I. NATURE AND FORMATION:
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Definition of a corporation
A corporation is an artificial being created by operation of law, having
the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence. (CC, Sec. 2)
Tri-level existence in the corporate setting
a) aggregation of assets and resources
b) Business Enterprise or economic unit
c) Juridical Entity
A. NATURE OF CORPORATIONS
Corporate Attributes
a) A corporation is an artificial being
b) Created by operation of law
c) With right of succession
d) Only has powers, attributes and properties expressly authorized
by law or incident to its existence
Theories in the formation of a corporation
Tanyag vs Benguet Consolidated, 26 scra 242 1968
1. Special proceedings; Principal administration and ancillary
administration distinguished; When ancillary administration is
proper; Reason.-
It is often necessary to have more than one administration of an estate.
When a person dies intestate owning property in the country of his
domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last
domicile is termed the principal administration, while any other
administration is termed the ancillary administration.
2. Settlement of estate of a decedent; Ancillary
administrator; Scope of his power and authority.-
No one could dispute the power of an ancillary administrator to gain
control and possession of all assets of the decedent within the
jurisdiction of the Philippines. Such a power is inherent in his duty to
settle her estate and satisfy the claims of local creditors (Rule 84, Sec.
3, Rules of Court. Cf. Pavia v. De la Rosa, 8 Phil. 70; Liwanag v.
Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16,
1967; etc.). It is a general rule universally recognized that
administration, whether principal or ancillary, certainly extends to the
assets of a decedent found within the state or country where it was
granted, the corollary being "that an administrator appointed in one
state or country has no power over property la another state or
country" (Leon and Ghezzi v. Manufacturers Life Ins. Co., 90 Phil.
459).
3. Settlement of estate of a decedent; Refusal of domiciliary
administrator to deliver shares of stock despite judicial
order; Case at bar.-
Since, in the case at bar, there is a refusal, persistently adhered to by
the domiciliary administrator in New York, to deIiver the shares of
stocks of appellant corporation owned by the decedent to fee ancillary
administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and
his responsibility fulfilled. Any other view would result in the
compliance to a valid judicial order being made to depend on the
uncontrolled discretion of a party or entity.
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4. Corporation law; Corporation; Concept and nature.
A corporation is an artificial being created by operation of law (Sec.
2, Act No. 1459). A corporation as known to Philippine jurisprudence
is a creature without any existence until it has received the imprimatur
of the state acting according to law. It is logically inconceivable
therefore that it will have rights and privileges of a higher priority than
that of its creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the
judiciary. whenever called upon .to do so.
Ang Pue & Co. vs Secretary 5 scra 645 1962
1. Partnership; To organize not absolute right.-
To organize a corporation or partnership that could claim a juridical
personality of its own and transact business as such, is not a matter of
absolute right but a privilege which may be enjoyed only under such
terms as the state may deem necessary to impose.
2. Partnership; Only Filipinos may engage in retail business; Rep.
Act 1180 applicable to existing partnership.-
The State through Congress had the right to enact Republic Act No.
1180 providing that only Filipinos may engage in the retail business
and such provision was intended to apply to partnership owned by
foreigners already existing at the time of its enactment giving them the
right to continue engaging in their retail business until the expiration
of their term of life.
3. Partnership; Amendment of articles of partnership to extend term
after enactment of the law.-
The agreement in the articles of partnership to extend the term of its
life is not a property right and it must be deemed subject to the law
existing at the time when the partners came to agree regarding the
extension. In the case at bar, when the partners amended the articles
of partnership, the provisions of Republic Act 1180 were already in
force, and there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to another
five years would be in violation of the clear intent and purpose of said
Act.
Theory of concession
(Tayag v. Benguet Consolidated Inc., 26 SCRA 242 [1968])
To organize a corporation that could claim a juridical personality of
its own and transact business as such, is not a matter of absolute right
but a privilege which may be enjoyed only under such terms as the
State may deem necessary to impose (x-cf. Ang Pue & Co. v. Sec. of
Commerce and Industry, 5 SCRA 645 [1962]).
Before a corporation may acquire juridical personality, the State must
give its consent either in the form of a special law or a general enabling
act, and the procedure and conditions provided under the law for the
acquisition of such juridical personality must be complied with. The
failure to comply with the statutory procedure and conditions does not
warrant a finding that such association achieved the acquisition of a
separate juridical personality, even when it adopts sets of constitution
and by-laws. xInternational Express Travel & Tour Services, Inc. v.
Court of Appeals, 343 SCRA 674 (2000).
Since all corporations, big or small, must abide by the provisions of
the Corporation Code, then even a simple family corporation cannot
claim an exemption nor can it have rules and practices other than those
established by law. xTorres v. Court of Appeals, 278 SCRA 793
(1997).
Theory of Enterprise Entity
(Berle, Theory of Enterprise Entity, 47 Col. L. Rev. 343 [1947])

Corporations are composed of natural persons and the legal fiction of
a separate corporate personality is not a shield for the commission of
injustice and inequity, such as the use of separate personality to avoid
the execution of the property of a sister company. xTan Boon Bee &
Co., Inc. v. Jarencio, 163 SCRA 205 (1988).
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such a
body. xPhilippine Stock Exchange, Inc. v. Court of Appeals, 281
SCRA 232 (1997).
Creature of the Law
1. Constitution - Sec 16 Art XII consti
SECTION 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability.
NDC vs Phil Veterans bank, 192 scra 257 1990
1. Constitutional Law; Police Power; A legislative act based on the
police power requires the concurrence of a lawful subject and a lawful
method.-
A legislative act based on the police power requires the concurrence
of a lawful subject and a lawful method. In more familiar words, a)
the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and b) the
means employed are reasonably necessary for the accomplishment of
the purpose and not unduly oppressive upon individuals.
2. Constitutional Law; Police Power; Due Process; Private
property cannot simply be taken by law from one person and given to
another without any compensation and any known public purpose.-
A mortgage lien is a property right derived from contract and so comes
under the protection of the Bill of Rights. So do interests on loans, as
well as penalties and charges, which are also vested rights once they
accrue. Private property cannot simply be taken by law from one
person and given to another without compensation and any known
public purpose. This is plain arbitrariness and is not permitted under
the Constitution.
3. Constitutional Law; Police Power; Due Process; Impairment
Clause; While it is true that police power is superior to the impairment
clause, the principle will apply only where the contract is so related to
the public welfare that it will be considered congenitally susceptible
to change by the legislature in the interest of the greater number.-
The Court also feels that the decree impairs the obligation of the
contract between AGRIX and the private respondent without
justification. While it is true that the police power is superior to the
impairment clause, the principle will apply only where the contract is
so related to the public welfare that it will be considered congenitally
susceptible to change by the legislature in the interest of the greater
number. Most present-day contracts are of that nature. But as already
observed, the contracts of loan and mortgage executed by AGRIX are
purely private transactions and have not been shown to be affected
with public interest. There was therefore no warrant to amend their
provisions and deprive the private respondent of its vested property
rights.
4. Constitutional Law; Police Power; Presidential Decree No.
1717; Presidential Decree 1717 is an invalid exercise of police power,
not being in conformity with the traditional requirements of a lawful
subject and a lawful method.-
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Our finding, in sum, is that Pres. Decree No. 1717 is an invalid
exercise of the police power, not being in conformity with the
traditional requirements of a lawful subject and a lawful method. The
extinction of the mortgage and other liens and of the interest and other
charges pertaining to the legitimate creditors of AGRIX constitutes
taking without due process of law, and this is compounded by the
reduction of the secured creditors to the category of unsecured
creditors in violation of the equal protection clause. Moreover, the new
corporation, being neither owned nor controlled by the Government,
should have been created only by general and not special law. And
insofar as the decree also interferes with purely private agreements
without any demonstrated connection with the public interest, there is
likewise an impairment of the obligation of the contract.
Feliciano vs COA GR 147402 Jan 14 2004
1. Commission on Audit; Jurisdiction; The COA’s audit
jurisdiction extends not only to government “agencies or
instrumentalities,” but also to “government-owned and controlled
corporations with original charters as well as “other government-
owned or controlled corporations” without original charters.-
The Constitution and existing laws mandate COA to audit all
government agencies, including government-owned and controlled
corporations (“GOCCs”) with original charters. An LWD is a GOCC
with an original charter. x x x The COA’s audit jurisdiction extends
not only to government “agencies or instrumentalities,” but also to
“government-owned and controlled corporations with original
charters” as well as “other government-owned or controlled
corporations” without original charters.
2. Commission on Audit; Jurisdiction; The determining factor of
COA’s audit jurisdiction is government ownership or control of the
corporation.-
The determining factor of COA’s audit jurisdiction is
governmentownership or control of the corporation. In Philippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,
the Court even ruled that the criterion of ownership and control is more
important than the issue of original charter.
3. Corporation Law; Congress cannot enact a law creating a private
corporation with a special charter; Since private corporations cannot
have special charters, it follows that Congress can create corporations
with special charters only if such corporations are government-owned
or controlled.-
In short, Congress cannot enact a law creating a private corporation
with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can
qualify as private corporations. Under existing laws, that general law
is the Corporation Code, except that the Cooperative Code governs the
incorporation of cooperatives. The Constitution authorizes Congress
to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special
charters, it follows that Congress can create corporations with special
charters only if such corporations are government-owned or
controlled.
4. Corporation Law; Local Water Districts; Local Water Districts
(LWDs) are not private corporations because they are not created
under the Corporation Code.-
Obviously, LWDs are not private corporations because they are not
created under the Corporation Code. LWDs are not registered with the
Securities and Exchange Commission. Section 14 of the Corporation
Code states that “[A]ll corporations organized under this code shall
file with the Securities and Exchange Commission articles of
incorporation x x x.” LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in
the case of all corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial governor
appoints the directors of LWDs for a fixed term of office.
5. Corporation Law; Local Water Districts; LWDs can validly
exist only if they are government-owned or controlled.-
LWDs exist by virtue of PD 198, which constitutes their special
charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can validly
exist only if they are government-owned or controlled. To claim that
LWDs are private corporations with a special charter is to admit that
their existence is constitutionally infirm.
6. Corporation Law; Local Water Districts; LWDs derive their
legal existence and power from PD 198.-
Unlike private corporations, which derive their legal existence and
power from the Corporation Code, LWDs derive their legal existence
and power from PD 198.
7. Corporation Law; Local Water Districts; The Sangguniang
Bayan may establish a waterworks system only in accordance with the
provisions of PD 198.-
The Sangguniang Bayan may establish a waterworks system only in
accordance with the provisions of PD 198. The Sangguniang Bayan
has no power to create a corporate entity that will operate its
waterworks system. However, the Sangguniang Bayan may avail of
existing enabling laws, like PD 198, to form and incorporate a water
district, Besides, even assuming for the sake of argument that the
Sangguniang Bayan has the power to create corporations, the LWDs
would remain government-owned or controlled corporations subject
to COA’s audit jurisdiction. The resolution of the Sangguniang Bayan
would constitute an LWD’s special charter, making the LWD a
goyernment-owned and controlled corporation with an original
charter.
8. Corporation Law; Local Water Districts; The board directors
and other personnel of LWDs are government employees subject to
civil service laws and anti-graft laws.-
The government owns and controls LWDs. The government organizes
LWDs in accordance with a specific law, PD 198. There is no private
party involved as co-owner in the creation of an LWD. Just prior to
the creation of LWDs, the national or local government owns and
controls all their assets. The government controls LWDs because
under PD 198 the municipal or city mayor, or the provincial governor,
appoints all the board directors of an LWD for a fixed term of six
years. The board directors of LWDs are not co-owners of the LWDs.
LWDs have no private stockholders or members. The board directors
and other personnel of LWDs are government employees subject to
civil service laws and anti-graft laws.
2. Civil Code Art 44, 45
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.
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding
article are governed by the laws creating or recognizing them.
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Private corporations are regulated by laws of general application on
the subject. Partnerships and associations for private interest or
purpose are governed by the provisions of this Code concerning
partnerships.
3. Franchise
The right conferred by the government to engage
in a specific business or to exercise corporate powers.
JRS vs Imperial Insurance 11 scra 634 1964
1. Corporation law; Secondary franchise; Messenger service.-
The right to operate a messenger and delivery service by virtue of a
legislative enactment is a secondary franchise.
2. Corporation law; Secondary franchise; Subject to execution
sale.-
A secondary franchise is subject to levy and sale on execution together
with all the property necessary for the enjoyment thereof.
3. Corporation law; Secondary franchise; Procedure.-
A secondary franchise and the property necessary for its enjoyment
can be sold under execution only when such sale is especially decreed
and ordered in the judgment and it becomes effective only when such
sale is confirmed by the Court after due notice.
4. Corporation law; Secondary franchise; Effect of absence of
special decree.-
Where the judgment does not contain any special decree making the
franchise of a private corporation answerable for its judgment debt,
the inclusion of said corporation's franchise, trade name and capital
stocks in the execution sale of its properties has no justification and
such sale should be set aside in so far as it authorizes such levy and
sale.
Four Attributes of a corporation
a) A corporation is an artificial being
b) Created by operation of law
c) With right of succession
d) Only has powers, attributes and properties expressly authorized
by law or incident to its existence
**Advantages and disadvantages of the Corporate Form
Advantages of corporate form of business:
1. Capacity to act as a single unit;
2. Limited shareholder‟s liability;
3. Continuity in existence;
4. Feasibility of greater undertaking;
5. Transferability of shares;
6. Centralized management;
7. Standardized method of organization, management and finance.
Disadvantage of corporate form of business:
1. To have valid and binding corporate act, formal proceedings,
such as board meetings are required.
2. The business transactions of a corporation is limited to the State
of its incorporation and may not act as such corporation in other
jurisdiction unless it has obtained a license or authority from the
foreign state.
3. The shareholders‟ limited liability tends to limit the credit
available to the corporation as a separate legal entity.
4. By the very nature of shares of stock which are personal
properties, transferable at will by the owners thereof, transfers of
 share may result to uniting incompatible and conflicting
interests.
5. The minority shareholders have practically no say in the conduct
of corporate affairs.
6. In large scale enterprises, stockholders‟ voting rights may
become merely fictitious and theoretical because of disinterest in
management, wide-scale ownership and inaccessible place of
meeting.
7. Double taxation may be imposed on corporate income.
8. Corporations are subject to governmental regulations
supervision and control including submission of reportorial
requirements not otherwise imposed in other business form.
The corporate entity compared with other business endeavors:
1. Sole Proprietorship
Mangila vs CA 435 Phil 870,886 2002
1. Actions; Attachments; Pleadings and Practice; A party to a suit
may, at any time after filing the complaint, avail of the provisional
remedies under the Rules of Court, and, specifically, Rule 57 on
preliminary attachment speaks of the grant of the remedy “at the
commencement of the action or at any time thereafter.”-
As a preliminary note, a distinction should be made between issuance
and implementation of the writ of attachment. It is necessary to
distinguish between the two to determine when jurisdiction over the
person of the defendant should be acquired to validly implement the
writ. This distinction is crucial in resolving whether there is merit in
petitioner’s argument. This Court has long settled the issue of when
jurisdiction over the person of the defendant should be acquired in
cases where a party resorts to provisional remedies. A party to a suit
may, at any time after filing the complaint, avail of the provisional
remedies under the Rules of Court. Specifically, Rule 57 on
preliminary attachment speaks of the grant of the remedy “at the
commencement of the action or at any time thereafter.” This phrase
refers to the date of filing of the complaint which is the moment that
marks “the commencement of the action.” The reference plainly is to
a time before summons is served on the defendant, or even before
summons issues.
2. Actions; Attachments; The grant of the provisional remedy of
attachment involves three stages—the issuance by the court of the
order granting the application, the issuance of the writ of attachment
pursuant to the order, and the implementation of the writ; For the
initial two stages, it is not necessary that jurisdiction over the person
of the defendant be first obtained, but once the implementation of the
writ commences, the court must have acquired jurisdiction over the
defendant.-
Furthermore, we have held that the grant of the provisional remedy of
attachment involves three stages: first, the court issues the order
granting the application; second, the writ of attachment issues
pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that
jurisdiction over the person of the defendant be first obtained.
However, once the implementation of the writ commences, the court
must have acquired jurisdiction over the defendant for without such
jurisdiction, the court has no power and authority to act in any manner
against the defendant. Any order issuing from the Court will not bind
the defendant.
3. Actions; Attachments; Summons by Publication; If the
defendant’s whereabouts could not be ascertained after the sheriff had
served the summons at her given address, then plaintiff should
immediately ask the court for service of summons by publication on
the defendant; The condition of a resident temporarily out of the
country is the exact situation contemplated in Section 16, Rule 14 of
4
the Rules of Civil Procedure, providing for service of summons by
publication.-
The rules provide for certain remedies in cases where personal service
could not be effected on a party. Section 14, Rule 14 of the Rules of
Court provides that whenever the defendant’s “whereabouts are
unknown and cannot be ascertained by diligent inquiry, service may,
by leave of court, be effected upon him by publication in a newspaper
of general circulation x x x.” Thus, if petitioner’s whereabouts could
not be ascertained after the sheriff had served the summons at her
given address, then respondent could have immediately asked the
court for service of summons by publication on petitioner. Moreover,
as private respondent also claims that petitioner was abroad at the time
of the service of summons, this made petitioner a resident who is
temporarily out of the country. This is the exact situation contemplated
in Section 16, Rule 14 of the Rules of Civil Procedure, providing for
service of summons by publication.
4. Actions; Attachments; An alias summons belatedly served on a
defendant cannot be deemed to cure the fatal defect in the enforcement
of the writ of preliminary attachment.-
In conclusion, we hold that the alias summons belatedly served on
petitioner cannot be deemed to have cured the fatal defect in the
enforcement of the writ. The trial court cannot enforce such a coercive
process on petitioner without first obtaining jurisdiction over her
person. The preliminary writ of attachment must be served after or
simultaneous with the service of summons on the defendant whether
by personal service, substituted service or by publication as warranted
by the circumstances of the case. The subsequent service of summons
does not confer a retroactive acquisition of jurisdiction over her person
because the law does not allow for retroactivity of a belated service.
5. Actions; Venue; A mere stipulation on the venue of an action is not
enough to preclude parties from bringing a case in other venues—the
parties must be able to show that such stipulation is exclusive; Venue
stipulations in a contract, while considered valid and enforceable, do
not as a rule, supersede the general rule set forth in Rule 4 of the
Revised Rules of Court.-
The Rules of Court provide that parties to an action may agree in
writing on the venue on which an action should be brought. However,
a mere stipulation on the venue of an action is not enough to preclude
parties from bringing a case in other venues. The parties must be able
to show that such stipulation is exclusive. Thus, absent words that
show the parties’ intention to restrict the filing of a suit in a particular
place, courts will allow the filing of a case in any venue, as long as
jurisdictional requirements are followed. Venue stipulations in a
contract, while considered valid and enforceable, do not as a rule
supersede the general rule set forth in Rule 4 of the Revised Rules of
Court. In the absence of qualifying or restrictive words, they should
be considered merely as an agreement on additional forum, not as
limiting venue to the specified place.
6. Actions; Venue; Parties; Sole Proprietorships; A sole
proprietorship does not have a separate juridical personality that could
enable it to file a suit in court—there is no law authorizing sole
proprietorships to file a suit in court.-
In the instant case, it was established in the lower court that petitioner
resides in San Fernando, Pampanga while private respondent resides
in Parañaque City. However, this case was brought in Pasay City,
where the business of private respondent is found. This would have
been permissible had private respondent’s business been a
corporation, just like the case in Sy v. Tyson Enterprises, Inc.
However, as admitted by private respondent in her Complaint in the
lower court, her business is a sole proprietorship, and as such, does
not have a separate juridical personality that could enable it to file a
suit in court. In fact, there is no law authorizing sole proprietorships
to file a suit in court. A sole proprietorship does not possess a juridical
personality separate and distinct from the personality of the owner of
the enterprise. The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted for profit
by a single individual and requires its proprietor or owner to secure
licenses and permits, register its business name, and pay taxes to the
national government. The law does not vest a separate legal
personality on the sole proprietorship or empower it to file or defend
an action in court.
7. Actions; Venue; Parties; Sole Proprietorships; It is the residence
of the proprietor which should be considered as one of the proper
venues, not the business address of the sole proprietorship.-
Thus, not being vested with legal personality to file this case, the sole
proprietorship is not the plaintiff in this case but rather Loreta Guina
in her personal capacity. In fact, the complaint in the lower court
acknowledges in its caption that the plaintiff and defendant are Loreta
Guina and Anita Mangila, respectively. The title of the petition before
us does not state, and rightly so, Anita Mangila v. Air Swift
International, but rather Anita Mangila v. Loreta Guina. Logically
then, it is the residence of private respondent Guina, the proprietor
with the juridical personality, which should be considered as one of
the proper venues for this case. All these considered, private
respondent should have filed this case either in San Fernando,
Pampanga (petitioner’s residence) or Parañaque (private respondent’s
residence). Since private respondent (complainant below) filed this
case in Pasay, we hold that the case should be dismissed on the ground
of improper venue.
8. Actions; Venue; The objective of the rules on venue to insure a just
and orderly administration of justice or the impartial and evenhanded
determination of every action and proceeding will not be attained if
the plaintiff is given unrestricted freedom to choose where to file the
complaint or petition.-
The rules on venue, like other procedural rules, are designed to insure
a just and orderly administration of justice or the impartial and
evenhanded determination of every action and proceeding. Obviously,
this objective will not be attained if the plaintiff is given unrestricted
freedom to choose where to file the complaint or petition.
2. Partnership Art 1768, 1772, 1775
Art. 1768. The partnership has a judicial personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of Article 1772, first paragraph.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a public
instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members thereof
to third persons.
Art. 1775. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may
contract in his own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-
ownership.
JM Tuazon vs Bolaños 95 phil 106 28 May 1954
1. PARTIES; REAL PARTY IN INTEREST; ATTORNEY MAY
BRING ACTION IN PLAINTIFF'S NAME.-
Section 2, Rule 2. of the Rules of Court requires that an action be
brought in the name of, but not necessarily by, the real property
interest. In fact the practice is for an attorney-at-law to bring the
action, that is, to file the complaint, in the name of the plaintiff.
5
2. PARTIES; CORPORATION AS PARTY MAY BE
REPRESENTED BY ANOTHER PERSON, NATURAL OR
JUDICIAL.-
There is nothing against one corporation being represented by another
person, natural or juridical, in a suit in court, for the true rule is that
"although a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2, Fletcher Cyc. E. 1082.)
3. COMPLAINTS; AMENDMENT TO CONFORM TO
EVIDENCE NOT NECESSARY TO RENDER JUDGMENT ON
FACTS PROVED THOUGH NOT ALLEGED.-
Where the facts shown entitled plaintiff to relief other than that asked
for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and
the appellate court may treat the pleading as amended to conform to
the evidence, although the pleadings were not actually amended.
(Citing Moran, Rules of Court, 1952 ed., 389-390.)
4. LAND REGISTRATION; REOPENING OF DECREE AFTER
ONE YEAR, NOT ALLOWED.-
A decree of registration can no longer be impunged on the ground of
fraud, error or lack of notice to defendant, after one year has elapsed
from the issuance and entry of the decree. Neither could the decree be
collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings, nor could title to that land
in derogation of that of plaintiff be acquired by adverse possession or
prescription since adverse, notorious and continuous possession under
claim of ownership is ineffective against Torrens title and the right to
secure possession under a decree of registration does not prescribe.
