equity as a trust fund for
the payment of corporate debts. All assets and property belonging to the
corporation held in trust for the benefit of creditors that were distributed or in
the possession of the stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in satisfaction of its claim.
Notwithstanding that the RTC and the CA did not find any irregularity in the
OR issued in her favor, we still cannot sustain the petitioners defense of full
payment of her subscription; the debtor bears the burden of showing with
legal certainty that the obligation has been discharged by payment.
The petitioner’s OR No. 227, presented to prove the payment of the balance
of her subscription, indicated that her supposed payment had been made by
means of a check. Thus, to discharge the burden to prove payment of her
subscription, she had to adduce evidence satisfactorily proving that her
payment by check was regarded as payment under the law. Ostensibly,
therefore, the petitioner’s mere submission of the receipt issued in exchange
of the check did not satisfactorily establish her allegation of full payment of
her subscription.
The income tax return (ITR) and statement of assets and liabilities of BMPI,
albeit presented, had no bearing on the issue of payment of the subscription
because they did not by themselves prove payment.
That Halley tendered no explanation why the stock and transfer book was not
presented warrants the inference that the book did not reflect the actual
payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her.
Such a certificate covering her subscription might have been a reliable
evidence of full payment of the subscriptions, considering that under Section
65 of the Corporation Code a certificate of stock issues only to a subscriber
who has fully paid his subscription. The lack of any explanation for the
absence of a stock certificate in her favor likewise warrants an unfavorable
inference on the issue of payment.
Although the articles of incorporation may possibly reflect only the pre-
incorporation status of a corporation, the lower courts reliance on that
document to determine whether the original subscribers already fully paid
their subscriptions or not was neither unwarranted nor erroneous. As earlier
explained, the burden of establishing the fact of full payment belonged not to
Printwell even if it was the plaintiff, but to the stockholders like the petitioner
who, as the defendants, averred full payment of their subscriptions as a
defense.
To reiterate, the petitioner was liable pursuant to the trust fund doctrine for
the corporate obligation of BMPI by virtue of her subscription being still
unpaid. Printwell, as BMPI’s creditor, had a right to reach her unpaid
subscription in satisfaction of its claim.
The RTC lacked the legal and factual support for its prorating the liability.
Hence, we need to modify the extent of the petitioner’s personal liability to
Printwell. The prevailing rule is that a stockholder is personally liable for the
financial obligations of the corporation to the extent of his unpaid
subscription.

VIII. DISPOSITIVE PORTION:

ACCORDINGLY, we deny the petition for review on certiorari; and affirm with
modification the decision promulgated on August 14, 2002by ordering the
petitioner to pay to Printwell, Inc. the sum of P262,500.00, plus interest of
12% per annum to be computed from February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.