5. ACTIONS; IDENTITY OF CAUSE OF ACTION.-
Where one action is for the recovery of ownership and the other is for
recovery of possession, there is no identity of cause of action.
6. ACTIONS; CLASS SUIT.-
Where the action seeks relief for each individual plaintiff and not relief
for and on behalf of others, the action is not a class suit
3. Joint Venture
Aurbach vs Sanitary Wares 180 Scra 130 1989
Primelink Properties vs Lazatin, et. al, GR 167379 June 27 2006
Actions; Pleadings and Practice; A pleading may add as general
prayer for such further or other relief as may be deemed just and
equitable—the prayer in the complaint for other reliefs equitable and
just in the premises justifies the grant of a relief not otherwise
specifically prayed for.—We agree with petitioners that respondents
did not specifically pray in their complaint below that possession of
the improvements on the parcels of land which they contributed to the
JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in
possession of the parcels of land subject of the agreement, and for
other “reliefs and such other remedies as are just and equitable in the
premises.” However, the trial court was not precluded from awarding
possession of the improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of Court provides that
a pleading shall specify the relief sought but it may add as general
prayer for such further or other relief as may be deemed just and
equitable. Even without the prayer for a specific remedy, proper relief
may be granted by the court if the facts alleged in the complaint and
the evidence introduced so warrant. The court shall grant relief
warranted by the allegations and the proof even if no such relief is
prayed for. The prayer in the complaint for other reliefs equitable and
just in the premises justifies the grant of a relief not otherwise
specifically prayed for.
Partnerships; Joint Venture Agreements (JVAs); A JVA is a form of
partnership, and as such is to be governed by the laws on
partnership.—We agree with the CA ruling that petitioner Primelink
and respondents entered into a joint venture as evidenced by their JVA
which, under the Court’s ruling in Aurbach, is a form of partnership,
and as such is to be governed by the laws on partnership.
Same; Same; Dissolution of Partnerships; On dissolution, the
partnership is not terminated but continues until the winding up of
partnership affairs is completed.—When the RTC rescinded the JVA
on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA,
the court thereby dissolved/cancelled the partnership. With the
rescission of the JVA on account of petitioners’ fraudulent acts, all
authority of any partner to act for the partnership is terminated except
so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished. On dissolution, the
partnership is not terminated but continues until the winding up of
partnership affairs is completed. Winding up means the administration
of the assets of the partnership for the purpose of terminating the
business and discharging the obligations of the partnership.
Same; Same; Same; Unless otherwise agreed, the parties who have
not wrongfully dissolved the partnership have the right to wind up the
partnership affairs.—The transfer of the possession of the parcels of
land and the improvements thereon to respondents was only for a
specific purpose: the winding up of partnership affairs, and the
partition and distribution of the net partnership assets as provided by
law. After all, Article 1836 of the New Civil Code provides that unless
otherwise agreed by the parties in their JVA, respondents have the
right to wind up the partnership affairs: Art. 1836. Unless otherwise
agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not
insolvent, has the right to wind up the partnership affairs, provided,
however, that any partner, his legal representative or his assignee,
upon cause shown, may obtain winding up by the court.
Same; Same; Same; Until the partnership accounts are determined, it
cannot be ascertained how much any of the parties is entitled to, if at
all.—It must be stressed, too, that although respondents acquired
possession of the lands and the improvements thereon, the said lands
and improvements remained partnership property, subject to the rights
and obligations of the parties, inter se, of the creditors and of third
parties under Articles 1837 and 1838 of the New Civil Code, and
subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any
agreement of the parties in their JVA to the contrary. Until the
partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all. It was thus premature
for petitioner Primelink to be demanding that it be indemnified for the
value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain
any provision designating any party to wind up the affairs of the
partnership.
4. Business Trusts Art 1441
Art. 1441. Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties. Implied trusts
come into being by operation of law.
The Corporation and the Bill of Rights:
1. Equal Protection
Smith Bell vs Natividad 40 phil 136 1919
6
1. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; CONSTRUCTION.-
The guaranties extended by the Congress of the United States to the
Philippine Islands have been used in the same sense as like provisions
found in the United States Constitution.
2. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ALIENS.-
The guaranties of the Fourteenth Amendment and so of the first
paragraph of the Philippine Bill of Rights, are universal in their
application to all persons within the territorial jurisdiction, without
regard to any differences of race, color, or nationality.
3. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
The word "person" found in the Fourteenth Amendment and in the
first sentence of the first paragraph of the Philippine Bill of Rights
includes aliens.
4. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
Private corporations are "persons" within the scope of the guaranties
in so far as their property is concerned.
5. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
Statutes which have attempted arbitrarily to forbid aliens to engage in
any kind of business to earn their living have been held
unconstitutional, while other statutes denying certain rights to aliens
have been held constitutional.
6. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; POLICE POWER.-
Neither the Fourteenth Amendment to the United States Constitution,
broad and comprehensive as it is, nor any other amendment, "was
designed to interfere with the power of the State, sometimes termed
its 'police power,' to prescribe regulations to promote the health, peace,
morals, education and good order of the people, and tolegislate so as
to increase the industries of the State, develop its resources and add to
its wealth and prosperity. From the very necessities of society,
legislation of a special character, having these objects in view, must
often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.
S., 27; New Orleans Gas Co. vs. Louisiana Light Co. [1885], 115 U.
S., 650.)
7. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
None of the provisions of the Philippine Organic Law could have had
the effect of denying to the Government of the Philippine Islands,
acting through its Legislature, the right to exercise that most essential,
insistent, and illimitable of powers, the. sovereign police power, in the
promotion of the general welfare and the public interest.
8. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
The public domain or the common property or resources of the people
of the State may be so regulated or distributed as to limit the use to its
citizens.
9. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS; ID.-
The limitation of employment in the construction of public works by,
or for, a state or a municipality to citizens of the United States or of a
State is permitted.
10. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS;ID.-
Our local experience and our peculiar local conditions, often of
controlling effect, have caused the executive branch of the
Government of the Philippine Islands, always later with the sanction
of the judicial branch, to take a firm stand with reference to the
presence of undesirable foreigners. The Government has thus assumed
to act for the allsufficient and primitive reasons of the benefit and
protection of its own citizens and of the self-preservation and integrity
of its dominion.
11. CONSTITUTIONAL LAW; PHILIPPINE BlLL OF
RlGHTS; FOURTEENTH AMENDMENT TO THE UNITED
STATES CONSTITUTION; DUE PROCESS OF LAW AND
EQUAL PROTECTION OF THE LAWS;ID.-
Common carriers which, in the Philippines as in the United States and
other countries, are affected with a public interest, can only be
permitted to use the public waters, deemed a part of the national
domain and open to public use, as a privilege, and under such
conditions as to the Legislature may seem wise.
12. CONSTITUTIONAL LAW; CONSTRUCTION; PUBLIC
POLICY.-
The judiciary, alive to the dictates of the national welfare, can properly
incline the scales of their decisions in favor of that solution which will
most effectively promote the public policy.
13. CONSTI LAW; CONSTRUCTION; PRESUMPTION.-
All the presumption is in f avor of the constitutionality of the law, and
without good and strong reasons a court should not attempt to nullify
the action of the Legislature.
14. CONSTITUTIONAL LAW; CONSTRUCTION; ID.-
That is the true construction which will best carry legislative intention
into effect.
15. CONSTITUTIONAL LAW; COMMERCE; UNITED
STATES COASTWISE TRADE.-
The power to regulate commerce, expressly delegated to the Congress
bythe Constitution, includes the power to nationalize ships built and
owned in the United States by registries and enrollments, and the
recording of the muniments of title of American vessels.
16. CONSTITUTIONAL LAW; COMMERCE; ID.-
Under the Acts of Congress of December 31, 1792, and February 18,
1793 (1 Stat. at L., 287, 305) in case of alienation to a foreigner, all
the privileges of an American bottom were ipso facto forfeited. No
vessel in which a foreigner was directly or indirectly interested could
lawfully be registered as a vessel of the United States.
17. CONSTITUTIONAL LAW; COMMERCE; ID.-
7
The Act of Congress of May 28, 1895 (29 Stat. at L., 188) extended
the privileges of registry from vessels wholly owned by a citizen or
citizens of the United States to corporations created under the laws of
any of the states thereof. This law made it possible for a domestic
corporation to obtain the registry or enrollment of its vessels even
though some stock of the corporation was owned by aliens.
18. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ACT No. 2761, VALIDITY.-
The history of the different laws which have concerned the Philippine
coastwise trade is set out in the opinion. The last Act on the subject,
No. 2761, has returned to the restrictive idea of the original Customs
Administrative Act which in turn was merely a reflection of the
statutory language of the first American Congress,
19. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
Without any subterfuge, the apparent purpose of the Philippine
Legislature is seen to be to enact an antialien shipping act. The
'ultimate purpose of the Legislature is to encourage Philippine ship-
building.
20. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
The Philippine Legislature made up entirely of Filipinos, representing
the mandate of the Filipino people and the guardian of their rights,
acting under practically autonomous powers, and imbued with a
strong sense of Philippinism, has desired for these Islands safety from
foreign interlopers, the use of the common property exclusively by its
citizens and the citizens of the United States, and protection for the
common good of the people.
21. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
Act No. 2761 of the Philippine Legislature, limiting' certificates of the
Philippine registry to vessels of domestic ownership vested in some
one or more of the following classes of persons: (a) citizens or native
inhabitants of the Philippine Islands; (b) citizens of the United States
residing in the Philippine Islands; (c) any corporation or company
composed wholly of citizens of the Philippine Islands or of the United
States or both, is authorized by the Act of Congress of April 29, 1908,
with its specific delegation of authority to the Government of the
Philippine Islands to regulate the transportation of merchandise and
passengers between ports orplaces therein, and by the grant by the Act
of Congress of August 29, 1916, of general legislative power to the
Philippine Legislature.
22. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
While the plaintiff, a corporation having alien stockholders, is entitled
to the protection afforded by the due process of law and equal
protection of the laws clause of the Philippine Bill of Rights, yet Act
No. 2761, in denying to corporations such as the plaintiff the right to
register vessels in the Philippine coastwise trade, does not belong to
that vicious species of class legislation which must always be
condemned, but falls within authorized exceptions, notably, within the
purview of the police power.
23. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
Act No. 2761 does not violate the provisions of paragraph 1 of section
3 of the Act of Congress of August 29, 1916, providing "that no law
shall be enacted in said Islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person
therein the equal protection of the laws.”
24. CONSTITUTIONAL LAW; COMMERCE; PHILIPPINE
COASTWISE TRADE; ID.-
Act No. 2761 is held to be valid and constitutional.
2. Unreasonable search and seizure
Corporations are protected by the constitutional guarantee against
unreasonable searches and seizures, but that the officers of a
corporation from which documents, papers and things were seized
have no cause of action to assail the legality of the seizures, regardless
of the amount of shares of stock or of the interest of each of them in
said corporation, and whatever the offices they hold therein may be,
because the corporation has a personality distinct and separate from
those of said officers. The legality of a seizure can be contested only
by the party whose rights have been impaired thereby; and the
objection to an unlawful search is purely personal and cannot be
availed of by such officers of the corporation who interpose it for their
personal interests. xStonehill v. Diokno, 20 SCRA 383 (1967).
A corporation is but an association of individuals under an assumed
name and with a distinct legal entity. In organizing itself as a collective
body it waives no constitutional immunities appropriate for such body.
Its property cannot be taken without compensation; can only be
proceeded against by due process of law; and is protected against
unlawful discrimination. xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA
823, 837 (1971), quoting fromxHale v. Henkel, 201 U.S. 43, 50 L.Ed.
652.
Stonehill vs Diokno 20 scra 283 1967
1.Constitutional Law; Search warrants; Corporations; Only party
affected may contest legality of seizure effected by search warrants.-
Officers of certain corporations, from which documents, papers and
things were seized by means of search warrants, have no cause of
action to assail the legality of the seizures because said corporations
have personalities distinct and separate from those of said officers.
The legality of a seizure can be contested only by the party whose
rights have been impaired thereby. The objection to an unlawful
search is purely personal and cannot be availed of by third parties.
2. Constitutional Law; Evidence; When illegally seized evidence is
admissible.-
Officers of certain corporations cannot validly object to the use in
evidence against them of the documents, papers and things seized
from the offices and premises of the corporations since the right to
object to their admission in evidence belongs exclusively to the
corporations, to which the seized effects belong, and may not be
invoked by the corporate officers in proceedings against them in their
individual capacity.
3. Constitutional Law; Requisites for issuing search warrants.-
The Constitution provides that no warrant shall issue but upon
probable cause, to be determined by the judge, and that the warrant
shall particularly describe the things to be seized.
4. Constitutional Law; General search warrants.-
Search warrants, issued upon applications stating that the natural and
juridical persons therein named had committed a violation of Central
Bank laws, tariff and customs laws, Tax Code and Revised Penal Code
do not satisfy the constitutional requirements because no specific
offense had been alleged in said applications. It was impossible for the
judges, who issued the warrants, to have found the existence of
probable cause, which presupposes the introduction of competent
proof that the party against whom it is sought has performed particular
acts or committed specific omissions in violation of a specific penal
provision.
5. Constitutional Law; Why general warrants are outlawed.-
8
General search warrants are outlawed because they place the sanctity
of the domicile and the privacy of communication and correspondence
at the mercy of the whims, caprice or passion of peace officers.
6. Constitutional Law; Provision of Revised Rules of Court.-
To prevent the issuance of general warrants, the Supreme Court
amended the Old Rules of Court by providing in the Revised Rules of
Court that "no search warrant shall issue for more than one specific
offense”.
7. Constitutional Law; Warrants not describing particularly the
things to be seized.-
Search warrants authorizing the seizure of books of accounts and
records "showing all the business transactions" of certain persons,
regardless of whether the transactions were legal or illegal, contravene
the explicit command of the Bill of Rights that the things to be seized
should be particularly described and defeat its major objective of
eliminating general warrants.
8. Constitutional Law; Evidence; Abandonment of Moncado
ruling; Illegally seized documents are not admissible in evidence.-
The Moncado ruling, that illegally seized documents, papers and
things are admissible in evidence, must be abandoned. The exclusion
of such evidence is the only practical means of enforcing the
constitutional injunction against unreasonable searches and seizures.
The non-exclusionary rule is contrary to the letter and spirit of the
prohibition against unreasonable searches and seizures. If there is
competent evidence to establish probable cause of the commission of
a given crime by the party against whom the warrant is intended, then
there is no reason why the applicant should not comply with the
constitutional requirements If he has no such evidence, then it is not
possible for the judge to find that there is a probable cause, and, hence,
no justifica- tion for the issuance of the warrant. The only possible
explanation for the issuance in that case is the necessity of fishing for
evidence of the commission of a crime. Such a fishing expedition is
indicative of the absence of evidence to establish a probable cause.
9. Constitutional Law; Search and Seizure; Lack of standard of
petitioners cannot affect illegality of search and seizure.-
That the petitioners have no legal standing to ask for the suppression
of the papers, things, and effects seized from places other than their
residences, cannot in any manner affect, alter, or otherwise modify the
intrinsic nullity of the search warrants and the intrinsic illegality of the
searches and seizures made thereunder. Whether or not petitioners
possess legal standing, the said warrants are void and remain void, and
the searches and seizures were illegal and remain illegal. No inference
can be drawn from the words of the Constitution that "legal standing",
or the lack of it, is a determinant of the nullity or validity of a Search
warrant or of the lawfulness or illegality of a search or seizure.
10. Constitutional Law; Provision on search and seizure is derived
from Federal Constitution.-
Our constitutional provision on searches and seizures was derived
almost verbatim from the Fourth Amendment to the United States
Constitution. In the many years of judicial construction and
interpretation of the said constitutional provision, our courts have
invariably regarded as doctrinal the pronouncements made on the
Fourth Amendment by federal courts, especially the Federal Supreme
Court and the Federal Circuit Courts of Appeals. The U.S. doctrines
and pertinent cases on standing to move for the suppression or return
of documents, papers and effects, which are the fruits of an unlawful
search and seizure, may be summarized as follows: (a) ownership of
documents, papers, and effects gives "standing"; (b) ownership and/or
control or possession—actual or constructive—of premises searched
gives "standing"; and (c) the "aggrieved person" doctrine where the
search warrant and the sworn application for search warrant are
"primarily" directed solely and exclusively 'against the "aggrieved
person", gives "standing". An examination of the search warrants in
this case will readily show that, excepting three, all were directed
against the petitioners personally. In some of them, the petitioners
were named personally, followed by the designation, "The President
and/or General Manager" of the particular corporation. The three
warrants excepted named three corporate defendants. But the
"office/house/warehouse/premises" mentioned in the said three
warrants were also the same "office/house/warehouse/premises"
declared to be owned by or under the control of the petitioners in all
the other search warrants directed against the petitioners and/or "the
President and/or General Manager" of the particular corporation. The
searches and seizures were to be made, and were actually made, in the
"office/house/warehouse/premises" owned by or under the control of
the petitioners.
11. Constitutional Law; Ownership of properties seized entitles
petitioners to bring motion to return and suppress and gives them
standing as persons aggrieved by unlawful search and seizure.-
Ownership of the properties seized alone entitles the petitioners to
bring a motion to return and suppress, and gives them standing as
persons aggrieved by an unlawful search and seizure regardless of
their location at the time of seizure. Under the constitutional provision
against unlawful searches and seizures, a person places himself or his
property within a constitutionally protected area, be it his home or his
office, his hotel room or his automobile.
12. Constitutional Law; Control of premises searched gives
"standing".-
Independent of ownership or other personal interest in the records and
documents seized, the petitioners have standing to move for return and
suppression by virtue of their proprietary or leasehold interest in many
of the premises searched. These proprietary and leasehold interests
have been sufficiently set forth in their motion for reconsideration and
need not be recounted here. It has never been held that a person with
requisite interest in the premises searched must own the property
seized in order to have standing in a motion to return and suppress.
Bache & Co. Vs Ruiz 37 Scra 823 1971
Remedial law; Search warrant; Procedure for the issuance
warrant; Examination of the complainant and witnesses by the judge
himself.—The examination of the complainant and the witnesses he
may produce, required by Art. 111, Sec. 1, par. 3, of the Constitution,
and Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be
conducted by the judge himself and net by others. The implementing
rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic
and candid, for it requires the judge, before issuing a search warrant,
to personally examine on oath or affirmation the complainant and any
witnesses he may produce. Personal examination by the judge of the
complainant and his witnesses is necessary to enable him to determine
the existence or non-existence of a probable cause, pursuant to Art.
111, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the
Revised Rules of Court, both of which prohibit the issuance of
warrants except “upon probable cause.” The determination of whether
or not a probable cause exists calls for the exercise of judgment after
a judicial appraisal of facts and should not be allowed to be delegated
in the absence of any rule to the contrary.
Same; Same; Deposition taken by Deputy Clerk of Court does not
comply with constitutional mandate.—The participation of
respondent Judge in the proceedings which led to the issuance of
Search Warrant No. 2-M-70 was thus limited to listening to the
stenographer’s reading of her notes, to a few words of warning against
the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be considered as a personal
examination. If there was an examination at all of the complainant and
his witness, it was the one conducted by the Deputy Clerk of Court.
But the Constitution and the rules required a personal examination by
the judge. It was precisely on account of the intention of the delegates
to the Constitutional Convention to make it a duty of the issuing judge
9
to personally examine the complainant and his witnesses that the
question of how much time would be consumed by the judge in
examining them came up before the Convention. The reading of the
stenographic notes to respondent judge did not constitute sufficient
compliance with the constitutional mandate and the rule; for by that
manner respondent judge did not have opportunity to observe the
demeanor of the complainant and his witness, and to propound initial
and follow-up questions which the judicial mind, on account of its
training, was in the best position to conceive. These were important in
arriving at a sound inference on the all-important question of whether
or not there was probable cause.
Same; Same; Search warrant to issue for one specific offense.—The
Supreme Court deemed it fit to amend Section 3 of Rule 122 of the
former Rules of Court by providing in its counterpart, under the
Revised Rules of Court, that “a search warrant shall not issue but upon
probable cause in connection with one specific offense.” Not satisfied
with this qualification, the Supreme Court added thereto a paragraph,
directing that “no search warrant shall issue for more than one specific
offense.”
Same; Same; Particular description of things to be seized.—Under
Art. 111, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, the warrant should particularly describe the
things to be seized.
Same; Seizure; Seizure of records pertaining to all business
transactions not a particular description.—The warrants authorized the
search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the
transactions were legal or illegal. The warrants sanctioned the seizure
of all records of the petitioners and corporations, whatever their
nature, thus openly contravening the explicit command of the Bill of
Rights—that the things to be seized be particularly described —as
well as tending to defeat its major objective; the elimination of general
warrants.
Same; Same; Purpose of particular description of things to be
seized.—A search warrant should particularly describe the place to be
searched and the things to be seized. The evident purpose and intent
of this requirement is to limit the things to be seized to those, and only
those, particularly described in the search warrant—to leave the
officers of the law with no discretion regarding what articles they shall
seize, to the end that “unreasonable searches and seizures may not be
made,—that abuses may not be committed.
Same; Same; Where there is a particular description of things to be
seized.—A search warrant may be said to particularly describe the
things to be seized when the description therein is as specific as the
circumstances will ordinarily allow; or when the description expresses
a conclusion of fact—not of law—by which the warrant officer may
be guided in making the search and seizure; or when the things
described are limited to those which bear direct relation to the offense
for which the warrant is being issued. If the articles desired to be
seized have any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those articles, to
prove the said offense; and the articles subject of search and seizure
should come in handy merely to strengthen such evidence.
Special civil action; Certiorari; When motion for reconsideration is
not a prerequisite to the institution of petition for certiorari.—When
the questions raised before the Supreme Court are the same as those
which were squarely raised in and passed upon by the court below, the
filing of a motion for reconsideration in said court before certiorari
can be instituted in the Supreme Court is no longer a prerequisite. The
rule requiring the filing of a motion for reconsideration before an
application for a writ of certiorari can be entertained was never
intended to be applied without considering the circumstances. The rule
does not apply where, the deprivation of petitioners’ fundamental right
to due process taints the proceeding against them in the court below
not only with irregularity but also with nullity.
Remedial law; Search and seizures; Right of corporation against
unreasonable searches and seizures.—A corporation is entitled to
immunity against unreasonable searches and seizures. A corporation
is, after all, but an association of individuals under an assumed name
and with a distinct legal entity. In organizing itself as a collective body
it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected against
unlawful discrimination.
Same; Same; Who can contest legality of seizure.—It is well settled
that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an
unlawful search and seizure is purely personal and cannot be availed
of by third parties. Consequently, petitioners herein may not validly
object to the use in evidence against them of the documents, papers
and things seized from the offices and premises of the corporations,
since the right to object belongs exclusively to the corporations, to
whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual
capacity.
3. Self-Incrimination
“It is elementary that the right against self-incrimination has no
application to juridical persons.” Bataan Shipyard & Engineering Co
v. PCGG, 150 SCRA 181, 234-235 (1987).
While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow
that a corporation, vested with special privileges and franchises may
refuse to show its hand when charged with an abuse of such
privilege. xHale v. Henkel, 201 U.S. 43 (1906); xWilson v. United
States, 221 U.S. 361 (1911); xUnited States v. White, 322 U.S. 694
(1944).
Bataan Shipyard vs PCGG 150 scra 181 1987
1. Constitutional Law; Executive Orders Nos. 1 and 2 issued to
implement a constitutional mandate, valid and constitutional-
The impugned executive orders are avowedly meant to carry out the
explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, that the President—in the exercise of legislative
power which she was authorized to continue to wield "(u)ntil a
legislature is elected and convened under a new Constitution"—"shall
give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the leaders
and supporters of the previous regime and protect the interest of the
people through orders of sequestration or freezing of assets or
accounts.”
2. Constitutional Law; Executive orders not bill of attainder.-
Neither will this Court sustain the theory that the executive orders in
question are a bill of attainder. "A bill of attainder is a legislative act
which inflicts punishment without judicial trial." "Its essence is the
substitution of a legislative for a judicial determination of guilt." In
the first place, nothing in the executive orders can be reasonably
construed as a determination or declaration of guilt. On the contrary,
the executive orders, inclusive of Executive Order No. 14, make it
perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial
tribunal, in this case, the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place, no punishment is
inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore,
may the executive orders be regarded as a bill of attainder.
10
3. Constitutional Law; Right against self-incrimination has no
application to juridical persons and the constitutional safeguard
against unreasonable searches and seizures finds no application to the
case at bar either.+
2. Classification of corporation, sec 3 & 4
Sec. 3. Classes of corporations. - Corporations formed or organized
under this Code may be stock or non-stock corporations. Corporations
which have capital stock divided into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the
surplus profits on the basis of the shares held are stock corporations.
All other corporations are non-stock corporations.
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.
A. In relation to the State:
Public
Public corporations – those created, formed or organized for political
or governmental purposes with political powers to be exercised for
purposes connected with the public good in the administration of civil
government.
Private
Private corporations – those formed for some private purpose, benefit,
aim or end.
National Coal Co. Vs CIR 46 phil 583 ( 1924 )
1. THE NATIONAL COAL COMPANY, A PRIVATE
CORPORATION; SUBJECT TO THE PAYMENT OF INTERNAL
REVENUE UNDER THE PROVISIONS OF SECTION 1496 OF
THE ADMINISTRATIVE CODE.-
The National Coal Company is a private corporation. The fact that the
Government happens to be a stockholder therein does not make it a
public corporation. It is subject to all the provisions of the Corporation
Law in so far as they are not inconsistent with Act No. 2705. As a
private corporation, it has no greater rights, powers, or privileges than
any other corporation which might be organized for the same purpose
under the Corporation Law. It was not the intention of the legislature
to give it a preference, or right, or privilege over other legitimate
private corporations in the mining of coal. The law made no provision
for its occupation and operation of coal-bearing lands, to the exclusion
of other persons or corporations, under proper permission. The
National Coal Company being a private corporation, neither the lessee
nor the owner of the lands upon which it mined coal for the year in
question, is subject to the payment of the internal revenue duty
provided for in section 1496 of the Administrative Code.
Philippine Society vs COA GR 169752 ( 2007 )
Same; Same; Cases where statutes can be given retroactive effect.—
Statutes can be given retroactive effect in the following cases: (1)
when the law itself so expressly provides; (2) in case of remedial
statutes; (3) in case of curative statutes; (4) in case of laws interpreting
others; and (5) in case of laws creating new rights.
Corporation Law; Amendments introduced by C.A. No. 148 made it
clear that the petitioner was a private corporation and not an agency
of the government.—The amendments introduced by C.A. No. 148
made it clear that the petitioner was a private corporation and not an
agency of the government. This was evident in Executive Order No.
63, issued by then President of the Philippines Manuel L. Quezon,
declaring that the revocation of the powers of the petitioner to appoint
agents with powers of arrest “corrected a serious defect” in one of the
laws existing in the statute books.
Same; A reading of petitioner’s charter shows that it is not subject to
control or supervision by any agency of the State, unlike government-
owned and -controlled corporations.—A reading of petitioner’s
charter shows that it is not subject to control or supervision by any
agency of the State, unlike government-owned and -controlled
corporations. No government representative sits on the board of
trustees of the petitioner. Like all private corporations, the successors
of its members are determined voluntarily and solely by the petitioner
in accordance with its by-laws, and may exercise those powers
generally accorded to private corporations, such as the powers to hold
property, to sue and be sued, to use a common seal, and so forth. It
may adopt by-laws for its internal operations: the petitioner shall be
managed or operated by its officers “in accordance with its by-laws in
force.”
Same; Fact that employees of the petitioner are registered and covered
by the Social Security System at the latter’s initiative, and not through
the Government Service Insurance System which should be the case
if the employees are considered government employees is another
indication of petitioner’s nature as a private entity.—The employees
of the petitioner are registered and covered by the Social Security
System at the latter’s initiative, and not through the Government
Service Insurance System, which should be the case if the employees
are considered government employees. This is another indication of
petitioner’s nature as a private entity.
Same; Fact that a certain juridical entity is impressed with public
interest does not, by that circumstance alone, make the entity a public
corporation, inasmuch as a corporation may be private though its
charter contains provisions of a public character incorporated solely
for the public good.—The respondents contend that the petitioner is a
“body politic” because its primary purpose is to secure the protection
and welfare of animals which, in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a certain juridical
entity is impressed with public interest does not, by that circumstance
alone, make the entity a public corporation, inasmuch as a corporation
may be private although its charter contains provisions of a public
character, incorporated solely for the public good. This class of
corporations may be considered quasi-public corporations, which are
private corporations that render public service, supply public wants,
or pursue other eleemosynary objectives. While purposely organized
for the gain or benefit of its members, they are required by law to
discharge functions for the public benefit. Examples of these
corporations are utility, railroad, warehouse, telegraph, telephone,
water supply corporations and transportation companies. It must be
stressed that a quasi-public corporation is a species of private
corporations, but the qualifying factor is the type of service the former
renders to the public: if it performs a public service, then it becomes a
quasi-public corporation.
Same; The true criterion to determine whether a corporation is public
or private is found in the totality of the relation of the corporation to
the State.—The true criterion, therefore, to determine whether a
corporation is public or private is found in the totality of the relation
of the corporation to the State. If the corporation is created by the State
as the latter’s own agency or instrumentality to help it in carrying out
its governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They are
created by the State as its own device and agency for the
accomplishment of parts of its own public works.
11
Quasi Public
Feliciano, supra
GR 175352, July 15 2009 and resolution of January 18, 2011
1. Corporation Law; Philippine National Red Cross; A closer look
at the nature of the Philippine National Red Cross (PNRC) would
show that there is none like it not just in terms of structure, but also in
terms of history, public service and official status.-
—The passage of several laws relating to the PNRC’s corporate
existence notwithstanding the effectivity of the constitutional
proscription on the creation of private corporations by law, is a
recognition that the PNRC is not strictly in the nature of a private
corporation contemplated by the aforesaid constitutional ban. A closer
look at the nature of the PNRC would show that there is none like it
not just in terms of structure, but also in terms of history, public
service and official status accorded to it by the State and the
international community. There is merit in PNRC’s contention that its
structure is sui generis.
2. Same; Same; Same; View that the special status of the Philippine
National Red Cross (PNRC) under international humanitarian law
justifies the special manner of its creation.-
—The special status of the PNRC under international humanitarian
law justifies the special manner of its creation. The State itself
committed the PNRC’s formation to the community of nations, and no
less than an act of Congress should be deemed sufficient compliance
with such an obligation. To require the PNRC to incorporate under the
general law is to disregard its unique standing under international
conventions. It also ignores the very basic premise for the PNRC’s
creation.
3. Same; Same; Same; View that the Constitution does not preclude
the creation of corporations that may neither be classified as private
nor governmental.-
—The Constitution does not preclude the creation of corporations that
may neither be classified as private nor governmental. Sec. 7, Article
XIV of the 1935 Constitution, which was carried over in subsequent
versions of the fundamental law, does not prohibit Congress from
creating other types of organizations that may not fall strictly within
the terms of what is deemed a private or government corporation. The
Constitution simply provides that Congress cannot create private
corporations, except by general law, unless such corporations are
owned or controlled by the government. It does not forbid Congress
from creating organizations that do not belong to these two general
types.
4. Same; Same; Same; View that the Philippine National Red Cross
(PNRC) cannot be classified as either a purely private or government
entity.-
—The PNRC cannot be classified as either a purely private or
government entity. It is a hybrid organization that derives certain
peculiarities from international humanitarian law. For this reason, its
organizational character does not fit the parameters provided by either
the Corporation Code or Administrative Code. It is a sui generis entity
that draws its nature from the Geneva Conventions, the Statutes of the
Movement and the law creating it.
5. Same; Same; Same; View that the Philippine National Red Cross
(PNRC) cannot be regarded as a government corporation or
instrumentality.-
—The PNRC cannot also be regarded as a government corporation or
instrumentality. To begin with, it is not owned or controlled by the
government or part of the government machinery. The conditions for
its recognition as a National Society also militate against its
classification as a government entity.
6. Same; Same; Same; View that the Philippine National Red Cross
(PNRC) was not established by private individuals for profit or gain,
but by the State itself pursuant to the objectives of international
humanitarian law.-
—The State organized the PNRC to assist it in discharging its
commitments under the Geneva Conventions as an “auxiliary of the
public authorities in the humanitarian field.” It was not established by
private individuals for profit or gain, but by the State itself pursuant to
the objectives of international humanitarian law.
7. Corporation Law; Philippine National Red
Cross; Constitutional Law; View that when Congress created the
Philippine National Red Cross (PNRC), it did not intend to form either
a private or government-owned corporation with the usual powers and
attributes that such entities might possess.-
—The PNRC’s creation derived primarily from the Geneva
Conventions. When Congress created the PNRC, it did not intend to
form either a private or government-owned corporation with the usual
powers and attributes that such entities might possess. Rather, it set
out to form an organization that would be responsive to the
requirements of the Geneva Conventions.
8. Same; Same; Same; View that the Philippine National Red Cross
(PNRC) could either choose to remain unincorporated or it could
incorporate under the Corporation Code.-
—The PNRC could either choose to remain unincorporated or it could
adopt its own articles of incorporation and by-laws and incorporate
under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation.
9. Same; Same; Same; View that the Philippine National Red Cross
(PNRC) cannot claim that it is sui generis just because it is a private
organization performing certain public or governmental functions.-
—All private charitable organizations are doing public service or
activities that also constitute governmental functions. Hence, the
PNRC cannot claim that it is sui generis just because it is a private
organization performing certain public or governmental functions.
That the PNRC is rendering public service does not exempt it from the
constitutional prohibition against the creation of a private corporation
through a special law since the PNRC is, admittedly, still a private
organization. The express prohibition against the creation of private
corporations by special charter under Section 16, Article XII of the
1987 Constitution cannot be disregarded just because a private
corporation claims to be sui generis. The constitutional prohibition
admits of no exception.
10. Same; Same; Same; View that President Marcos could not issue
decrees or orders contrary to the provisions of the Constitution.-
—Even if the PNRC derived its existence from PD 1264, still the
constitutional prohibition will apply. President Marcos issued PD
1264 on 5 December 1977 during martial law period when the
President assumed extensive legislative power. Such assumption of
legislative power did not place President Marcos above the
Constitution. President Marcos could not issue decrees or orders
contrary to the provisions of the Constitution. The exercise of
legislative power by President Marcos under martial law must still be
in accordance with the Constitution because legislative power cannot
be exercised in violation of the Constitution from which legislative
power draws its existence.
11. Same; Same; Same; View that there is no prescription to declare
a law unconstitutional.-
—The fact that the constitutionality of RA 95 has not been questioned
for more than sixty (60) years does not mean that it could no longer be
declared unconstitutional. One is not estopped from assailing the
validity of a law just because such law has been relied upon in the past
and all that time has not been attacked as unconstitutional. Indeed,
there is no prescription to declare a law unconstitutional.
12
12. Corporation Law; Philippine National Red
Cross; Constitutional Law; View that the creation of the Philippine
National Red Cross (PNRC) through a special charter is violative of
the constitutional proscription against the creation of private
corporations by special law.-
—Since the PNRC is a private corporation, the creation of the PNRC
through a special charter is violative of the constitutional proscription
against the creation of private corporations by special law. The
creation of the PNRC by special charter on 22 March 1947 through
RA 95 contravenes Section 7, Article XIV of the 1935 Constitution,
as amended, which reads: SEC. 7. The Congress shall not, except by
general law, provide for the formation, organization, or regulation of
private corporations, unless such corporations are owned or controlled
by the Government or any subdivision or instrumentality thereof.
13. Same; Same; The Philippine National Red Cross (PNRC) has
responded to almost all national disasters since 1947, and is widely
known to provide a substantial portion of the country’s blood
requirements.-
—It bears emphasizing that the PNRC has responded to almost all
national disasters since 1947, and is widely known to provide a
substantial portion of the country’s blood requirements. Its
humanitarian work is unparalleled. The Court should not shake its
existence to the core in an untimely and drastic manner that would not
only have negative consequences to those who depend on it in times
of disaster and armed hostilities but also have adverse effects on the
image of the Philippines in the international community. The sections
of the PNRC Charter that were declared void must therefore stay.
14. Same; Same; The sui generis character of Philippine National
Red Cross (PNRC) requires us to approach controversies involving
the PNRC on a case-to-case basis.-
—Although it is neither a subdivision, agency, or instrumentality of
the government, nor a government-owned or controlled corporation or
a subsidiary thereof, as succinctly explained in the Decision of July
15, 2009, so much so that respondent, under the Decision, was
correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not
ipso facto imply that the PNRC is a “private corporation” within the
contemplation of the provision of the Constitution, that must be
organized under the Corporation Code. As correctly mentioned by
Justice Roberto A. Abad, the sui generis character of PNRC requires
us to approach controversies involving the PNRC on a case-to-case
basis.
B. As to place of incorporation
Domestic
Foreign ( sec 123 corp code )
Sec. 123. Definition and rights of foreign corporations. - For the
purposes of this Code, a foreign corporation is one formed, organized
or existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in
its own country or state. It shall have the right to transact business in
the Philippines after it shall have obtained a license to transact
business in this country in accordance with this Code and a certificate
of authority from the appropriate government agency.
C. As to nationality ( Sec 140 )
Sec. 140. Stock ownership in certain corporations. - Pursuant to the
duties specified by Article XIV of the Constitution, the National
Economic and Development Authority shall, from time to time, make
a determination of whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the provisions
thereof or of applicable laws, and shall submit to the Batasang
Pambansa, whenever deemed necessary, a report of its findings,
including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for
stockholdings in corporations declared by it to be vested with a public
interest pursuant to the provisions of this section, belonging to
individuals or groups of individuals related to each other by
consanguinity or affinity or by close business interests, or whenever it
is necessary to achieve national objectives, prevent illegal monopolies
or combinations in restraint or trade, or to implement national
economic policies declared in laws, rules and regulations designed to
promote the general welfare and foster economic development.
In recommending to the Batasang Pambansa corporations, business or
industries to be declared vested with a public interest and in
formulating proposals for limitations on stock ownership, the National
Economic and Development Authority shall consider the type and
nature of the industry, the size of the enterprise, the economies of
scale, the geographic location, the extent of Filipino ownership, the
labor intensity of the activity, the export potential, as well as other
factors which are germane to the realization and promotion of business
and industry.
Test -
Place of Incorporation control
1. Incorporation test – Determined by the state of incorporation,
regardless of the nationality of the stockholders.
Principal place of business
2. Domiciliary test – Determined by the principal place of business of
the corporation.
Investment test
1. Exploitation of natural resources
Register of Deeds vs Ung Sui Temple 97 Phil 58 1955.
1. CONSTITUTIONAL LAW; RlGHT TO ACQUIRE LANDS
LlMITED TO FlLIPINO CITIZENS; ACT 271 REPEALED BY
SECTION 5, ARTICLE XIII, OF THE CONSTITUTION.-
The provisions of Act No. 271 of the old Philippine Commission
which allow all religious associations, of whatever sort or
denomination, whether incorporated in the Philippines or in the name
of other country, to hold land in the Philippines for religious purposes,
must be deemed repealed by the absolute terms of section 5, Article
XIII, of the Constitution, which limit the acquisition of land in the
Philippines to its citizens, or to corporations or associations at least
sixty per centum of the capital stock of which is owned by such
citizens, adopted after the enactment of said Act No. 271.
2. CONSTITUTIONAL LAW; RlGHT TO ACQUIRE LANDS
LlMITED TO FlLIPINO CITIZENS; DEED OF DONATION
EXECUTED BY A FILIPINO CITIZEN IN FAVOR OF A
FOREIGN RELIGIOUS ORGANIZATION CAN NOT BE
REGISTERED.-
In view of the provisions of sections 1 and 5 of Article XIII of the
Constitution and the decision of the Supreme Court in the case of
Krivenko vs. The Register of Deeds of Manila, 44 Off. Gaz., 1211, a
deed of donation of a parcel of land executed by a Filipino citizen in
favor of a religious organization.
3. CONSTITUTIONAL LAW; RlGHT TO ACQUIRE LANDS
LlMITED TO FlLIPINO CITIZENS; REFUSAL OF REGISTER
OF DEEDS TO REGISTER DEED OF DONATION IS NOT
VlOLATIVE OF FREEDOM OF RELIGION CLAUSE.-
The refusal of the Register of Deeds to register said deed of donation
is not violative of the freedom of religion clause of the Constitution
13
(section 1 [7], Article III), since land tenure is by no means
indispensable to the free exercise and enjoyment of religious
profession or worship; or that one may not worship the Deity
according to the dictates of his own conscience unless upon land held
in fee simple.
2. Public Utilities - sec 11 Art XII Consti
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum
of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common
good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association
must be citizens of the Philippines.
People vs quasha 93 phil 333 ( 1953 )
1. Falsification; False Naration for not revealing a Certain Fact, not
Punishable if There is no Legal Obligation to Disclose the Truth.-
—It is essential to the commission of this crime that the perversion of
truth in a narration of facts must be made with the wrongful intent of
injuring a third person and even if such wrongful intent is proven, still
the untruthful statement will not constitute criminal falsification if
there is no legal obligation on the part of the narrator to disclose the
truth. (U. S. vs. Reyes, 1 Phil., 341; U. S. vs. Lopez, 15 Phil., 515.)
Wrongful intent to injure a third person and obligation on the part of
the narrator to disclose the truth are thus essential to , conviction for
the crime of falsification under articles 171 (4) and 172 (1) of the
Revised Penal Code.
2. Id.; Id.; Id.; Duty of Revealing the Ownership of the Capital of a
Corporation.-
—If the Constitution does not prohibit the mere formation of a public
utility corporation with alien capital, then how could the accused be
charged with having wrongfully intended to circumvent that
fundamental law by not disclosing in the articles of incorporation that
one of the incorporators, a Filipino, was a mere trustee of his American
co-incorporators and that for that reason the subscribed capital stock
of the corporation was wholly American? For the mere formation of
the corporation such disclosure was not essential, and the Corporation
Law does not require it. The accused was, therefore, under no
obligation to make it. In the absence of such obligation and of the
alleged wrongful intent on the part of the accused, he cannot legally
be convicted of the crime of falsification for having allegedly
perverted the truth in a narration of facts.
3. Mass media sec 11 (1) Art XVI consti
Section 11.
1. The ownership and management of mass media shall be
limited to citizens of the Philippines, or to corporations,
cooperatives or associations, wholly-owned and managed
by such citizens.
The Congress shall regulate or prohibit monopolies in
commercial mass media when the public interest so
requires. No combinations in restraint of trade or unfair
competition therein shall be allowed.
4.a Advertising Industry Sec 11 (2) art XVI Consti
1. The advertising industry is impressed with public interest,
and shall be regulated by law for the protection of
consumers and the promotion of the general welfare.
Only Filipino citizens or corporations or associations at least
seventy per centum of the capital of which is owned by such
citizens shall be allowed to engage in the advertising
industry.
The participation of foreign investors in the governing body
of entities in such industry shall be limited to their
proportionate share in the capital thereof, and all the
executive and managing officers of such entities must be
citizens of the Philippines.
5. War time test ( A.K.A Control Test )
Filipinas Compania vs Christern 89 phil 744 1952
3. Control test – Determined by the nationality of the controlling
stockholders or members. This test is applied in times of war.
6.a Grandfather rule
4. Grandfather rule – Nationality is attributed to the percentage of
equity in the corporation used in nationalized or partly nationalized
area.
D. As to purpose of incorporation
Municipal
Public corporations – those created, formed or organized for political
or governmental purposes with political powers to be exercised for
purposes connected with the public good in the administration of civil
government.
Quasi-public corporations – private corporations which have accepted
from the State the grant of a franchise or contract involving the
performance of public duties (public service corporations).
Religous ( Sec 109, 116 Corp Code )
Ecclesiastical (religious societies or corporation sole) and Lay
(eleemosynary or civil):
Ecclesiastical or religious corporations – those composed exclusively
of ecclesiastics organized for spiritual purposes or for administering
properties held for religious ones. They are further classified as
religious societies or corporation sole.
Lay corporations – those established for the purposes other than
religion. They are further classified as eleemosynary or civil.
Eleemosynary corporations are created for charitable and benevolent
purposes. Civil corporations are organized not for the purpose of
public charity but for the benefit, pecuniary or otherwise, of its
members.
Sec. 109. Classes of religious corporations. - Religious corporations
may be incorporated by one or more persons. Such corporations may
be classified into corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the
general provisions on non-stock corporations insofar as they may be
applicable.
14
Sec. 116. Religious societies. - Any religious society or religious
order, or any diocese, synod, or district organization of any religious
denomination, sect or church, unless forbidden by the constitution,
rules, regulations, or discipline of the religious denomination, sect or
church of which it is a part, or by competent authority, may, upon
written consent and/or by an affirmative vote at a meeting called for
the purpose of at least two-thirds (2/3) of its membership, incorporate
for the administration of its temporalities or for the management of its
affairs, properties and estate by filing with the Securities and
Exchange Commission, articles of incorporation verified by the
affidavit of the presiding elder, secretary, or clerk or other member of
such religious society or religious order, or diocese, synod, or district
organization of the religious denomination, sect or church, setting
forth the following:
1. That the religious society or religious order, or diocese, synod, or
district organization is a religious organization of a religious
denomination, sect or church;
2. That at least two-thirds (2/3) of its membership have given their
written consent or have voted to incorporate, at a duly convened
meeting of the body;
3. That the incorporation of the religious society or religious order, or
diocese, synod, or district organization desiring to incorporate is not
forbidden by competent authority or by the constitution, rules,
regulations or discipline of the religious denomination, sect, or church
of which it forms a part;
4. That the religious society or religious order, or diocese, synod, or
district organization desires to incorporate for the administration of its
affairs, properties and estate;
5. The place where the principal office of the corporation is to be
established and located, which place must be within the Philippines;
and
6. The names, nationalities, and residences of the trustees elected by
the religious society or religious order, or the diocese, synod, or
district organization to serve for the first year or such other period as
may be prescribed by the laws of the religious society or religious
order, or of the diocese, synod, or district organization, the board of
trustees to be not less than five (5) nor more than fifteen (15).
Educational ( Sec 106 and 108 Corp ) ( Sec 25 BP232 )
Sec. 106. Incorporation. - Educational corporations shall be
governed by special laws and by the general provisions of this Code.
Sec. 108. Board of trustees. - Trustees of educational institutions
organized as non-stock corporations shall not be less than five (5) nor
more than fifteen (15): Provided, however, That the number of trustees
shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation on the by-
laws, the board of trustees of incorporated schools, colleges, or other
institutions of learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1/5) of their number
shall expire every year. Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall hold office for five (5)
years. A majority of the trustees shall constitute a quorum for the
transaction of business. The powers and authority of trustees shall be
defined in the by-laws.
For institutions organized as stock corporations, the number and term
of directors shall be governed by the provisions on stock corporations.
Section 25. Establishment of Schools - All schools shall be
established in accordance with law. The establishment of new national
schools and the conversion of existing schools from elementary to
national secondary or tertiary schools shall be by law: Provided, That
any private school proposed to be established must incorporate as an
non-stock educational corporation in accordance with the provisions
of the Corporation Code of the Philippines. This requirement to
incorporate may be waived in the case of family-administered pre-
school institutions.
Government assistance to such schools for educational programs shall
be used exclusively for that purpose.
Charitable, Scientific or vocational
Business Corporation
E. As to number of members
Aggregate Corporation
Aggregate corporations are those composed of a number of
individuals vested with corporate powers. Except the corporation sole,
these are corporations registered under the corporation code consisting
of not less than 5 incorporators.
Corporation Sole ( Sec 110 to 115 Corp Code )
Sec. 110. Corporation sole. - For the purpose of administering and
managing, as trustee, the affairs, property and temporalities of any
religious denomination, sect or church, a corporation sole may be
formed by the chief archbishop, bishop, priest, minister, rabbi or other
presiding elder of such religious denomination, sect or church. (154a)
Sec. 111. Articles of incorporation. - In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi
or presiding elder of any religious denomination, sect or church must
file with the Securities and Exchange Commission articles of
incorporation setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and
that he desires to become a corporation sole;
2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his
becoming a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or
presiding elder, he is charged with the administration of the
temporalities and the management of the affairs, estate and
properties of his religious denomination, sect or church within his
territorial jurisdiction, describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi of presiding elder is
required to be filled, according to the rules, regulations or
discipline of the religious denomination, sect or church to which
he belongs; and
5. The place where the principal office of the corporation sole is to
be established and located, which place must be within the
Philippines.
The articles of incorporation may include any other provision not
contrary to law for the regulation of the affairs of the corporation. (n)
Sec. 112. Submission of the articles of incorporation. - The articles
of incorporation must be verified, before filing, by affidavit or
affirmation of the chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied by a copy of the
commission, certificate of election or letter of appointment of such
chief archbishop, bishop, priest, minister, rabbi or presiding elder,
duly certified to be correct by any notary public.
From and after the filing with the Securities and Exchange
Commission of the said articles of incorporation, verified by affidavit
or affirmation, and accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop, priest, minister,
15
rabbi or presiding elder shall become a corporation sole and all
temporalities, estate and properties of the religious denomination, sect
or church theretofore administered or managed by him as such chief
archbishop, bishop, priest, minister, rabbi or presiding elder shall be
held in trust by him as a corporation sole, for the use, purpose, behalf
and sole benefit of his religious denomination, sect or church,
including hospitals, schools, colleges, orphan asylums, parsonages
and cemeteries thereof. (n)
Sec. 113. Acquisition and alienation of property. - Any corporation
sole may purchase and hold real estate and personal property for its
church, charitable, benevolent or educational purposes, and may
receive bequests or gifts for such purposes. Such corporation may sell
or mortgage real property held by it by obtaining an order for that
purpose from the Court of First Instance of the province where the
property is situated upon proof made to the satisfaction of the court
that notice of the application for leave to sell or mortgage has been
given by publication or otherwise in such manner and for such time as
said court may have directed, and that it is to the interest of the
corporation that leave to sell or mortgage should be granted. The
application for leave to sell or mortgage must be made by petition,
duly verified, by the chief archbishop, bishop, priest, minister, rabbi
or presiding elder acting as corporation sole, and may be opposed by
any member of the religious denomination, sect or church represented
by the corporation sole: Provided, That in cases where the rules,
regulations and discipline of the religious denomination, sect or
church, religious society or order concerned represented by such
corporation sole regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such rules, regulations
and discipline shall control, and the intervention of the courts shall not
be necessary. (159a)
Sec. 114. Filling of vacancies. - The successors in office of any chief
archbishop, bishop, priest, minister, rabbi or presiding elder in a
corporation sole shall become the corporation sole on their accession
to office and shall be permitted to transact business as such on the
filing with the Securities and Exchange Commission of a copy of their
commission, certificate of election, or letters of appointment, duly
certified by any notary public.
During any vacancy in the office of chief archbishop, bishop, priest,
minister, rabbi or presiding elder of any religious denomination, sect
or church incorporated as a corporation sole, the person or persons
authorized and empowered by the rules, regulations or discipline of
the religious denomination, sect or church represented by the
corporation sole to administer the temporalities and manage the
affairs, estate and properties of the corporation sole during the vacancy
shall exercise all the powers and authority of the corporation sole
during such vacancy. (158a)
Sec. 115. Dissolution. - A corporation sole may be dissolved and its
affairs settled voluntarily by submitting to the Securities and
Exchange Commission a verified declaration of dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church;
4. The names and addresses of the persons who are to supervise the
winding up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the Securities and
Exchange Commission, the corporation shall cease to carry on its
operations except for the purpose of winding up its affairs.
Roman Catholic Administrator vs LRC 102 Phil 596 ( 1957 )
1. CORPORATION SOLE; COMPONENTS AND PURPOSE
OF; POWER TO HOLD AND TRANSMIT CHURCH
PROPERTIES TO His SUCCESSOR IN OFFICE.-
A corporation sole is a special form of corporation usually associated
with the clergy * * * designed to facilitate the exercise of the functions
of ownership of the church which was regarded as the property owner
(I Bouvier's Law Dictionary, p. 682-683). It consists of one person
only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them
some legal capacities and advantages particularly that of perpetuity
which in their natural persons they could not have. * * * (Reid vs.
Barry, 93 Fla. 849 112 So. 846). Through this legal fiction, church
properties acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not to his personal heirs but to his
successor in office. A corporation sole, therefore, is created not only
to administer the temporalities of the church or religious society where
he belongs, but also to hold and transmit the same to his successor in
said office.
2. CORPORATION SOLE; PERSONALITY OF, SEPARATE AND
DISTINCT FROM THAT OF ROMAN PONTIFF.-
Although a branch of the Universal Roman Catholic Apostolic
Church, every Roman Catholic Church in different countries, if it
exercises its mission and is lawfully incorporated in accordance with
the laws of the country where it is located, is considered an entity or
person with all the rights and privileges granted to such artificial being
under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice
to its religious relations with the latter which are governed by the
Cannon Law or their rules and regulations.
3. CORPORATION SOLE; POWER AND QUALIFICATION TO
PURCHASE IN ITS NAME PRIVATE LANDS; 60 PER CENTUM
FILIPINO CAPITAL REQUIREMENT NOT INTENDED TO
CORPORATION SOLE.-
Under the circumstances of the present case, it is safe to state that even
before the establishment of the Philippine Commonwealth and of the
Republic of the Philippines every corporation sole then organized and
registered had by express provision of law (Corporation Law, Public
Act No. 1459) the necessary power and qualification to purchase in its
name private lands located in the territory in which it exercised its
functions or ministry and for which it was created, independently of
the nationality of its incumbent unique and single member and head,
the bishop of the diocese. It can be also maintained without fear of
being gainsaid that the Roman Catholic Apostolic Church in the
Philippines has no nationality and that the framers of the Constitution
did not have in mind the religious corporation sole when they provided
that 60 per centum of the capital thereof be owned by Filipino citizens.
Thus, if this constitutional provision were not intended for corporation
sole, it is obvious that this could not be regulated or restricted by said
provision.
4. CORPORATION SOLE; CONSTITUTION REQUIREMENT
LIMITED TO OWNERSHIP NOT TO CONTROL.-
Both the Corporation Law and the Canon Law are explicit in their
provisions that a corporation sole or "ordinary" is not the owner of the
properties that he may acquire but merely the administrator thereof
and holds the same in trust for the church to which the corporation is
an organized and constituent part. Being mere administrator of the
temporalities or properties titled in his name, the constitutional
provision requiring 60 per centum Filipino ownership is not
applicable. The said constitutional provision is limited by its terms to
ownership alone and does not extend
5. CORPORATION SOLE; CORPORATION SOLE WITHOUT
NATIONALITY; NATIONALITY OF CONSTITUENTS
DETERMINES WHETHER CONSTITUTIONAL REQUIREMENT
is APPLICABLE.-
16
The corporation sole by reason of their peculiar constitution and form
of operation have no designed owner of its temporalities, although by
the terms of the law it can be safely implied that they ordinarily hold
them in trust for the benefit of the Roman Catholic faithful of their
respective locality or diocese. They can not be considered as aliens
because they have no nationality at all. In determining, therefore,
whether the constitutional provision requiring 60 per centum Filipino
capital is applicable to corporations sole, the nationality of the
constituents of the diocese, and not the nationality of the actual
incumbent of the parish, must be taken into consideration. In the
present case, even if the question of nationality be considered, the
aforesaid constitutional requirement is fully met and satisfied,
considering that the corporation sole in question is composed of an
overwhelming majority of Filipinos.
Republic vs Villanueva 114 scra 875 ( 1982 )
Corporations; Land Registration; Constitutional Law; A religious
corporation sole, which has no nationality, like the Iglesia ni Cnsto
cannot acquire lands beyond the limits prescribed by the
Constitution.—As correctly contended by the Solicitor General, the
Iglesia Ni Cristo, as a corporation sole or a juridical person, is
disqualified to acquire or hold alienable lands of the public domain,
like the two lots in question, because of the constitutional prohibition
already mentioned and because the said church is not entitled to avail
itself of the benefits of section 48(b) which applies only to Filipino
citizens or natural persons. A corporation sole (an “unhappy freak of
English law”) has no nationality (Roman Catholic Apostolic Adm. of
Dayao, Inc. vs. Land Registration Commission, 102 Phil. 596. See
Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec, 49 of
the Public Land Law).
Same; Same; Same; Same.—The contention in the comments, of the
Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots are
private lands, following the rule laid down in Susi vs. Razon and
Director of Lands, 48 Phil. 424, is not correct. What was considered
private land in the Susi case was a parcel of land possessed by a
Filipino citizen since time immemorial as in Cariño vs. Insular
Government, 212 U.S. 449, 53 L. ed 594, 41 Phil. 935 and 7 Phil. 132.
The lots sought to be registered in this case do not fall within that
category. They are still public lands. A land registration proceeding
under section 48(b) “presupposes that the land is public” (Mindanao
vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
Land Registration; A petition for confirmation of title presupposes
that the land pertains to the State.—In Uy Un vs. Perez, 71 Phil. 508,
it was noted that the right of an occupant of public agricultural land to
obtain a confirmation of his title under section 48(b) of the Public
Land Law is a “derecho dominical incoativo” and that before the
issuance of the certificate of title the occupant is not in the juridical
sense the true owner of the land since it still pertains to the State.
F. As to existence of shares ( sec 3 and 5 of corp code )
Sec. 3. Classes of corporations. - Corporations formed or organized
under this Code may be stock or non-stock corporations. Corporations
which have capital stock divided into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the
surplus profits on the basis of the shares held are stock corporations.
All other corporations are non-stock corporations.
Sec. 5. Corporators and incorporators, stockholders and
members. - Corporators are those who compose a corporation,
whether as stockholders or as members. Incorporators are those
stockholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and who are
signatories thereof.
Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called
members.

Stock
Requisites in order to be classified as stock corporations:
1. That they have a capital stock divided into shares; and
2. That they have authorized to distribute dividends or allotments
of surplus profits to its stockholders on the basis of the shares
held by each of them.
Non Stock ( sec 87 and 88 Corp code )
Non-Stock corporations primarily exist for purposes other than for
profit, it does not follow that they cannot make profit as an incident to
their operations. But a significant distinction between stock and non-
stock corporations is that profits obtained by the latter cannot be
distributed as dividends but are used merely for the furtherance of their
purpose.
Sec. 87. Definition. - For the purposes of this Code, a non-stock
corporation is one where no part of its income is distributable as
dividends to its members, trustees, or officers, subject to the
provisions of this Code on dissolution: Provided, That any profit
which a non-stock corporation may obtain as an incident to its
operations shall, whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which the corporation was
organized, subject to the provisions of this Title.
The provisions governing stock corporation, when pertinent, shall be
applicable to non-stock corporations, except as may be covered by
specific provisions of this Title. (n)
Sec. 88. Purposes. - Non-stock corporations may be formed or
organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes,
like trade, industry, agricultural and like chambers, or any
combination thereof, subject to the special provisions of this Title
governing particular classes of non-stock corporations.
CIR vs Club Filipino 5 scra 321 ( 1962 )
1. Taxation; Percentage Tax; Bar and Restaurant; When operator
not engaged in business.-
The liability for fixed and percentage taxes as provided by Sections
182, 183 and 191 of the Tax Code does not ipso facto attach by mere
reason of the operation of a bar and restaurant. For the liability to
attach, the operator thereof must be engaged in the business as a
barkeeper and restaurateur.
2. Taxation; Words and Phrases; "Business", meaning of.-
The plain and ordinary meaning of business is restricted to activities
or affairs where profit is the purpose or livelihood is the motive, and
the term business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to activities for
profit or livelihood.
3. Taxation; Club Filipino, Inc. de Cebu; Not engaged in bar and
restaurant.-
The Club Filipino, Inc. de Cebu was organized to develop and
cultivate sports of all class and denomination, for the healthful
recreation and entertainment of its stockholders and members; that
upon its dissolution, its remaining assets, after paying debts shall be
donated to a charitable Philippine Institution in Cebu; that it is
operated mainly with funds derived from membership fees and dues;
that the Club's bar and restaurant catered only to its members and their
guests; that there was in fact no cash dividend distribution to its
stockholders and that whatever was derived on retail from its bar and
restaurant was used to defray its overall overhead expenses and to
improve its golf course (cost-plus-expenses-basis), it stands to reason
17
that the Club is not engaged in the business of an operator of bar and
restaurant.
G. As to relationship of management and control
Holding company
Holding companies have been defined as corporations that confine
their activities to owning stock in, and supervising management of
other companies. A holding company usually owns a controlling
interest ( More than 50% of the voting stock ) in the companies whose
stocks it holds, thus it controls the latter by the power and authority to
elect management. As may be differentiated from investment
companies which are active in the sale or purchase of shares of stock
or securities, parent or holding companies have a passive portfolio and
hold the securities merely for purposes of control and management.
Affiliate Company
Affiliate are those corporations which are subject to common control
and operated as part of a system. They are sometimes called “sister
companies” since the stockholdings of a corporation is not substantial
enough to control the former.
Parent and subsidiary Company
There is a parent or holding company when one corporation controls
another corporation, or when one corporation controls several other
corporations known as its subsidiaries.
Subsidiary corporations are those which another corporation (i.e.
parent) owns at least a majority of the shares, and thus have control.
In effect, it is a corporation under the control of another corporation
which is the holding company.
H. Close Corporation
Close corporations – those whose shares of stock are held by limited
number of persons
Definition ( Sec 96 )
Sec. 96. Definition and applicability of Title. - A close corporation,
within the meaning of this Code, is one whose articles of incorporation
provide that: (1) All the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than
a specified number of persons, not exceeding twenty (20); (2) all the
issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public offering of any
of its stock of any class. Notwithstanding the foregoing, a corporation
shall not be deemed a close corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this
Code.
Any corporation may be incorporated as a close corporation, except
mining or oil companies, stock exchanges, banks, insurance
companies, public utilities, educational institutions and corporations
declared to be vested with public interest in accordance with the
provisions of this Code.
The provisions of this Title shall primarily govern close corporations:
Provided, That the provisions of other Titles of this Code shall apply
suppletorily except insofar as this Title otherwise provides.
Articles of Incorporation Requirements - Sec 97
Sec. 97. Articles of incorporation. - The articles of incorporation of
a close corporation may provide:
1. For a classification of shares or rights and the qualifications for
owning or holding the same and restrictions on their transfers as
may be stated therein, subject to the provisions of the following
section;
2. For a classification of directors into one or more classes, each of
whom may be voted for and elected solely by a particular class of
stock; and
3. For a greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that
the business of the corporation shall be managed by the stockholders
of the corporation rather than by a board of directors. So long as this
provision continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of
the corporation shall be deemed to be directors for the purpose of
applying the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all
liabilities of directors.
The articles of incorporation may likewise provide that all officers or
employees or that specified officers or employees shall be elected or
appointed by the stockholders, instead of by the board of directors.
Pre-emptive rights - Sec 102
Preemptive right.A shareholder's privilege to purchase newly issued
stock — before the shares are offered to the public — in an amount
proportionate to the shareholder's current holdings in order to prevent
dilution of the shareholder's ownership interest.
Sec. 102. Pre-emptive right in close corporations. - The pre-
emptive right of stockholders in close corporations shall extend to all
stock to be issued, including reissuance of treasury shares, whether for
money, property or personal services, or in payment of corporate
debts, unless the articles of incorporation provide otherwise.
Amendment Sec 103
Sec. 103. Amendment of articles of incorporation. - Any
amendment to the articles of incorporation which seeks to delete or
remove any provision required by this Title to be contained in the
articles of incorporation or to reduce a quorum or voting requirement
stated in said articles of incorporation shall not be valid or effective
unless approved by the affirmative vote of at least two-thirds (2/3) of
the outstanding capital stock, whether with or without voting rights,
or of such greater proportion of shares as may be specifically provided
in the articles of incorporation for amending, deleting or removing any
of the aforesaid provisions, at a meeting duly called for the purpose.
Restriction on Transfer of Shares - sec 98,99
Sec. 98. Validity of restrictions on transfer of shares. - Restrictions
on the right to transfer shares must appear in the articles of
incorporation and in the by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any purchaser thereof in
good faith. Said restrictions shall not be more onerous than granting
the existing stockholders or the corporation the option to purchase the
shares of the transferring stockholder with such reasonable terms,
conditions or period stated therein. If upon the expiration of said
period, the existing stockholders or the corporation fails to exercise
the option to purchase, the transferring stockholder may sell his shares
to any third person.
18
Sec. 99. Effects of issuance or transfer of stock in breach of
qualifying conditions. -
1. If stock of a close corporation is issued or transferred to any
person who is not entitled under any provision of the articles of
incorporation to be a holder of record of its stock, and if the
certificate for such stock conspicuously shows the qualifications
of the persons entitled to be holders of record thereof, such person
is conclusively presumed to have notice of the fact of his
ineligibility to be a stockholder.
2. If the articles of incorporation of a close corporation states the
number of persons, not exceeding twenty (20), who are entitled to
be holders of record of its stock, and if the certificate for such
stock conspicuously states such number, and if the issuance or
transfer of stock to any person would cause the stock to be held
by more than such number of persons, the person to whom such
stock is issued or transferred is conclusively presumed to have
notice of this fact.
3. If a stock certificate of any close corporation conspicuously shows
a restriction on transfer of stock of the corporation, the transferee
of the stock is conclusively presumed to have notice of the fact
that he has acquired stock in violation of the restriction, if such
acquisition violates the restriction.
4. Whenever any person to whom stock of a close corporation has
been issued or transferred has, or is conclusively presumed under
this section to have, notice either (a) that he is a person not eligible
to be a holder of stock of the corporation, or (b) that transfer of
stock to him would cause the stock of the corporation to be held
by more than the number of persons permitted by its articles of
incorporation to hold stock of the corporation, or (c) that the
transfer of stock is in violation of a restriction on transfer of stock,
the corporation may, at its option, refuse to register the transfer of
stock in the name of the transferee.
5. The provisions of subsection (4) shall not applicable if the transfer
of stock, though contrary to subsections (1), (2) of (3), has been
consented to by all the stockholders of the close corporation, or if
the close corporation has amended its articles of incorporation in
accordance with this Title.
6. The term "transfer", as used in this section, is not limited to a
transfer for value.
7. The provisions of this section shall not impair any right which the
transferee may have to rescind the transfer or to recover under any
applicable warranty, express or implied.
Agreement by SH - sec 100
Sec. 100. Agreements by stockholders. -
1. Agreements by and among stockholders executed before the
formation and organization of a close corporation, signed by all
stockholders, shall survive the incorporation of such corporation
and shall continue to be valid and binding between and among
such stockholders, if such be their intent, to the extent that such
agreements are not inconsistent with the articles of incorporation,
irrespective of where the provisions of such agreements are
contained, except those required by this Title to be embodied in
said articles of incorporation.
2. An agreement between two or more stockholders, if in writing and
signed by the parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance
with a procedure agreed upon by them.
3. No provision in any written agreement signed by the stockholders,
relating to any phase of the corporate affairs, shall be invalidated
as between the parties on the ground that its effect is to make them
partners among themselves.
4. A written agreement among some or all of the stockholders in a
close corporation shall not be invalidated on the ground that it so
relates to the conduct of the business and affairs of the corporation
 as to restrict or interfere with the discretion or powers of the board
of directors: Provided, That such agreement shall impose on the
stockholders who are parties thereto the liabilities for managerial
acts imposed by this Code on directors.
5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict fiduciary duties
to each other and among themselves. Said stockholders shall be
personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
No Necessity of Board - sec 101
Sec. 101. When board meeting is unnecessary or improperly
held. - Unless the by-laws provide otherwise, any action by the
directors of a close corporation without a meeting shall nevertheless
be deemed valid if:
1. Before or after such action is taken, written consent thereto is
signed by all the directors; or
2. All the stockholders have actual or implied knowledge of the
action and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the
express or implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action
in question and none of them makes prompt objection thereto in
writing.
If a director's meeting is held without proper call or notice, an action
taken therein within the corporate powers is deemed ratified by a
director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge
thereof.
Dulay enterprise, Incs. vs CA GR 91889 1993
1. Corporation Law; Petitioner corporation is classified as a close
corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the
Corporation for the action of its President.-
In the instant case, petitioner corporation is classified as a close
corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, a corporate
action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in this case,
petitioner Virgilio Dulay failed to do.
2. Corporation Law; Piercing the veil of corporate fiction; When
the corporation is used merely as an alter ego or business conduit of a
person, the law will regard the corporation as the act of that person.-
It is relevant to note that although a corporation is an entity which has
a personality distinct and separate from its individual stockholders or
members, the veil of corporate fiction may be pierced when it is used
to defeat public convenience, justify wrong, protect fraud or defend
crime. The privilege of being treated as an entity distinct and separate
from its stockholders or members is therefore confined to its
legitimate uses and is subject to certain limitations to prevent the
commission of fraud or other illegal or unfair act. When the
corporation is used merely as an alter ego or business conduit of a
person, the law will regard the corporation as the act of that person.
The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to
annul a valid contract executed by one of its members.
19
3. Civil Law; Sale; The mere execution of the deed of sale in a public
document is equivalent to the delivery of the property; Prior physical
delivery or possession not legally required.-
Under the aforementioned article, the mere execution of the deed of
sale in a public document is equivalent to the delivery of the property.
x x x x x x Therefore, prior physical delivery or possession is not
legally required since the execution of the Deed of Sale is deemed
equivalent to delivery.
Deadlocks Sec 104
Sec. 104. Deadlocks. - Notwithstanding any contrary provision in the
articles of incorporation or by-laws or agreement of stockholders of a
close corporation, if the directors or stockholders are so divided
respecting the management of the corporation's business and affairs
that the votes required for any corporate action cannot be obtained,
with the consequence that the business and affairs of the corporation
can no longer be conducted to the advantage of the stockholders
generally, the Securities and Exchange Commission, upon written
petition by any stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the Commission shall have
authority to make such order as it deems appropriate, including an
order: (1) canceling or altering any provision contained in the articles
of incorporation, by-laws, or any stockholder's agreement; (2)
canceling, altering or enjoining any resolution or act of the corporation
or its board of directors, stockholders, or officers; (3) directing or
prohibiting any act of the corporation or its board of directors,
stockholders, officers, or other persons party to the action; (4)
requiring the purchase at their fair value of shares of any stockholder,
either by the corporation regardless of the availability of unrestricted
retained earnings in its books, or by the other stockholders; (5)
appointing a provisional director; (6) dissolving the corporation; or (7)
granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a
stockholder nor a creditor of the corporation or of any subsidiary or
affiliate of the corporation, and whose further qualifications, if any,
may be determined by the Commission. A provisional director is not
a receiver of the corporation and does not have the title and powers of
a custodian or receiver. A provisional director shall have all the rights
and powers of a duly elected director of the corporation, including the
right to notice of and to vote at meetings of directors, until such time
as he shall be removed by order of the Commission or by all the
stockholders. His compensation shall be determined by agreement
between him and the corporation subject to approval of the
Commission, which may fix his compensation in the absence of
agreement or in the event of disagreement between the provisional
director and the corporation.
Withdrawal and Dissolution - sec 105
Sec. 105. Withdrawal of stockholder or dissolution of
corporation. - In addition and without prejudice to other rights and
remedies available to a stockholder under this Title, any stockholder
of a close corporation may, for any reason, compel the said
corporation to purchase his shares at their fair value, which shall not
be less than their par or issued value, when the corporation has
sufficient assets in its books to cover its debts and liabilities exclusive
of capital stock: Provided, That any stockholder of a close corporation
may, by written petition to the Securities and Exchange Commission,
compel the dissolution of such corporation whenever any of acts of
the directors, officers or those in control of the corporation is illegal,
or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the
corporation or any stockholder, or whenever corporate assets are being
misapplied or wasted.
Financing Corp vs Teodoro 93 phil 678
1. Corporations ; Involuntarily Dissolution ; Petition Therefore by
Minonrity Stockholders.-
—Although as a rule minority stock- holders of a corporation may not
ask for its dissolution in a private suit and such action should be
brought by the Govern- ment through its legal officer in a quo
warranto case at their instance and request, there might be exceptional
cases wherein the intervention of the State, for one reason or another,
cannot be obtained, as when the State, is not interested because the
complaint is strictly a matter between the stockholders and does not
involve, in the opinion of the legal officer of the Government, any of
the acts or omissions warranting quo warranto proceedings in which
minority stockholders are entitled to have such dissolution. When such
action or private suit is brought by them, the trial court has jurisdiction
and may or may not grant the prayer, depending upon the facts and
circumstances attending it. (Hall et al. vs. Judge Piccio, 47 Off. Gaz.,
supp. 12, p. 200.)
2. Id.; Id; Receiver for Corporation "Pendente Lite".-
—Action having been properly brought and the trial court having
entertained the same, it is within the power of said court upon proper
showing to appoint a receiver pendente lite for the corporation.
Although the appointment of a receiver upon application of the
minority stockholders is a power to be exercised with great caution,
nevertheless it should be exercised when necessary in order not to
entirely ignore and disregard the rights of said minority stockholders,
especially when said minority stockholders are unable to obtain
redress and protection of their rights within the corporation itself.
(Angeles vs. Santos, 64 Phil., 697.)
B. Formation of the Corporation:
Stages in the life of a corporation:
1. Creation
2. Reorganization or quasi-reorganization
3. Dissolution and winding up
Steps in creation:
1. Promotional stage
2. Process of incorporation
3. Organization and commencement of business
A. Organizing the Corporation
Promoters ( Sec 2(r) BP 178, Sec 60, 61 Corp Code )
(r) "Promoter" includes (1) any person who, acting alone or in
conjunction with one or more other persons, directly or indirectly,
takes initiative in founding and organizing the business or enterprise
of an issuer; or (2) any person who, in connection with the founding
and organizing of the business of an issuer, directly or indirectly,
receives in consideration of services or property or both services or
property ten (10%) per centum or more of any class of securities of
the issuer or ten (10%) per centum or more of the proceeds from the
sale of any class of such securities. However, a person who receives
such securities or proceeds either solely as underwriting commissions
or solely as consideration of property shall not be deemed a promoter
within the meaning of this paragraph if such person does not otherwise
take part in founding and organizing the enterprise.
Sec. 60. Subscription contract. - 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. (n)
Sec. 61. Pre-incorporation subscription. - A subscription for shares
of stock of a corporation still to be formed shall be irrevocable for a
period of at least six (6) months from the date of subscription, unless
20
all of the other subscribers consent to the revocation, or unless the
incorporation of said corporation fails to materialize within said period
or within a longer period as may be stipulated in the contract of
subscription: Provided, That no pre-incorporation subscription may be
revoked after the submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
Cagayan Fishing Development vs Sandiko 65 phil 223 1937
1. CORPORATIONS; TRANSFER MADE TO A NON-
EXISTENT CORPORATION; JURIDICAL CAPACITY TO
ENTER INTO A CONTRACT.-
The transfer made by T to the C, F. D. Co,, Inc., was effected on May
31, 1930 and the actual incorporation of said company was effected
later on October 22, 1930. In other words, the transfer wasmade almost
five months before the incorporation of the company. Unquestionably,
a duly organized corporation has the power to purchase and hold such
real property as the purposes for which such corporation was formed
may permit and for this purpose may enter into such contracts as may
be necessary. But before a corporation may be said to be lawfully
organized, many things have to be done. Among other things, the law
requires the filing of articles of incorporation. Although there is a
presumption that all the requirements of law have been complied with
in the case before us it can not be denied that the plaintiff was not yet
incorporated when it entered into the contract of sale. The contract
itself referred to the plaintiff as "una sociedad en vías de
incorporación." It was not even a de facto corporation at the time. Not
being in legal existence then, it did not possess juridical capacity to
enter into the contract.
2. CORPORATIONS; TRANSFER MADE TO A NON-
EXISTENT CORPORATION; ID.-
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. General laws authorizing
the formation of corporations are general offers to any persons who
may bring themselves within their provisions; and if conditions
precedent are prescribed in the statute, or certain acts are required to
be done, they are terms of the offer, and must be complied with
substantially before legal corporate existence can be acquired. That a
corporation should have a full and complete organization and
existence as an entity before it can enter into any kind' of a contract or
transact any business, would seem to be self-evident.
3. CORPORATIONS; TRANSFER MADE TO A NON-
EXISTENT CORPORATION; ID.-
A corporation, until organized, has no life and, therefore, no faculties.
It is, as it were, a child in ventre sa mere. This is not saying that under
no circumstances may the acts of promoters of a corporation be
ratified by the corporation if and when subsequently organized. There
are, of course, exceptions, but under the peculiar facts and
circumstances of the present case the doctrine of ratification should
not be extended because to do so would result in injustice or fraud to
the candid and unwary.
Rizal Light & Ice Co. vs Municipality 25 scra 285 1968
1. Public Service Commission; Hearing; Delegation of authority
to hear a, case; Who may be authorized to hear and investigate a
case filed before it; Effect of failure to interpose objection to illegal
delegation of authority to hear; Case at bar.-
The Public Service Commission can only authorize a division chief to
hear and investigate a case filed before it if he is a lawyer (Sec. 32,
par. 2, Commonwealth Act No. 146, as amended). Objection to the
delegation of authority to hear a case filed before the Commission and
to receive the evidence in connection therewith is a procedural, not a
jurisdictional point, and is waived by failure to interpose timely the
objection and the case had been decided by the Commission. Since
petitioner in the case at bar has never raised any objection to the
authority of Mr. Pedro Talavera (a division chief—but not a lawyer)
to conduct the hearing before the Commission, it should be deemed to
have waived such procedural defect, and petitioner's claim that the
Commission acted without or in excess of jurisdiction in so
authorizing Mr. Talavera should be dismissed.
2. Public Service Commission; Review of decision of the Public
Service Commission; Function of Supreme Court in reviewing a
decision of the Public Service Commission.-
Settled is the rule that in reviewing the decision of the Public Service
Commission the Supreme Court is not required to examine the proof
de novo and determine for itself whether or not the preponderance of
evidence really justifies the decision. The only function of this Court
is to determine whether or not there is evidence before the
Commission upon which its decision might reasonably be based. The
Supreme Court will not substitute its descretion for that of the
Commission on questions of fact and will not interfere in the latter's
decision unless it clearly appears that there is no evidence to support
it (citing cases). The evidence that should be made the basis of the
Supreme Court's determination should be only those presented in the
case before the Commission.
3. Public Service Commission; "Protection-of-investment
rule"; When not applicable; Paramount consideration in the
grant of certificate of public convenience; To whom duty to protect
investment of a public utility operator refers.-
The "protection-of-investment rule" was enunciated in Batangas
Transportation Co. v. Orlanes. 52 Phil. 455, in this wise:
4. Same; Cancellation and revocation of certificate of public
convenience; Circumstances that warranted the imposition of both a
fine and a revocation of certificate of public convenience.-
Section 16 (n) of Commonwealth Act No. 146, as amended, confers
upon the Commission ample power and discretion to order the
cancellation and revocation of any certificate of public convenience
issued to an operator who has violated, or has willfully and
contumaciously refused to comply with, any order, rule or regulation
of the Commission or any provision of law. What matters is that there
is evidence to support the action of the Commission. Where the
evidence shows: (a) a contumacious refusal of the petitioner since
1954 to comply with the directives, rules and regulations of the
Commission; (b) a violation of the conditions of the certificate of
public convenience; and (c) municipality to comply with commitment
as shown by inadequate service, such circumstances warranted the
action of the Commission in not merely imposing a fine but in
revoking altogether petitioner's certificate.
5. Same; Requisites for the grant of certificate of public convenience.-
Before any certificate of public convenience may be granted, three
requisites must be complied with, namely: (1) the applicant must be a
citizen of the Philippines or of the United States, or a corporation or
co-partnership, association or jointstock company constituted and
organized under the laws of the Philippines, sixty per centum at least
of the stock or paid-up capital of which belongs entirely to citizens of
the Philippines or of the United States; (2) the applicant must be
financially capable of undertaking the proposed service and meeting
the responsibilities incident to its operation; and (3) the applicant must
prove that the operation of the public service proposed and the
authorization to do business will promote the public interest in a
proper and suitable manner.
6. Same; Efficacy of a franchise.-
A franchise takes effect upon its approval by the Public Service
Commission (Almendras v. Ramos, 90 Phil. 231).
Caram, Jr. vs CA 151 scra 372 1987
21
1. Corporation Law; A bona fide corporation should alone be liable
for its corporate acts duly authorized by its officers and directors.-
Significantly, there was no showing that the Filipinas Orient Airways
was a fictitious corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders
thereof, responsible for its obligations. As a bona fide corporation, the
Filipinas Orient Airways should alone be liable for its corporate acts
as duly authorized by its officers and directors.
2. Corporation Law; Contracts; Liability of
stockholders; Petitioners cannot be held personally liable for the
compensation claimed by private respondent for services performed
by him in the organization of the corporation since petitioners did not
contract such services.-
In the light of these circumstances, we hold that the petitioners cannot
be held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of
the corporation. To repeat, the petitioners did not contract such
services, It was only the results of such services that Barretto and
Garcia presented to them and which persuaded them to invest in the
proposed airline. The most that can be said is that they benefited from
such services, but that surely is no justification to hold them personally
liable therefor. Otherwise, all the other stockholders of the
corporation, including those who came in later, and regardless of the
amount of their shareholdings, would be equally and personally liable
also with the petitioners for the claims of the private respondent.
Subscription Contracts - Sec 60, 72 of Corp Code
Sec. 60. Subscription contract. - 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. (n)
Sec. 72. Rights of unpaid shares. - Holders of subscribed shares not
fully paid which are not delinquent shall have all the rights of a
stockholder. (n)
Trillana vs Quezon College, 93 phil 383
1. Obligations and Contracts Stock Subscription; Offer and
Acceptance, Facultative Condition,-
—As the appellant offered its stock for subscription on the term stated
in a form letter, and D. C. applied for subscription fixing her own plan
of payment, the relation, in the absence of acceptance by the appellant
of the counter offer of D.C., had not ripened into an enforceable
contract. There was imperative need for express acceptance on
appellant's part, because the proposal of D. C. to pay the value of the
subscription after she had harvested fish, was a condition obviously
dependent upon her sole will and, therefore, facultative in nature,
rendering the obligation void under article 1115 of the old Civil Code.
1. Purchase agreement
Bayla vs Silang Traffic, Co., 73 Phil 557 1942
1. Corporations; Distinction between Subscription to Capital Stock
and Contract of Sale of Shares of Stock.-
—Eight years after the corporation was organized, it entered into an
"agreement for instalment sale" of its shares of stock with various
individuals. After the latter had paid several instalments on account of
the purchase price agreed upon, and upon default in the payment of
the succeeding intalment, the board of directors of the corporation
passed a resolution authorizing the refund of the amounts paid and the
reversion of the shares of stock to the corporation. Held: That such
resolution is valid because the contract was not one of subscription but
of purchase and sale. In some particulars, the rules governing
subscriptions and and sales of shares are different. For instance, the
provisions of our Corporation Law regarding calls for unpaid
subscriptions and assessment of stock (sections 37-60) do not apply to
a purchase of stock. Likewise the rule that the corporation has no legal
capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of
purchase of shares.
2. Obligations and Contracts; Necessity of Demand upon Default as
Requisite to Forfeiture.+
3. Id.; Id.-
—Whether a particular contract is a subscription or a sale of stock is
a matter of construction and depends upon its terms and the intention
of the parties. In Salmon, Dexter & Co. vs. Unson, 47 Phil. 649, it was
held that a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a contract of
purchase and sale. A subscription, properly speaking, is the mutual
agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement between
the individual and the corporation to buy shares of stock from it at a
stipulated price.
2. Pre-Incorporation Subscription Sec 61
Sec. 61. Pre-incorporation subscription. - A subscription for shares
of stock of a corporation still to be formed shall be irrevocable for a
period of at least six (6) months from the date of subscription, unless
all of the other subscribers consent to the revocation, or unless the
incorporation of said corporation fails to materialize within said period
or within a longer period as may be stipulated in the contract of
subscription: Provided, That no pre-incorporation subscription may be
revoked after the submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
Offer theory
Contract Theory
3.Release from Subscription obligation
Velasco vs poizat 37 phil 802
1. CORPORATIONS; SUBSCRIPTION TO CAPITAL STOCK.-
A stock subscription is a contract between the corporation and the
subscriber, and courts will enforce it for or against either. No express
promise to pay is necessary to make the subscriber liable.
2. CORPORATIONS; REMEDIES FOR ENFORCEMENT OF
SUBSCRIPTION FOR STOCK.-
The corporation has two remedies against the subscriber to the
corporate shares, namely (1) to sell the stock for the account of the
delinquent subscriber, and (2) to bring a legal action against him for
the amount due.
3. CORPORATIONS; ACTION TO RECOVER STOCK
SUBSCRIPTION.-
The provisions of sections 38 to 48, inclusive, of the Corporation Law
are applicable only where the directors of a corporation intend to
subject the stock of the delinquent subscriber to sale in order to enforce
payment of the subscription. They have no application in case a legal
action is brought to recover upon the stock subscription.
4. CORPORATIONS; INSOLVENCY OF CORPORATION.-
When insolvency supervenes upon a corporation and the court
assumes jurisdiction to wind it up, unpaid stock subscriptions become
payable on demand, and are at once recoverable in an action instituted
by the assignee in insolvency.
5. CORPORATIONS; RELEASE OF SUBSCRIBER.-
22
A corporation has no legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares; and any agreement to
this effect is invalid.
PNB vs Bitulok sawmill, Inc., 23 scra 1366
1. Corporation law; Subscription; An assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts.-
It is an established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts (Phil. Trust Co. v. Rivera,
44 Phil. 469).
2. Corporation law; A corporation has no power to release an
original subscriber from paying for his shares; Exception.-
A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a
valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and
under the conditions prescribed by the statute or the charter or the
articles of incorporation (Velasco v. Poizat, 37 Phil. 802).
3. Constitutional law; Executive Department; A Chief Executive
has na prerogative of suspending the operation of any statute, or any
of its terms.-
It is a well-settled principle that with all the vast powers lodged in the
Chief Executive, he is still devoid of the prerogative of suspending the
operation of any statute or any of its terms. The power of suspending
the laws, or the execution of the laws, ought never to be exercised but
by the legislature, or by authority derived from it, to be exercised in
such particular cases only as the legislature shall expressly provide
for. Nor could it be otherwise considering that the Constitution
specifically enjoins the President to see to it that all laws be faithfully
executed.
B. Formalities in Organizing
a. Generally
Govt of the PI vs Manila Railroad, 103 Phil 757 1929 ( di ko
makita case )
MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON.
LORENZO C. GARLITOS
1. PLEADING AND PRACTICE; PETITION FOR
RELIEF; WHEN TO FILE PETITION.-
Rule 38, Section 3, of the Rules of Court treats of 2 periods within
which a petition for relief may be filed. The petition must be filed
within 60 days after the petitioner learns of the judgment and not more
than 6 months after the judgment or order was rendered, both of which
must be satisfied.
2. CORPORATION LAW; LlABILITY OF PERSON DEALING
WITH ASSOCIATION AS A CORPORATE BODY; WHEN
ESTOPPEL MAY NOT BE INVOKED.-
While as a general rule, a person who deals with an association in such
a way to recognize its existence as a corporate body is estopped from
denying the same in an action arising out of such transaction, yet this
doctrine may not be held to be applicable where fraud takes a part in
the said transaction. In the instant case, on plaintiff's charge that she
was unaware of the fact that the defendant corporation had no juridical
personality, its president gave no confirmation or denial of the same
and the circumstance surrounding the execution of the contract lead to
the inescapable conclusion that plaintiff was really made to believe
that such corporation was duly organized in accordance with law.

3. CORPORATION LAW; LIABILITY OF MEMBERS WHO
ACT AS AGENTS OF AN UNINCORPORATED ASSOCIATION.-
A corporation when registered has a juridical personality separate and
distinct from its component members or stockholders and officers,
such that a corporation cannot be held liable for the personal
indebtedness of a stockholder even if he should be its president
(Walter A. Smith Co. vs. Ford, SC-G. R. No. 42420) and conversely,
a stockholder cannot be held personally liable for any financial
obligation by the corporation in excess of his unpaid subscription. But
this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an
unincorporated association. The reason behind this doctrine is
obvious—an unincorporated association has no personality and would
be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law, it cannot create agents
or confer authority on another to act in its behalf; thus, those who act
or purport to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a principal
is himself regarded as the principal, possessed of all the right and
subject to all the liabilities of a principal, a person acting or purporting
to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent (Fay
vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial
Laws of the Philippines, Fifth Ed., p. 689-690).
Rural Bank of Salinas vs CA 210 scra 510 1992
1. Corporation Law; Securities and Exchange
Commission; Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases involving
intracorporate controversies; Intracorporate controversy defined.-
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy has been
defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception
whatsoever.
2. Corporation Law; A corporation cannot create restrictions in
stock transfer.-
A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers.
3. Corporation Law; The right of a transferee/assignee to have stocks
transferred to his name an inherent right.-
The right of a transferee/ assignee to have stocks transferred to his
name is an inherent right flowing from his ownership of the stocks.
4. Corporation Law; Corporation’s obligation to register is
ministerial.-
The corporation’s obligation to register is ministerial. “In transferring
stock, the secretary of a corporation acts in purely ministerial capacity,
and does not try to decide the question of ownership.” “The duty of
the corporation to transfer is a ministerial one and if it refuses to make
such transaction without good cause, it may be compelled to do so by
mandamus.”
B. Articles of Incorporation
1.Procedure and Documentary Requirements
as to contents and forms - sec 14,15
Sec. 14. Contents of the articles of incorporation. - All corporations
organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages
23
duly signed and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise prescribed by
this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is
being incorporated. Where a corporation has more than one stated
purpose, the articles of incorporation shall state which is the
primary purpose and which is/are he secondary purpose or
purposes: Provided, That a non-stock corporation may not include
a purpose which would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be
located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than
five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who shall act
as directors or trustees until the first regular directors or trustees
are duly elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital
stock in lawful money of the Philippines, the number of shares
into which it is divided, and in case the share are par value shares,
the par value of each, the names, nationalities and residences of
the original subscribers, and the amount subscribed and paid by
each on his subscription, and if some or all of the shares are
without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the
names, nationalities and residences of the contributors and the
amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the articles
of incorporation of any stock corporation unless accompanied by a
sworn statement of the Treasurer elected by the subscribers showing
that at least twenty-five (25%) percent of the authorized capital stock
of the corporation has been subscribed, and at least twenty-five (25%)
of the total subscription has been fully paid to him in actual cash
and/or in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-up
capital being not less than five thousand (P5,000.00) pesos.
Sec. 15. Forms of Articles of Incorporation. - Unless otherwise
prescribed by special law, articles of incorporation of all domestic
corporations shall comply substantially with the following form:
As to corporate name - sec 18
Sec. 18. Corporate name. - No corporate name may be allowed by
the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing laws. When a
change in the corporate name is approved, the Commission shall issue
an amended certificate of incorporation under the amended name.
Red line Transit vs Rural Transit, 60 Phil 549 1934
1. PUBLIC SERVICE ; AUTHORITY OP PUBLIC SERVICE
COMMISSION TO AUTHORIZE A CORPORATION TO ASSUME
THE NAME OF ANOTHER.-
There is no law that empowers the Public Service Commission or any
court in this jurisdiction to authorize one corporation to assume the
name of another corporation as a trade name. Both the Rural Transit
Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence
requires each to adopt and certify a distinctive name.
2. PUBLIC SERVICE ; CHANGE OP CORPORATION'S NAME.-
The incorporators "constitute a body politic and corporate under the
name stated in the certificate." (Section 11, Act No. 1459, as
amended.) A corporation has the power "of succession by its corporate
name." (Section 13, ttrid.) The name of a corporation is therefore
essential to its existence. It cannot change its name except in the
manner provided by the statute. By that name alone is it authorized to
transact business.
3. PUBLIC SERVICE ; ID.-
The law gives a corporation no express or implied authority to assume
another name that is unappropriated; still less that of another
corporation, which is expressly set apart for it and protected by the
law. If any corporation could assume at pleasure as an unregistered
trade name the name of another corporation, this practice would result
in confusion and open the door to frauds and evasions and difficulties
of administration and supervision.
4. PUBLIC SERVICE ; POLICY OP THE LAW.-
The policy of the law as expressed in our corporation statute and the
Code of Commerce is clearly against such a practice. (Cf. Scarsdale
Pub. Co.Colonial Press vs. Carter, 116 New York Supplement, 731;
Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate
Courts], 428, 434.)
Philippine Insurance vs Hartigan, 34 scra 252 1970
1. Corporation law; Corporations; Change of name; Corporation
may change its name.-
There is nothing in Section 18 of the Corporation Law which prohibits
a corporation from changing its name. The inference is clear that such
a change is allowed, for if the legislature had intended to enjoin
corporations from changing names, it would have expressly stated so
in this section or in any other provision of the law.
2. Corporation law; Corporations; Change of name; How change
of name may be effected.-
A corporation may change its name by merely amending its charter in
the manner prescribed by law.
3. Corporation law; Corporations; Change of name; Change of
name does not dissolve corporation.-
The change of name of a corporation does not result in its dissolution.
The changing of the name of a corporation is no more the creation of
a corporation than the changing of the name of a natural person is the
begetting of a natural person. The act, in both cases, would seem to be
what the language which we use to designate it imports—a change of
name and not a change of being.
4. Corporation law; Corporations; Change of name; When change
of corporate name is effective.-
The approval by the stockholders of the amendment of the articles of
incorporation changing the corporate name does not automatically
change the name of the corporation as of that date. To be effective,
Section 18 of the Corporation Law requires that a copy of the articles
of incorporation as amended, duly certified to be correct by the
president and the secretary of the corporation and a majority of the
board of directors or trustees, shall be filed with the Securities
Exchange Commissioner and it is only from the time of such filing,
that the corporation shall have the same powers and it and the
members and stockholders thereof shall thereafter be subject to the
same liabilities as if such amendment had been embraced in the
original articles of incorporation.
Universal Mills vs Universal Textile, 78 scra 62 1977
1. Securities and Exchange Commission; Business Names; The
business names “Universal Mills Corporation” and “Universal Textile
Mills, Inc.” though not identical are so similar as to cause confusion
to the general public, particularly where the former included the
24
manufacture, dyeing and selling of fabrics of all kinds in which the
latter had been engaged for more than a decade ahead of the
petitioner.-
The corporate names in question are not identical, but they are
indisputably so similar that even under the test of “reasonable care and
observation as the public generally are capable of using and may be
expected to exercise” invoked by appellant We are apprehensive
confusion will usually arise, considering that under the second
amendment of its articles of incorporation of August 14, 1964,
appellant included among its primary purposes the “manufacturing,
dyeing, finishing and selling of fabrics of all kinds” in which
respondent had been engaged for more than a decade ahead of
petitioner. Factually, the Commission found existence of such
confusion, and there is evidence to support its conclusion. Since
respondent is not claiming damages in this proceeding, it is, of course
immaterial whether or not appellant has acted in good faith, but We
cannot perceive why of all names, it had to choose a name already
being used by another firm engaged in practically the same business
for more than a decade enjoying well earned patronage and goodwill,
when there are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and, more
importantly, any degree of confusion in the mind of the public which
could mislead even its own customers, existing or prospective.
Ang mga kaanib sa Iglesia ng Dios kay kristo hesus vs Iglesia ng
Diyos kay kristo hesus, GR 137592, 21 December 2001
1. Legal Ethics; Attorneys; Due Process; The negligence of counsel
binds the client, except where the reckless or gross negligence of the
counsel deprives the client of due process of law.-
As a general rule, the negligence of counsel binds the client. This is
based on the rule that any act performed by a lawyer within the scope
of his general or implied authority is regarded as an act of his client.
An exception to the foregoing is where the reckless or gross
negligence of the counsel deprives the client of due process of law.
Said exception, however, does not obtain in the present case.
2. Corporation Law; Actions; Prescription; The failure of a party
to raise prescription before the Securities and Exchange Commission
can only be construed as a waiver of that defense.-
Likewise, the issue of prescription, which petitioner raised for the first
time on appeal to the Court of Appeals, is untenable. Its failure to raise
prescription before the SEC can only be construed as a waiver of that
defense. At any rate, the SEC has the authority to de-register at all
times and under all circumstances corporate names which in its
estimation are likely to spawn confusion. It is the duty of the SEC to
prevent confusion in the use of corporate names not only for the
protection of the corporations involved but more so for the protection
of the public.
3. Corporation Law; Corporate Names; Parties organizing a
corporation must choose a name at their peril.-
Parties organizing a corporation must choose a name at their peril; and
the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely
to injure in the exercise of its corporate functions, regardless of intent,
may be prevented by the corporation having a prior right, by a suit for
injunction against the new corporation to prevent the use of the name.
4. Corporation Law; Corporate Names; Words and Phrases; The
additional words in a corporation’s name—“Ang Mga Kaanib” and
“Sa Bansang Pilipinas, Inc.”—which are merely descriptive of and
also referring to the members, or kaanib, of a preexisting corporation
who are likewise residing in the Philippines, can hardly serve as an
effective differentiating medium necessary to avoid confusion or
difficulty in distinguishing the former from the latter.-
The additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas,
Inc.” in petitioner’s name are, as correctly observed by the SEC,
merely descriptive of and also referring to the members, or kaanib, of
respondent who are likewise residing in the Philippines. These words
can hardly serve as an effective differentiating medium necessary to
avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent
corporations are using the same acronym—H.S.K.; not to mention the
fact that both are espousing religious beliefs and operating in the same
place. Parenthetically, it is well to mention that the acronym H.S.K.
used by petitioner stands for “Haligi at Saligan ng Katotohanan.”
5. Corporation Law; Corporate Names; Words and Phrases; The
only difference between the corporate names of petitioner and
respondent are the words “Saligan” and “Suhay,” which words are
synonymous—both mean ground, foundation or support.-
Significantly, the only difference between the corporate names of
petitioner and respondent are the words SALIGAN and SUHAY.
These words are synonymous—both mean ground, foundation or
support. Hence, this case is on all fours with Universal Mills
Corporation v. Universal Textile Mills, Inc., where the Court ruled
that the corporate names Universal Mills Corporation and Universal
Textile Mills, Inc., are undisputably so similar that even under the test
of “reasonable care and observation” confusion may arise.
6. Corporation Law; Corporate Names; Freedom of
Religion; Ordering a religious society or corporation to change its
corporate name is not a violation of its constitutionally guaranteed
right to religious freedom.-
We need not belabor the fourth issue raised by petitioner. Certainly,
ordering petitioner to change its corporate name is not a violation of
its constitutionally guaranteed right to religious freedom. In so doing,
the SEC merely compelled petitioner to abide by one of the SEC
guidelines in the approval of partnership and corporate names, namely
its undertaking to manifest its willingness to change its corporate
name in the event another person, firm, or entity has acquired a prior
right to the use of the said firm name or one deceptively or confusingly
similar to it.
2. As to purpose - sec 14(2)
2. The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated purpose,
the articles of incorporation shall state which is the primary purpose
and which is/are he secondary purpose or purposes: Provided, That a
non-stock corporation may not include a purpose which would change
or contradict its nature as such;
Uy siuliong vs Director, 40 Phil 514 1919
MANDAMUS TO REQUIRE THE DIRECTOR OF COMMERCE
AND INDUSTRY TO FILE AND REGISTER ARTICLES OF
INCORPORATION UPON PAYMENT OF THE LAWFUL
FEES.—Held: That under the laws of the Philippine Islands, a
corporation may be organized for "mercantile purposes" and to engage
in such incidental business as may be necessary and advisable to give
effect to, and aid in, the successful operation and conduct of the
principal business; that all of the power and authority included in the
articles of incorporation of Siuliong & Co., Inc., were only incidental
to the' principal purpose of its proposed incorporation, to wit:
"mercantile business."
3. As to principal office - sec 14 (3)
3. The place where the principal office of the corporation is to be
located, which must be within the Philippines;
Clavecilla vs Antillon 19 scra 379 1967
1. Corporation Law; Domicile of a corporation.-
25
The residence of a corporation is the place where its principal office
is established. It can be sued in that place, not in the place where its
branch office is located.
2. Actions; Venue; Venue of a tort action against a, corporation in
inferior court.-
Where the action filed against a corpo- ration in the inferior court is
based on tort, it should be filed in the place where the corporation has
its principal office, not in the place where it has its branch office. To
allow an action against a corporation to be instituted in any place
where a corporate entity has its branch offices would create confusion
and work untold inconvenience to the corporation.
3. Actions; provision, “may be served with summons”, applies.-
The phrase “may be served with summons” in section 1, Rule 4 of the
Revised Rules of Court does not apply when the defendant resides in
the Philippines, for, in such a case, he may be sued only in the
municipality of his residence, regardless of the place where he may be
found and served with summons.
4. Actions; Plaintiff may not choose venue of action.-
The laying of the venue of an action is not left to plaintiff’s caprice
because the matter is regulated by the Rules of Court.
4. As to Corporate term - sec 11
Sec. 11. Corporate term. - A corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner
dissolved or unless said period is extended. The corporate term as
originally stated in the articles of incorporation may be extended for
periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this
Code; Provided, That no extension can be made earlier than five (5)
years prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by
the Securities and Exchange Commission.
Alhambra Cigar & cigarette vs SEC 25 scra 29 1968
1. Treaties; Treaty on the Validity of Academic Degrees and the
Exercise of the Professions between the Republic of the Philippines
and the Spanish State; Privileges granted therein subject to laws and
regulations of the contracting state.-
Pursuant to the provisions of the Treaty on the Validity of the
Academic Degrees and the Exercise of the Professions between the
Republic of the Philippines and the Spanish State dated March 4, 1949
and ratified on May 19, 1949, the privileges granted therein are made
expressly subject to the laws and regulations of the Contracting State
in whose territory it is desired to exercise the professions. However,
the laws of this country, particularly, R.A. No. 2882, otherwise known
as the Medical Act of 1959, in connection with Sections 2, 9, and 16
thereof, which have the force of law, require that before anyone can
practice the medical profession in the Philippines he must first
successfully pass the required Board examinations.
2. Parties; Real parties in interest; Philippine Medical Association
may prosecute case at bar.-
The Philippine Medical Association has sufficient interest in the
outcome of the case at bar to clothe it with the requisite standing to
institute this action and prosecute the same to the end.
3. Administrative procedure; Administrative remedies must be
exhausted before resorting to the courts; Exceptions.-
The rule requiring exhaustion of administrative remedies is
concededly subject to exceptions, among which are cases involving
only questions of law, or when jurisdiction is in issue; or the action
complained of bears the approval of a department secretary, as the
disputed resolution, which was approved by the Executive Secretary
"by authority of the President".

Benguet Consolidated vs Pined 98 Phil 711 1956
1. CORPORATION LAW; PROHIBITION AGAINST
EXTENSION OF CORPORATE EXISTENCE BY AMENDMENT
OF THE ORIGINAL ARTICLES, APPLICABLE TO
“SOCIEDADES ANONIMAS."-
The prohibition contained in section 18 of Act No. 1459, against
extending the period of corporate existence by amendment of the
original articles, was intended to apply, and does apply, to sociedades
anonimas, already formed, organized and existing at the time of the
effectivity of the Corporation Law (Act 1459) in 1906.
2. CORPORATION LAW; PROHIBITION VALID AND
IMPAIRS NO VESTED RIGHTS.-
The aforesaid statutory prohibition is valid and impairs no vested
rights or constitutional inhibition where no agreement to extend the
original period of corporate life was perfected before the enactment of
the Corporation Law.
5. As to number and residency of Incorporators - sec 10
Sec. 10. Number and qualifications of incorporators. - Any number
of natural persons not less than five (5) but not more than fifteen (15),
all of legal age and a majority of whom are residents of the Philippines,
may form a private corporation for any lawful purpose or purposes.
Each of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the
corporation.
6. As to minimum capitalization sec 12
Sec. 12. Minimum capital stock required of stock corporations. -
Stock corporations incorporated under this Code shall not be required
to have any minimum authorized capital stock except as otherwise
specifically provided for by special law, and subject to the provisions
of the following section.
7. As to subscription and paid-up requirements sec 13
Sec. 13. Amount of capital stock to be subscribed and paid for the
purposes of incorporation. - At least twenty-five percent (25%) of
the authorized capital stock as stated in the articles of incorporation
must be subscribed at the time of incorporation, and at least twenty-
five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the
contract of subscription without need of call, or in the absence of a
fixed date or dates, upon call for payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be less
than five Thousand (P5,000.00) pesos.
8. Grounds for disapproval sec 17
Sec. 17. Grounds when articles of incorporation or amendment
may be rejected or disapproved. - The Securities and Exchange
Commission may reject the articles of incorporation or disapprove any
amendment thereto if the same is not in compliance with the
requirements of this Code: Provided, That the Commission shall give
the incorporators a reasonable time within which to correct or modify
the objectionable portions of the articles or amendment. The following
are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not
substantially in accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government rules
and regulations;
3. That the Treasurer's Affidavit concerning the amount of capital
stock subscribed and/or paid if false;
26
4. That the percentage of ownership of the capital stock to be owned
by citizens of the Philippines has not been complied with as
required by existing laws or the Constitution.
No articles of incorporation or amendment to articles of incorporation
of banks, banking and quasi-banking institutions, building and loan
associations, trust companies and other financial intermediaries,
insurance companies, public utilities, educational institutions, and
other corporations governed by special laws shall be accepted or
approved by the Commission unless accompanied by a favorable
recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law.
Asuncion vs De Yriate, 28 Phil 67 1914
1. CORPORATION LAW; POWERS AND DUTIES OF CHIEF
OF DlVISION OF ARCHIVES, EXECUTIVE BUREAU.-
The chief of the division of archives, for and on behalf of the division,
has authority under the Corporation Law (Act No. 1459) to determine
the sufficiency of the form of articles of incorporation offered for
registration with the division.
2. CORPORATION LAW; ID.-
The chief of the division of archives, on behalf of the division, has also
the power and duty to determine from the articles of incorporation
presented for registration the lawfulness of the purposes of the
proposed corporation and whether or not those purposes bring the
proposed corporation within the purview of the law authorizing
corporations for given purposes.
3. CORPORATION LAW; MANDAMUS TO COMPEL HIM TO
PERFORM DUTIES.-
registration of articles of incorporation, are purely ministerial and not
discretional; and mandamus will lie to compel him to perform his
duties under the Corporation Law if, in violation of law, he refuse to
perform them.
4.CORPORATION
LAW; MUNICIPALITIES; ORGANIZATION OF BARRIO INTO
SEPARATE CORPORATION.-
When articles of incorporation presented for registration show that the
object of incorporators is to organize a pueblo or barrio of a given
municipality into a separate corporation for the purpose of taking
possession and having control of all municipal property within the
pueblo or barrio so incorporated, and administer it exclusively for the
benefit of the residents of that pueblo or barrio, said articles of
incorporation show upon their face that the object of the incorporation
is unlawful in that it seeks to deprive the municipality in which the
pueblo or barrio is situated of its property and its citizens of the right
of enjoying the same and would, if permitted, disrupt and destroy the
government of the municipalities of the Islands and abrogate the laws
relating- to the formation and government of municipalities.
9. Commencement of corporate existence sec 19
Sec. 19. Commencement of corporate existence. - A private
corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the name
stated in the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is sooner
dissolved in accordance with law.
C. By-Laws
Loyola grand Villas vs CA GR 117188 1997 August 07
Corporation Law; Statutory Construction; Words and
Phrases;Ordinarily, the word “must” connotes an imperative act or
operates to impose a duty which may be enforced—it is synonymous
with “ought” which connotes compulsion or mandatoriness though the
word “must” in a statute, like “shall,” is not always imperative and
may be consistent with an exercise of discretion.—As correctly
postulated by the petitioner, interpretation of this provision of law
begins with the determination of the meaning and import of the word
“must” in this section. Ordinarily, the word “must” connotes an
imperative act or operates to impose a duty which may be enforced. It
is synonymous with “ought” which connotes compulsion or
mandatoriness. However, the word “must” in a statute, like “shall,” is
not always imperative. It may be consistent with an exercise of
discretion. In this jurisdiction, the tendency has been to interpret
“shall” as the context or a reasonable construction of the statute in
which it is used demands or requires. This is equally true as regards
the word “must.” Thus, if the language of a statute considered as a
whole and with due regard to its nature and object reveals that the
legislature intended to use the words “shall” and “must” to be
directory, they should be given that meaning.
Same; Same; By-Laws; The legislative deliberations demonstrate
that automatic corporate dissolution for failure to file the bylaws on
time was never the intention of the legislature.—This exchange of
views demonstrates clearly that automatic corporate dissolution for
failure to file the by-laws on time was never the intention of the
legislature. Moreover, even without resorting to the records of
deliberations of the Batasang Pambansa, the law itself provides the
answer to the issue propounded by petitioner.
Same; Same; Same; Taken as a whole and under the principle that
the best interpreter of a statute is the statute itself (optima statuli
interpretatix est ipsum statutum), Section 46 of the Corporation Code
reveals the legislative intent to attach a directory, and not mandatory,
meaning for the word “must” in the first sentence thereof.—Taken as
a whole and under the principle that the best interpreter of a statute is
the statute itself (optima statuti interpretatix est ipsum statutum),
Section 46 aforequoted reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word “must” in the first
sentence thereof. Note should be taken of the second paragraph of the
law which allows the filing of the by-laws even prior to incorporation.
This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws “within one (1)
month after receipt of official notice of the issuance of its certificate
of incorporation by the Securities and Exchange Commission.” It
necessarily follows that failure to file the by-laws within that period
does not imply the “demise” of the corporation.
Same; Same; Same; By-laws may be necessary for the “government”
of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related
statutes.—By-laws may be necessary for the “government” of the
corporation but these are subordinate to the articles of incorporation
as well as to the Corporation Code and related statutes. There are in
fact cases where by-laws are unnecessary to corporate existence or to
the valid exercise of corporate powers, thus: “In the absence of charter
or statutory provisions to the contrary, by-laws are not necessary either
to the existence of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter sufficiently
provides for the government of the body; and even where the
governing statute in express terms confers upon the corporation the
power to adopt by-laws, the failure to exercise the power will be
ascribed to mere nonaction which will not render void any acts of the
corporation which would otherwise be valid.” (Italics supplied.)
27
Same; Same; Same; Due Process; There can be no automatic
corporate dissolution simply because the incorporators failed to abide
by the required filing of by-laws—the incorporators must be given the
chance to explain their neglect or omission and to remedy the same.—
Even under the foregoing express grant of power and authority, there
can be no automatic corporate dissolution simply because the
incorporators failed to abide by the required filing of by-laws
embodied in Section 46 of the Corporation Code. There is no outright
“demise” of corporate existence. Proper notice and hearing are
cardinal components of due process in any democratic institution,
agency or society. In other words, the incorporators must be given the
chance to explain their neglect or omission and remedy the same.
Same; Same; Same; Presidential Decree 902-A; Statutes in
Materia; Securities and Exchange Commission; The failure of the
Corporation Code to provide for the consequences of the non-filing of
by-laws on time has been rectified by P.D. No. 902-A; Every statute
must be so construed and harmonized with other statutes as to form a
uniform system of jurisprudence.—Although the Corporation Code
requires the filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the period provided
for in Section 46. However, such omission has been rectified by
Presidential Decree No. 902-A, the pertinent provisions on the
jurisdiction of the Securities and Exchange Commission of which
state: * * * That the failure to file by-laws is not provided for by the
Corporation Code but in another law is of no moment. P.D. No. 902-
A, which took effect immediately after its promulgation on March 11,
1976, is very much apposite to the Code. Accordingly, the provisions
abovequoted supply the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902-A are statutes
in pari materia. Interpretare et concordare legibus est optimus
interpretandi. Every statute must be so construed and harmonized with
other statutes as to form a uniform system of jurisprudence.
Same; By-Laws; Failure to file the by-laws within the period required
by law by no means tolls the automatic dissolution of a corporation.—
As the “rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers
with relation thereto and among themselves in their relation to it,” by-
laws are indispensable to corporations in this jurisdiction. These may
not be essential to corporate birth but certainly, these are required by
law for an orderly governance and management of corporations.
Nonetheless, failure to file them within the period required by law by
no means tolls the automatic dissolution of a corporation.
Same; Administrative Law; Subdivisions; Home Insurance and
Guaranty Corporation; Jurisdiction; With respect to homeowners
associations, the HIGC shall exercise all the powers, authorities and
responsibilities that are vested on the Securities and Exchange
Commission.—That the corporation involved herein is under the
supervision of the HIGC does not alter the result of this case. The
HIGC has taken over the specialized functions of the former Home
Financing Corporation by virtue of Executive Order No. 90 dated
December 17, 1986. With respect to homeowners associations, the
HIGC shall “exercise all the powers, authorities and responsibilities
that are vested on the Securities and Exchange Commission x x x, the
provision of Act 1459, as amended by P.D. 902-A, to the contrary
notwithstanding.”
PMI Colleges vs NLRC GR 121466 1997 August 15
Same; Same; Corporation Law; By-Laws; Since by-laws operate
merely as internal rules among the stockholders, they cannot affect or
prejudice third persons who deal with the corporation, unless they
have knowledge of the same.—Neither can we concede that such
contract would be invalid just because the signatory thereon was not
the Chairman of the Board which allegedly violated petitioner’s
bylaws. Since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal
with the corporation, unless they have knowledge of the same. No
proof appears on record that private respondent ever knew anything
about the provisions of said by-laws. In fact, petitioner itself merely
asserts the same without even bothering to attach a copy or excerpt
thereof to show that there is such a provision. How can it now expect
the Labor Arbiter and the NLRC to believe it? That this allegation has
never been denied by private respondent does not necessarily signify
admission of its existence because technicalities of law and procedure
and the rules obtaining in the courts of law do not strictly apply to
proceedings of this nature.
Pena vs CA 193 scra 7117 1991
Corporation Law; By-laws; Quorum; Three (3) out of five (5)
members of the board of directors present in the special meeting of
respondent PAMBUSCO do not constitute a quorum to validly
transact business. Section 4 of its amended by-laws requires at least
four (4) members present to constitute a quorum in a special meeting
of its board of directors.—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.
Same; Board of Directors; Only persons who own at least one (1)
share in their own right may qualify to be directors of a corporation.—
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 ofthe said law, the sale or
disposition of all 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.
Same;Deed of Assignment; Civil Law; Donation; Liberality as a
consideration in the deed of assignment of the respondent
PAMBUSCO in favor of its former corporate officer for services
rendered is not just an ordinary deed of assignment but a donation.—
Respondent court, in upholding the questioned deed of assignment,
which appears to be without any consideration at all, held that the
consideration thereof is the liberality of the respondent PAMBUSCO
in favor of its former corporate officer, respondent Enriquez, for
services rendered. Assuming this to be so, then as correctly argued by
petitioner, it is not just an ordinary, deed of assignment, but is in fact
a donation. Under Article 725 of the Civil Code, in order to be valid,
such a donation must be made in a public document and the acceptance
28
must be made in the same or in a separate instrument. In the latter case,
the donor shall be notified of the acceptance in an authentic form and
such step must be noted in both instruments. Non-compliance with this
requirement renders the donation null and void. Since undeniably the
deed of assignment dated March 8, 1975 in question, shows that there
was no acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab initio and of no
force and effect.
China banking vs CA GR 117604
Securities and Exchange Commission; Actions; Jurisdiction; The
better policy in determining which body has jurisdiction over a case
would be to consider not only the status of relationship of the parties
but also the nature of the question that is the subject of their
controversy.—The basic issue we must first hurdle is which body has
jurisdiction over the controversy, the regular courts or the SEC. P.D.
No. 902-A conferred upon the SEC the following pertinent powers: *
* * The aforecited law was expounded upon in Viray v. CA and in the
recent cases of Mainland Construction Co., Inc. v.
Movilla and Bernardo v. CA, thus: . . . . The better policy in
determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the
nature of the question that is the subject of their controversy.
Same; Same; Same; Corporation Law; The purchase of a share or
membership certificate at public auction by a party (and the issuance
to it of the corresponding Certificate of Sale) transfers ownership of
the same to the latter and thus entitle it to have the said share registered
in its name as a member.—As to the first query, there is no question
that the purchase of the subject share or membership certificate at
public auction by petitioner (and the issuance to it of the
corresponding Certificate of Sale) transferred ownership of the same
to the latter and thus entitled petitioner to have the said share registered
in its name as a member of VGCCI. It is readily observed that VGCCI
did not assail the transfer directly and has in fact, in its letter of 27
September 1974, expressly recognized the pledge agreement executed
by the original owner, Calapatia, in favor of petitioner and has even
noted said agreement in its corporate books. In addition, Calapatia, the
original owner of the subject share, has not contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became a bona
fidestockholder of VGCCI and, therefore, the conflict that arose
between petitioner and VGCCI aptly exemplifies an intra-corporate
controversy between a corporation and its stockholder under Sec. 5(b)
of P.D. 902-A.
Same; Same; Same; Same; By-Laws; The proper interpretation and
application of a corporation’s by-laws is a subject which irrefutably
calls for the special competence of the SEC.—An important
consideration, moreover, is the nature of the controversy between
petitioner and private respondent corporation. VGCCI claims a prior
right over the subject share anchored mainly on Sec. 3, Art. VIII of its
by-laws which provides that “after a member shall have been posted
as delinquent, the Board may order his/her/its share sold to satisfy the
claims of the Club . . .” It is pursuant to this provision that VGCCI
also sold the subject share at public auction, of which it was the highest
bidder. VGCCI caps its argument by asserting that its corporate by-
laws should prevail. The bone of contention, thus, is the proper
interpretation and application of VGCCI’s aforequoted bylaws, a
subject which irrefutably calls for the special competence of the SEC.
Same; Same; Same; Estoppel; The plaintiff who files a complaint
with one court which has no jurisdiction over it is not estopped from
filing the same complaint later with the competent court.—In Zamora
v. Court of Appeals, this Court, through Mr. Justice Isagani A. Cruz,
declared that: It follows that as a rule the filing of a complaint with
one court which has no jurisdiction over it does not prevent the
plaintiff from filing the same complaint later with the competent court.
The plaintiff is not estopped from doing so simply because it made a
mistake before in the choice of the proper forum. . . .
Appeals; Procedural Rules; Remand of Cases; The remand of the case
or of an issue to the lower court for further reception of evidence is
not necessary where the Supreme Court is in position to resolve the
dispute based on the records before it and particularly where the ends
of justice would not be subserved by the remand thereof.—Applicable
to this case is the principle succinctly enunciated in the case of Heirs
of Crisanta Y. Gabriel-Almoradie v. Court of
Appeals, citing Escudero v. Dulay and The Roman Catholic
Archbishop of Manila v. Court of Appeals: In the interest of the public
and for the expeditious administration of justice the issue on
infringement shall be resolved by the court considering that this case
has dragged on for years and has gone from one forum to another. It
is a rule of procedure for the Supreme Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear
the seeds of future litigation. No useful purpose will be served if a case
or the determination of an issue in a case is remanded to the trial court
only to have its decision raised again to the Court of Appeals and from
there to the Supreme Court. We have laid down the rule that the
remand of the case or of an issue to the lower court for further
reception of evidence is not necessary where the Court is in position
to resolve the dispute based on the records before it and particularly
where the ends of justice would not be subserved by the remand
thereof. Moreover, the Supreme Court is clothed with ample authority
to review matters, even those not raised on appeal if it finds that their
consideration is necessary in arriving at a just disposition of the case.
Loans; Pledge; The contracting parties to a pledge agreement may
stipulate that the said pledge will also stand as security for any future
advancements (or renewals thereof) that the pledgor may procure from
the pledgee.—VGCCI assails the validity of the pledge agreement
executed by Calapatia in petitioner’s favor. It contendsthat the same
was null and void for lack of consideration because the pledge
agreement was entered into on 21 August 1974 but the loan or
promissory note which it secured was obtained by Calapatia much
later or only on 3 August 1983. VGCCI’s contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the
contracting parties explicitly stipulated therein that the said pledge
will also stand as security for any future advancements (or renewals
thereof) that Calapatia (the pledgor) may procure from petitioner.
Corporation Law; By-Laws; In order to be bound, a third party must
have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third person and the
shareholder was entered into.—In order to be bound, the third party
must have acquired knowledge of the pertinent by—laws at the time
the transaction or agreement between said third party and the
shareholder was entered into, in this case, at the time the pledge
agreement was executed. VGCCI could have easily informed
petitioner of its by-laws when it sent notice formally recognizing
petitioner as pledgee of one of its shares registered in Calapatia’s
name. Petitioner’s belated notice of said by-laws at the time of
foreclosure will not suffice.
Same; Words and Phrases; A membership share is quite different in
character from a pawn ticket.—Similarly, VGCCI’s contention that
petitioner is duty-bound to know its by-laws because of Art. 2099 of
the Civil Code which stipulates that the creditor must take care of the
thing pledged with the diligence of a good father of a family, fails to
convince. The case of Cruz & Serrano v. Chua A. H. Lee, is clearly
not applicable: In applying this provision to the situation before us it
must be borne in mind that the ordinary pawn ticket is a document by
virtue of which the property in the thing pledged passes from hand to
hand by mere delivery of the ticket; and the contract of the pledge is,
therefore, absolvable to bearer. It results that one who takes a pawn
ticket in pledge acquires domination over the pledge; and it is the
holder who must renew the pledge, if it is to be kept alive. It is quite
obvious from the aforequoted case that a membership share is quite
29
different in character from a pawn ticket and to reiterate, petitioner
was never informed of Calapatia’s unpaid accounts and the restrictive
provisions in VGCCI’s by-laws.
Same; Same; The term “unpaid claim” in Sec. 63 of the Corporation
Code refers to “any unpaid claim arising from unpaid subscription,
and not to any indebtedness which a subscriber or stockholder may
owe the corporation arising from any other transaction,” such as
monthly dues.—Finally, Sec. 63 of the Corporation Code which
provides that “no shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of the corporation”
cannot be utilized by VGCCI. The term “unpaid claim” refers to “any
unpaid claim arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transaction.” In the case at bar, the
subscription for the share in question has been fully paid as evidenced
by the issuance of Membership Certificate No. 1219. What Calapatia
owed the corporation were merely the monthly dues. Hence, the
aforequoted provision does not apply.
Adoption Procedure sec 46
Sec. 46. Adoption of by-laws. - Every corporation formed under this
Code must, within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities and
Exchange Commission, adopt a code of by-laws for its government
not inconsistent with this Code. For the adoption of by-laws by the
corporation the affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or of at least a
majority of the members in case of non-stock corporations, shall be
necessary. The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the principal office of
the corporation, subject to the inspection of the stockholders or
members during office hours. A copy thereof, duly certified to by a
majority of the directors or trustees countersigned by the secretary of
the corporation, shall be filed with the Securities and Exchange
Commission which shall be attached to the original articles of
incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws
may be adopted and filed prior to incorporation; in such case, such by-
laws shall be approved and signed by all the incorporators and
submitted to the Securities and Exchange Commission, together with
the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the
Securities and Exchange Commission of a certification that the by-
laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing
the by-laws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance
company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such
by-laws or amendments are in accordance with law.
Contents sec 47
Sec. 47. Contents of by-laws. - Subject to the provisions of the
Constitution, this Code, other special laws, and the articles of
incorporation, a private corporation may provide in its by-laws for:
1. The time, place and manner of calling and conducting regular or
special meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or special
meetings of the stockholders or members;
3. The required quorum in meetings of stockholders or members and
the manner of voting therein;
4. The form for proxies of stockholders and members and the manner
of voting them;
5. The qualifications, duties and compensation of directors or trustees,
officers and employees;
6. The time for holding the annual election of directors of trustees and
the mode or manner of giving notice thereof;
7. The manner of election or appointment and the term of office of all
officers other than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of issuing stock
certificates; and
10. Such other matters as may be necessary for the proper or
convenient transaction of its corporate business and affairs.
Amendments sec 48
Sec. 48. Amendments to by-laws. - The board of directors or trustees,
by a majority vote thereof, and the owners of at least a majority of the
outstanding capital stock, or at least a majority of the members of a
non-stock corporation, at a regular or special meeting duly called for
the purpose, may amend or repeal any by-laws or adopt new by-laws.
The owners of two-thirds (2/3) of the outstanding capital stock or two-
thirds (2/3) of the members in a non-stock corporation may delegate
to the board of directors or trustees the power to amend or repeal any
by-laws or adopt new by-laws: Provided, That any power delegated to
the board of directors or trustees to amend or repeal any by-laws or
adopt new by-laws shall be considered as revoked whenever
stockholders owning or representing a majority of the outstanding
capital stock or a majority of the members in non-stock corporations,
shall so vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be attached to the original by-laws
in the office of the corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of the directors or
trustees, shall be filed with the Securities and Exchange Commission
the same to be attached to the original articles of incorporation and
original by-laws.
The amended or new by-laws shall only be effective upon the issuance
by the Securities and Exchange Commission of a certification that the
same are not inconsistent with this Code.
C. RECOGNITION AND DISREGARD OF
CORPORATENESS:
1. Separate Juridical Personality
Santos vs NLRC GR 101699 13 march 1996
Corporation Law; Corporate Officers; Piercing the Veil of
Corporate Fiction; A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it—obligations incurred
by the corporation, acting through its directors, officers and
employees, are its sole liabilities.-
A corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from
the people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are
its sole liabilities. Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds can exist to warrant, albeit done sparingly,
the disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong, to shield or
perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent
the law.
30
Corporation Law; Corporate Officers; Piercing the Veil of
Corporate Fiction; Instances when personal civil liability can also be
said to lawfully attach to a corporate director, trustee or officer.-
In Tramat Mercantile, Inc. vs. Court of Appeals, the Court has collated
the settled instances when, without necessarily piercing the veil of
corporate fiction, personal civil liability can also be said to lawfully
attach to a corporate director, trustee or officer; to wit: When—“(1)
He assents (a) to a patently unlawful act of the corporation, or (b) for
bad faith or gross negligence in directing its affairs, or (c) for conflict
of interest, resulting in damages to the corporation, its stockholders or
other persons; “(2) He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; “(3) He agrees to
hold himself personally and solidarily liable with the corporation; or
“(4) He is made, by a specific provision of law, to personally answer
for his corporate action.”
Corporation Law; Corporate Officers; Piercing the Veil of
Corporate Fiction; The basic rule is still that which can be deduced
from the Court’s pronouncement in Sunio v. National Labor Relations
Commission, i.e., that mere ownership by a single stock-holder or by
another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality.-
The basic rule is still that which can be deduced from the Court’s
pronouncement in Sunio v. National Labor Relations Commission,
127 SCRA 390, thus: “It is basic that a corporation is invested by law
with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it
may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the separate corporate
personality. Petitioner Sunio, therefore, should not have been made
personally answerable for the payment of private respondents’ back
salaries.” The Court, to be sure, did appear to have deviated somewhat
in Gudez vs. NLRC; however, it should be clear from our recent
pronouncement in Mam Realty Development Corporation and Manuel
Centeno vs. NLRC that the Sunio doctrine still prevails.
Stockholders of F.Guanzon vs Register 6 scra 373 1962
Corporations; Liquidation and distribution of assets for transfer
to stockholders; Certificate of liquidation in the nature of transfer
or conveyance.—Where the purpose of the liquidation, as well as the
distribution of the assets of the corporation, is to transfer their title
from the corporation to the stockholders in proportion to their
shareholdings, that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the
stockholders, and the certificate should be considered as one in the
nature of a transfer or conveyance.
Manila Gas vs CIR 62 Phil 895 1936
1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF
STATUTE; TlME OF RAISING QUESTION.-
Where neither in the pleadings, the decision of the trial court, nor the
assignment of errors, was the question of the validity of an act raised,
and no jurisdictional issue being involved, it is not the duty of the
Supreme Court to pass on the constitutional question.
2. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF
STATUTE; ACT No. 3761, VALIDITY.-
Quære as to whether or not Act No. 3761 is valid.
3. CONSTITUTIONAL LAW; TAXATION; OBLIGATION OF
CONTRACTS.-
A corporation has a personality distinct from that of its stockholders,
enabling the taxing power to reach the latter when they receive
dividends from the corporation. Dividends of a domestic corporation
which are paid and delivered in cash to foreign corporations as
stockholders are subject to the payment of the income tax, the
exemption clause in the charter of the corporation notwithstanding.
(Philippine Telephone and Telegraph Co. vs. Collector of Internal
Revenue [1933], 58 Phil., 639.)
4. CONSTITUTIONAL LAW; TAXATION; DUE PROCESS OF
LAW; SITUS.-
No state may tax anything not within its jurisdiction without violating
the due process clause of the constitution. The taxing power of a state
does not extend beyond its territorial limits, but within such limits it
may tax persons, property, income, or business.
5. ID; TAXATION; DUE PROCESS OF LAW; ID. ;-
If an interest in property is taxed, the situs of either the property or
interest must be found within the state. If an income is taxed, the
recipient thereof must have a domicile within the state or the property
or business out of which the income issues must be situated within the
state so that the income may be said to have a situs therein.
6. ID; TAXATION; DUE PROCESS OF LAW; ID.-
Personal property may be separated from its owner, and he may be
taxed on its account at the place where the property is although it is
not the place of his own domicile and even though he is not a citizen
or resident of the state which imposes the tax. But debts owing by
corporations are obligations of the debtors, and only possess value in
the hands of the creditors.
7. ID; TAXATION; DUE PROCESS OF LAW; CASE AT BAR.-
Held: That the Collector of Internal Revenue was justified in
withholding income taxes on dividends and interest on bonds and
other indebtedness paid by a resident Corporation to non-resident
corporations.
Magsaysay Labrador vs CA 180 scra 266 1989
Remedial Law; Civil Procedure; Intervention; Requirement before
a party can intervene in a pending action; Petitioners have no legal
interest in the subject matter in the litigation.-
Viewed in the light of Section 2, Rule 12 of the Revised Rules of
Court, this Court affirms the respondent court’s holding that
petitioners herein have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the proceedings below.
In the case of Batama Farmers’ Cooperative Marketing Association,
Inc. v. Rosal, we held: “As clearly stated in Section 2 of Rule 12 of
the Rules of Court, to be permitted to intervene in a pending action,
the party must have a legal interest in the matter in litigation, or in the
success of either of the parties or an interest against both, or he must
be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer
thereof.”
Remedial Law; Civil Procedure; Intervention; Requirements to
allow intervention.-
To allow intervention, [a] it must be shown that the movant has legal
interest in the matter in litigation, or otherwise qualified; and [b]
consideration must be given as to whether the adjudication of the
rights of the original parties may be delayed or prejudiced, or whether
the intervenor’s rights may be protected in a separate proceeding or
not. Both requirements must concur as the first is not more important
than the second.
Remedial Law; Civil Procedure; Intervention; Nature of interest
which entitles a person to intervene in a suit between other parties.-
The interest which entitles a person to intervene in a suit between other
parties must be in the matter in litigation and of such direct and
31
immediate character that the intervenor will either gain or lose by the
direct legal operation and effect of the judgment. Otherwise, if persons
not parties of the action could be allowed to intervene, proceedings
will become unnecessarily complicated, expensive and interminable.
And this is not the policy of the law.
Remedial Law; Civil
Procedure; Intervention; Interpretation; Meaning of the words
“an interest in the subject.”-
The words “an interest in the subject” mean a direct interest in the
cause of action as pleaded, and which would put the intervenor in a
legal position to litigate a fact alleged in the complaint, without the
establishment of which plaintiff could not recover.
Remedial Law; Civil Procedure; Intervention; Interest ofmovants
in the case at bar is indirect, contingent, conjectural, and purely
inchoate.-
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the
very least, their interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.
Remedial Law; Civil Procedure; Intervention; Corporations; A
share of stock in a corporation does not vest the owner thereof with
any legal right or title to any of the property.-
While a share of stock represents a proportionate or aliquot interest in
the property of the corporation, it does not vest the owner thereof with
any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.
Remedial Law; Civil
Procedure; Intervention; Corporations; That movant’s interest
which may be protected in a separate proceeding is a factor to be
considered in allowing or disallowing a motion for intervention.-
We cannot give credit to such averment. As earlier stated, that the
movant’s interest may be protected in a separate proceeding is a factor
to be considered in allowing or disallowing a motion for intervention.
Remedial Law; Civil
Procedure; Intervention; Corporations; Transfer of shares in a
corporation must be registered in the books of the corporation to affect
third persons.-
The factual findings of the trial court are clear on this point. The
petitioners cannot claim the right to intervene on the strength of the
transfer of shares allegedly executed by the late Senator. The
corporation did not keep books and records. Perforce, no transfer was
ever recorded, much less effected as to prejudice third parties. The
transfer must be registered in the books of the corporation to affect
third persons. The law on corporations is explicit. Section 63 of the
Corporation Code provides, thus: “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.”
Good earth vs CA 194 scra 544 1991
1. Corporation Law; A corporation has a personality distinct and
separate from its individual stockholders or members.-
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or stockholder
of a corporation does not make one’s property also of the corporation,
and vice-versa, for they are separate entities (Traders Royal Bank v.
CA, G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA
482). Shareowners are in no legal sense the owners of corporate
property (or credits) which is owned by the corporation as a distinct
legal person.
2. Corporation Law; The corporate debt or credit is not the debt or
credit of the stockholder nor is the stockholder’s debt or credit that of
the corporation.-
As a consequence of the separate juridical personality of a corporation,
the corporate debt or credit is not the debt or credit of the stockholder,
nor is the stockholder’s debt or credit that of the corporation.
3. Civil Law; Obligation; There is a disputable presumption that
money paid by one to the other was due to the latter.-
Contrary to the Regional Trial Court’s premise that it was incumbent
upon respondent corporation to prove that the amount was delivered
to the Roces brothers in the payment of the loan in the latter’s favor,
the delivery of the amount to and the receipt thereof by the Roces
brothers in their names raises the presumption that the said amount
was due to them. There is a disputable presumption that money paid
by one to the other was due to the latter (Sec. 5(f), Rule 131, Rules of
Court). It is for GEE and Lim Ka Ping to prove otherwise. In other
words, it is for the latter to prove that the payments made were for the
satisfaction of their judgment debt and not vice versa.
4. Civil Law; Obligation; When the existence of a debt is fully
established by the evidence the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the plaintiff creditor.-
It has been an established rule that when the existence of a debt is fully
established by the evidence (which has been done in this case), the
burden of proving that it has been extinguished by payment devolves
upon the debtor who offers such a defense to the claim of the plaintiff
creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11
Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30
Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that
each party in a case must prove his own affirmative allegations by the
degree of evidence required by law.
2. Defective incorporation
A. De Jure
De jure corporations – juridical entities created or organized in strict
or substantial compliance with the statutory requirements of
incorporation and whose right to exist as such cannot be successfully
attacked even by the State in a quo warranto proceeding.
B. De Facto - sec 20
De facto corporations – those which exist by virtue of an irregularity
or defect in the organization or constitution or from some other
omission to comply with the conditions precedent by which
corporations de jure are created, but there was colorable compliance
with the requirements of the law under which they might be lawfully
incorporated for the purposes and powers assumed, and user of the
rights claimed to be conferred by law.
Sec. 20. De facto corporations. - The due incorporation of any
corporation claiming in good faith to be a corporation under this Code,
and its right to exercise corporate powers, shall not be inquired into
collaterally in any private suit to which such corporation may be a
party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding.
i. Rationale for the doctrine
Tayko vs Capistrano 53 phil 866
32
1. COURTS; JURISDICTION ; PROHIBITION.+
2. COURTS; ID.-
A mere "understanding" as to the distribution of cases for trial does
not deprive the district judge of the jurisdiction conferred upon him by
law.
3. COURTS; APPOINTMENT OF ACTING FISCAL.-
When a regular provincial fiscal fails to discharge any of the duties of
his position, the judge of the Court of First Instance of the province
may
4. COURTS; TITLE TO, OFFICE "DE JURE" OR "DE FACTO;"
"QUO WARRANTO."-
The title to the office of a judge, whether de jure or de facto, can only
be determined in a proceeding of the nature of quo warranto and
cannot be tested by prohibition.
5. COURTS; USURPER.-
A de facto judge is one who exercises the duty of a judicial office
under color of an appointment or election thereto. He differs, on the
one hand, from a mere usurper who undertakes to act officially without
any color of right, and on the other hand, from a judge de jure, who is
in all respects legally appointed and qualified and whose term of office
has not expired.
6. COURTS; JUDGE HOLDING OVER AFTER CONCLUSION
OF HIS TERM.-
In the absence of any constitutional or statutory regulation on the
subject, the general rule is that an incumbent of an office will hold
over after the conclusion of his term until the election and qualification
of his successor.
7. COURTS; JUDGE "DE FACTO."-
A judge who is holding over in good faith and whose successor has
not' been appointed, is a judge de facto.
8. COURTS; VALIDITY OF OFFICIAL ACTS OF "DE FACTO"
JUDGE.-
The official acts of a de facto judge are as valid for all purposes as
those of a de jure judge so far as the public or third persons who are
interested therein are concerned. The rule applies both to civil and
criminal matters.
9. "DE FACTO" OFFICER; TITLE CANNOT BE QUESTIONED
IN PROHI-BITION PROCEEDINGS.-
The title of a de facto officer cannot be indirectly questioned in a
proceeding to obtain a writ of prohibition to prevent him from doing
official acts.
ii. Requisites
1. There is a valid statute under which a corporation with some of
the purposes in question can be formed ( or according to some,
an apparently valid statute );
2. An attempt, in good faith, to form a corporation according to the
requirements of law, which goes far enough to amount to a
“colorable complience” with the law;
3. A user of corporate powers, the transaction of business in some
way as if it were a corporation;
4. Good faith in claiming to be and doing business as a corporation.
Fernandez vs Cueva 21 scra 1095 1967
1. Labor; Recovery of unauthorized salary deduction; Prescription
of action.-
Where the claim of plaintiff represented the sum total of unauthorized
deductions from his salaries and withheld commissions under Section
10, paragraph (f) of Republic Act No. 602, then, under Section 17 of
the same law, the action to recover the same must be filed within three
years after the cause of action accrued.
2. Labor; When cause of action accrues; Case at bar.-
Considering that the amounts withheld by defendant, though actually
deductions from plaintiff’s salaries and unpaid commissions, were,
however, constituted as a bond or a deposit to answer for any liability
that he might incur in connection with the goods handled by him, the
right of plaintiff to commence an action for the return or refund of the
amounts representing such bond or deposit accrued only when the
same was no longer needed, which was on October, 1959 when
plaintiff was separated from the service.
3. Labor; Judicial demand; Case at bar.-
It is true that the claim filed by plaintiff with the regional office of the
Department of Labor is not a judicial demand in the strict sense of the
term judicial demand” because the same was not instituted in a court
of justice. Judicial notice, however, should be taken that on December
10, 1956, Reorganization Plan No. 20-A was promulgated pursuant to
Republic Act No. 997, and under Section 25 of said reorganization
plan each regional office of the Department of Labor was vested with
original and exclusive jurisdiction over all cases affecting all money
claims arising from violations of labor standards on working
conditions such as unpaid wages, underpayment, overtime and
separation pay, etc., to the exclusion of courts. Under the
circumstances, the filing by plaintiff of his claim before the regional
office of the Department of Labor, which at that time was the only
agency empowered to take cognizance of his claim, had the attributes
of a judicial demand for the purpose of interrupting the running of the
period of prescription.
4. Executive orders; Unconstitutional executive orders; Effect.-
Where it appears that the plaintiff had filed his claim before Regional
Office No. 4 of the Department of Labor on July 26, 1960 in
accordance with the provisions of Section 25 Of Reorganization Plan
No. 20-A, which was then in force, the fact that Section 25 of
Reorganization Plan No. 20-A was subsequently declared
unconstitutional should not be counted against plaintiff in the present
case because the actual existence of a statute prior to declaration of its
nullity is an operative fact, and may have consequences which cannot
justly be ignored.
Hall vs Piccio 86 Phil 603 1950
1. CORPORATION "DE FACTO"; DISSOLUTION BY SUIT
OF STOCKHOLDERS; JURISDICTION OF COURT.-
An entity whose certificate of incorporation had not been obtained
may be terminated in a private suit for its dissolution between
stockholders, without 'the intervention of the state. The question as to
the right of minority stockholders to sue for dissolution does not affect
the court's jurisdiction, and is a matter for decision by the judge,
subject to review on appeal by the aggrieved party at the proper time.
2. CORPORATION "DE FACTO"; RIGHTS OF.-
Persons acting as corporation may not claim rights of "de facto"
corporation if they have not obtained certificate of incorporation.
Benguet Consolidated vs Pineda 98 Phil 711 1956
1. CORPORATION LAW; PROHIBITION AGAINST
EXTENSION OF CORPORATE EXISTENCE BY AMENDMENT
OF THE ORIGINAL ARTICLES, APPLICABLE TO
“SOCIEDADES ANONIMAS."-
The prohibition contained in section 18 of Act No. 1459, against
extending the period of corporate existence by amendment of the
original articles, was intended to apply, and does apply, to sociedades
33
anonimas, already formed, organized and existing at the time of the
effectivity of the Corporation Law (Act 1459) in 1906.
2. CORPORATION LAW; PROHIBITION VALID AND
IMPAIRS NO VESTED RIGHTS.-
The aforesaid statutory prohibition is valid and impairs no vested
rights or constitutional inhibition where no agreement to extend the
original period of corporate life was perfected before the enactment of
the Corporation Law
3. Corporation by estoppel sec 21
Corporations by estoppel – those which are so defectively formed as
not to be either de jure or de facto corporations but which are
considered as corporations in relation only to those who cannot deny
their corporate existence due to their agreement, admission or conduct
Sec. 21. Corporation by estoppel. - All persons who assume to act as
a corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities and damages incurred or
arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.
Rationale for the doctrine
Asia Banking vs Standard Products 46 Phil 144 1924
1. CORPORATION; CORPORATE EXISTENCE, ESTOPPEL
FROM DENYING.-
In the absence of fraud, a person who has contracted or dealt with an
association in such a way as to recognize and in effect admit its legal
existence as a corporate body is thereby estopped to deny its corporate
existence in an action leading out of or involving such contract or
dealing, unless the existence is attacked for causes which have arisen
since making the contract or other dealing relied on as an estoppel.
2. CORPORATION; EVIDENCE.-
The defendant having recognized the corporate existence of the
plaintiff by making a promissory note in its favor and making partial
payments on the same, and the defendant having held itself out as a
corporation and being therefore estopped from denying its own
corporate existence, it is unnecessary for the plaintiff to present other
evidence of the corporate existence of either of the parties.
Vda. De Salvaatierraa vs Garlitos 103 Phil 757 1958
1. PLEADING AND PRACTICE; PETITION FOR
RELIEF; WHEN TO FILE PETITION.-
Rule 38, Section 3, of the Rules of Court treats of 2 periods within
which a petition for relief may be filed. The petition must be filed
within 60 days after the petitioner learns of the judgment and not more
than 6 months after the judgment or order was rendered, both of which
must be satisfied.
2. CORPORATION LAW; LlABILITY OF PERSON DEALING
WITH ASSOCIATION AS A CORPORATE BODY; WHEN
ESTOPPEL MAY NOT BE INVOKED.-
While as a general rule, a person who deals with an association in such
a way to recognize its existence as a corporate body is estopped from
denying the same in an action arising out of such transaction, yet this
doctrine may not be held to be applicable where fraud takes a part in
the said transaction. In the instant case, on plaintiff's charge that she
was unaware of the fact that the defendant corporation had no juridical
personality, its president gave no confirmation or denial of the same
and the circumstance surrounding the execution of the contract lead to
the inescapable conclusion that plaintiff was really made to believe
that such corporation was duly organized in accordance with law.
3. CORPORATION LAW; LIABILITY OF MEMBERS WHO
ACT AS AGENTS OF AN UNINCORPORATED ASSOCIATION.-
A corporation when registered has a juridical personality separate and
distinct from its component members or stockholders and officers,
such that a corporation cannot be held liable for the personal
indebtedness of a stockholder even if he should be its president
(Walter A. Smith Co. vs. Ford, SC-G. R. No. 42420) and conversely,
a stockholder cannot be held personally liable for any financial
obligation by the corporation in excess of his unpaid subscription. But
this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an
unincorporated association. The reason behind this doctrine is
obvious—an unincorporated association has no personality and would
be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law, it cannot create agents
or confer authority on another to act in its behalf; thus, those who act
or purport to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a principal
is himself regarded as the principal, possessed of all the right and
subject to all the liabilities of a principal, a person acting or purporting
to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent (Fay
vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial
Laws of the Philippines, Fifth Ed., p. 689-690).
Albert vs University Publishing 13 scra 84 1965
1. Corporations; Principle of corporation by estoppel; Not
invokable by one who misrepresented corporation as duly organized
against his victim.-
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.
2. Corporations; Person acting for corporation with no valid
existence is personally liable for contracts entered into as such agent.-
A person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts
performed as such agent.
3. Parties to Action; Suit against corporation with no valid existence;
Real defendant is person who has control of its proceedings.-
In a suit against a corporation with no valid existence the person who
had and exercised the rights to control the proceedings, to make
defense, to adduce and cross-examine witnesses, and to appeal from a
decision, is the real defendant, and .the enforcement of a judgment
against the corporation upon him is substantial observance of due
process of law.
4. Parties to Action; Real party in interest; Person who acted as
representative of non-existent principal and who reaped benefits from
its contracts.-
A person who acted as representative of a non-existent principal, who
reaped the benefits resulting from a contract entered into by him as
such, and who violated its terms, thereby precipitating a suit, is the
real party to the contract sued upon.
5. Due Process of Law; Purpose is to secure justice and not to
sacrifice it by technicalities.-
34
The “due process” clause of the Constitution is designed to secure
justice as a living reality, not to sacrifice it by paying undue homage
to formality. For substance must prevail over form.
Lim vs Philippine Fishing Gear GR 136448 1999
1. Partnerships; A partnership may be deemed to exist among parties
who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a “common fund,” as
their contribution to such fund could be an intangible like credit or
industry.-
From the factual findings of both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner’s brother. In their
Compromise Agreement, they subsequently revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and
the repair of which were financed with borrowed money, fell under
the term “common fund” under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.
2. Partnerships; Appeals; Petitions for Review; Pleadings and
Practice; Under Rule 45, a petition for review should involve only
questions of law, and a petitioner, in assailing the factual findings of
the two lower courts, effectively goes beyond the bounds of a petition
for review.-
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the
exceptions to the rule. In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
3. Partnerships; Appeals; Petitions for Review; A proper
adjudication of claimants’ rights mandates that courts must review and
thoroughly appraise all relevant facts.-
A proper adjudication of claimants’ rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to appreciate
that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts’ factual findings
mentioned above nullified petitioner’s argument that the existence of
a partnership was based only on the Compromise Agreement.
4. Partnerships; Loans; It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts.-
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well
as the division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired
from a loan in the name of the person the lender trusts, who in this
case is the petitioner himself. After all, he is the brother of the creditor,
Jesus Lim.
5. Partnerships; Corporation Law; Estoppel; Corporation by
Estoppel Doctrine; Agency; Those who act or purport to act as the
representatives or agents of an ostensible corporate entity who is
proven to be legally inexistent do so without authority and at their own
risk.-
Even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. “The reason behind this doctrine is obvious—an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent.”
6. Partnerships; Corporation Law; Estoppel; Corporation by
Estoppel Doctrine; The doctrine of corporation by estoppel may
apply to the alleged corporation and to a third party; An
unincorporated association, which represents itself to be a corporation,
will be estopped from denying its corporate capacity in a suit against
it by a third person who relies in good faith on such representation.-
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages
and benefits.
7. Partnerships; Corporation Law; Estoppel; Corporation by
Estoppel Doctrine; A third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence
in a suit brought against the alleged corporation.-
A third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it,
may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited
from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of.
8. Partnerships; Corporation Law; Estoppel; Corporation by
Estoppel Doctrine; Under the law on estoppel, those acting on behalf
of a corporation and those benefited by it, knowing it to be without
valid existence, are held liable as general partners.-
It is difficult to disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
9. Partnerships; Corporation Law; Estoppel; Corporation by
Estoppel Doctrine; A person who has reaped the benefits of a
contract entered into by persons with whom he previously had an
existing relationship is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel.-
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the contract
35
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor: “A litigation is not a
game of technicalities in which one, more deeply schooled and skilled
in the subtle art of movement and position, entraps and destroys the
other. It is, rather, a contest in which each contending party fully and
fairly lays before the court the facts in issue and then, brushing aside
as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the merits.
Lawsuits, unlike duels, are not to be won by a rapier’s thrust.
Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in
technicalities.”
3. Piercing the veil of corporate fiction
Umali vs CA 189 scra 529 1990
1. Courts; Rule that findings of fact of appellate court, final and
conclusive.-
At the outset, it will be noted that petitioners submission under the
first assigned error hinges purely on questions of fact. Respondent
Court of Appeals made several findings to the effect that the
questioned documents are valid and binding upon the parties, that
there was no fraud employed by private respondents in the execution
thereof, and that, contrary to petitioners’ allegation, the evidence on
record reveals that petitioners had every intention to be bound by their
undertakings in the various transactions had with private respondents.
It is a general rule in this jurisdiction that findings of fact of said
appellate court are final and conclusive and, thus, binding on this
Court in the absence of sufficient and convincing proof,inter alia, that
the former acted with grave abuse of discretion. Under the
circumstances, we find no compelling reason to deviate from this
long-standing jurisprudential pronouncement.
2. Courts; Civil Law; Contracts; Absolute simulation renders the
contract null and void, when the parties do not intend to be bound by
the same.-
There is absolute simulation, which renders the contract null and void,
when the parties do not intend to be bound at all by the same. The
basic characteristic of this type of simulation of contract is the fact that
the apparent contract is not really desired or intended to either produce
legal effects or in any way alter the juridical situation of the parties.
The subsequent act of Rivera in receiving and making use of the
tractor subject matter of the Sales Agreement and Chattel Mortgage,
and the simultaneous issuance of a surety bond in favor of Bormaheco,
concomitant with the execution of the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage, conduce to the
conclusion that petitioners had every intention to be bound by these
contracts. The occurrence of these series of transactions between
petitioners and private respondents is a strong indication that the
parties actually intended, or at least expected, to exact fulfillment of
their respective obligations from one another.
3. Courts; Civil Law; To set aside a document solemnly executed,
proof of fraud must be clear.-
Neither will an allegation of fraud prosper in this case where
petitioners failed to show that they were induced to enter into a
contract through the insidious words and machinations of private
respondents without which the former would not have executed such
contract. To set aside a document solemnly executed and voluntarily
delivered, the proof of fraud must be clear and convincing. We are not
persuaded that such quantum of proof exists in the case at bar.
4. Courts; Civil Law; Corporation; Piercing the veil of corporate
entities, not proper remedy when the corporation employed fraud in
the foreclosure proceedings.-
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, petitioners seek
to pierce the veil of corporate entity of Bormaheco, ICP and PM Parts,
alleging that these corporations employed fraud in causing the
foreclosure and subsequent sale of the real properties belonging to
petitioners. While we do not discount the possibility of the existence
of fraud in the foreclosure proceedings, neither are we inclined to
apply the doctrine invoked by petitioners in granting the relief sought.
It is our considered opinion that piercing the veil of corporate entity is
not the proper remedy in order that the foreclosure proceeding may be
declared a nullity under the circumstances obtaining in the case at bar.
5. Courts; Civil Law; Corporation; Surety; Extent of surety’s
liability, determined only by the clause of the contract of suretyship.-
It is basic that liability on a bond is contractual in nature and is
ordinarily restricted to the obligation expressly assumed therein. We
have repeatedly held that the extent of a surety’s liability is determined
only by the clause of the contract of suretyship as well as the
conditions stated in the bond. It cannot be extended by implication
beyond the terms of the contract. Fundamental likewise is the rule that,
except where required by the provisions of the contract, a demand or
notice of default is not required to fix the surety’s liability. Hence,
where the contract of suretyship stipulates that notice of the principal’s
default be given to the surety, generally the failure to comply with the
condition will prevent recovery from the surety. There are certain
instances, however, when failure to comply with the condition will not
extinguish the surety’s liability, such as a failure to give notice of
slight defaults, which are waived by the obligee; or on mere suspicion
of possible default; or where, if a default exists, there is excuse or
provision in the suretyship contract exempting the surety for liability
therefor, or where the surety already has knowledge or is chargeable
with knowledge of the default.
Koppel ( Phil ) vs Yatco 77 Phil 496 1946
1. CORPORATIONS; DISREGARD OF CORPORATE FICTION.-
A corporation will be looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears; but, when the
notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.
2. CORPORATIONS; CONTROL BY ANOTHER
CORPORATION.-
The corporate entity is disregarded where it 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.
3. OBLIGATIONS AND CONTRACTS; SALE; PERFECTION
OF CONSENSUAL CONTRACT; LOCATION OF PROPERTY
AND PLACE OF DELIVERY IMMATERIAL; CASE AT BAR.-
While it is true that when the contract was perfected in the Philippines
the pair of AtlasDiesel Marine Engines were in Sweden and the
36
agreement was to deliver them C. I. F. Hongkong, the contract of sale
being consensual—perfected by mere consent—(Civil Code, article
1445; 10 Manresa, 4th ed., p. 11), the location of the property and the
place of delivery did not matter in the question of where the agreement
was perfected.
4. OBLIGATIONS AND CONTRACTS; SALE; PERFECTION
OF, WHEN EXECUTED THROUGH CORRESPONDENCE.-
Contracts executed through correspondence are completed from the
time an answer is made accepting the proposition or the conditions by
which the latter may be modified.
5. STATUTORY CONSTRUCTION; INTERPRETATION BY
OFFICERS OF ADMINISTRATIVE BRANCHES NOT
BlNDING ON COURTS; "STARE DECISIS"; CASE AT BAR.-
The ruling of the Secretary of Finance, Exhibit M, was not binding
upon the trial court, much less upon this tribunal, since the duty and
power of interpreting the laws is primarily a function of the judiciary.
Plaintiff cannot be excused from abiding by this legal principle, nor
can it properly be heard to say that it relied on the Secretary's ruling
and that, therefore, the courts should not now apply an interpretation
at variance therewith. The rule of stare decisis is undoubtedly entitled
to more respect in the construction of statutes than the interpretations
given by officers of the administrative branches of the government,
even those entrusted with the administration of particular laws; and
yet in Philippine Trust Co. and Smith, Bell Co. vs. Mitchell (59 Phil.,
30), this court refused to follow its own doctrine laid down in a former
case, saying: "More important than anything else is that the court
should be right."
Tantongco vs Kaisahan 106 Phil 199 1959
1. CORPORATIONS; DlSTINCT PERSONALITY OF A
CORPORATION; JURIS-DICTION OF COURT OF
INDUSTRIAL RELATIONS NOT AFFECTED BY DEATH OF
OWNER.-
The death of an owner and manager of a corporation, against which
cases are pending in the Court of Industrial Relations, does not deprive
the latter of its jurisdiction over the same. The party in those cases
being the corporation and not the owner or manager personally, the
claims of the laborers therein, which are merely incidental to their
demands for reinstatement for having been unjustly dismissed, and for
better working conditions, are not the claims contemplated by law to
be submitted before the administrator of the estate of a deceased
person.
2. CORPORATIONS; EXISTENCE AND
OPERATION; ESTOPPEL.-
Having admitted the existence and operation of the two entities in a
complaint filed for injunction by the said entities and on two other
occasions, petitioner, who is stockholder, director, treasurer and
manager of said entities, is now estopped from denying the existence
of the same.
3. COURT OF INDUSTRIAL RELATIONS; POWER TO
ENFORCE ORDERS; CONTEMPT.-
Petitioner's contention that after he ceased to be administrator of the
estate of the deceased owner and manager of the entities in question,
he cannot now be compelled to comply with the order of the Court of
Industrial Relations to appear in the contempt proceedings instituted
against him, is untenable. The jurisdiction and authority of said court
as to compliance with and violations of its orders are clearly defined
in section 6 of Commonwealth Act No. 143.
Robledo vs NLRC 238 scra 52 1994
1. Labor Law; Contracts; Unless expressly assumed labor contracts
are not enforceable against the transferee of an enterprise.-
Indeed, the rule is settled that unless expressly assumed labor contracts
are not enforceable against the transferee of an enterprise. The reason
for this is that labor contracts are in personam. Consequently, it has
been held that claims for backwages earned from the former employer
cannot be filed against the new owners of an enterprise. Nor is the new
operator of a business liable for claims for retirement pay of
employees.
2. Corporation Law; Piercing the Veil of Corporate
Entity; Piercing the veil of corporate entity means looking through
the corporate form to the individual stockholders composing it.-
The doctrine of piercing the veil of corporate entity is used whenever
a court finds that the corporate fiction is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or to
confuse legitimate issues, or that 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. It
is apparent, therefore, that the doctrine has no application to this case
where the purpose is not to hold the individual stockholders liable for
the obligations of the corporation but, on the contrary, to hold the
corporation liable for the obligations of a stockholder or stockholders.
Piercing the veil of corporate entity means looking through the
corporate form to the individual stockholders composing it. Here there
is no reason to pierce the veil of corporate entity because there is no
question that petitioners’ claims, assuming them to be valid, are the
personal liability of the late Felipe Bacani. It is immaterial that he was
also a stockholder of BASEC.
3. Labor Law; Money Claims; Remedial Law; Money claims
against an estate must be filed in accordance with Sec. 5 of Rule 86.-
Now, the claims of petitioners are actually money claims against the
estate of Felipe Bacani. They must be filed against his estate in
accordance with sec. 5 of Rule 86 which provides in part: SEC. 5.
Claims which must be filed under the notice. If not filed, barred;
exceptions.—All claims for money against the decedent, arising from
contract, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in the notice; otherwise
they are barred forever, except that they may be set forth as
counterclaims in any action that the executor or administrator may
bring against the claimants…
4. Labor Law; Money Claims; Under Art. 110 of the Labor Code,
money claims of laborers enjoy preference over claims of other
creditors in case of bankruptcy or liquidation of the employer’s
business.-
The rationale for the rule is that upon the death of the defendant, a
testate or intestate proceeding shall be instituted in the proper court
wherein all his creditors must appear and file their claims which shall
be paid proportionately out of the property left by the deceased. The
objective is to avoid duplicity of procedure. Hence the ordinary
actions must be taken out from the ordinary courts. Under Art. 110 of
the Labor Code, money claims of laborers enjoy preference over
claims of other creditors in case of bankruptcy or liquidation of the
employer’s business.
a. Fraud cases
Gregorio Araneta, Inc. vs Tuazon 91 Phil 786 1952
CONTRACTS; SALE; MORTGAGE.—The proviso in a contract
of sale of real estate that 10 per cent of the purchase price should
1. be paid only after the mortgage on the property should
have been cancelled, is not onerous or unusual. It was not onerous or
unusual for the vendee to withhold a relatively small portion of the
37
purchase price before all the impediments to the final consummation
of the sale had been removed.
ID.; DECEIT IN ITS EXECUTION.—A vendor could not be
considered to have been deceived into signing a deed of sale of real
estate, where the circumstances show (1) that she is intelligent and
well educated and had been managing her affairs; (2) that she had an
able attorney who was assisting her in a lawsuit; and (3) that she has a
son who is a leading citizen and a business man and knew the English
language very well if she did not. If she signed the deed of sale without
being apprised of its import, it can hardly be conceived that she did
not have her attorney or her son, who took active part in the
negotiations, read it to her afterwards.
CORPORATIONS; CORPORATE ENTITY.—The fiction of
corporate entity of a corporation, which has long been organized and
has engaged in real estate business, will not be disregarded apart from
the members of the corporation, where the corporate entity was not
used to circumvent the law or perpetrate deception and the disregard
of the technicality would pave the way for the evasion of a legitimate
and binding commitment. "The courts will not ignore the corporate
entity in order to further the perpetration of a fraud." (18 C. J. S., 381.)
PRINCIPAL AND AGENT; AGENT, DEFINED; CIVIL CODE,
ARTICLE 1459.—An agent, in the sense used in article 1459 of the
Civil Code, is one who accepts another's representation to perform in
his name certain acts of more or less transcendancy. (10 Manresa, 46th
ed., 100.)
ID.; ID.; ID.—The ban of paragraph 2 of article 1459 connotes the
idea of trust and confidence; and so, where the relationship does not
involve considerations of good faith and integrity, the prohibition
should not, and does not apply. To come under the prohibition, the
agent must be in a fiduciary relation with his principal.
ID.; ID.; ID.—A person who acts as a go-between or middleman
between the vendor and the vendee, bringing them together to make
the contract themselves, without any power or discretion whatsoever
which he could abuse to his advantage and to the owner's prejudice, is
not an agent within the meaning of article 1459 of the Civil Code.
ATTORNEY AND CLIENT; CIVIL CODE, ARTICLE 1459.—
Attorneys are only prohibited f rom buying their client's property
'which is the subject of litigation (Art. 1459, No. 5, Spanish Civil
Code). Where the questioned sale of the property of the client was
effected before the subject thereof became involved in the present
action, the prohibition does not lie.
BANKS AND BANKING; CERTIFICATION OF
CHECK; DEPOSIT DURING JAPANESE OCCUPATION
NULLITY OF, UNDER EXECUTIVE ORDER No. 49.—Under
banking laws and practice, by the certification "the funds represented
by the check were transferred from the credit of the maker to that of
the payee or holder, and, for all intents and purposes, the latter became
the depositor of the drawee bank with rights and duties of one in such
relation"; the transfer of the corresponding funds from the credit of the
depositor to that of the payee had to be coextensive with the life of the
checks, which in this case was 90 days. If the checks were not
presented for payment within that period, they became invalid and the
funds were automatically restored to the credit of the drawer though
not as a current deposit but as special deposit. Where the checks were
never collected and the account against which they were drawn was
not used or claimed, and since that account "was opened during the
Japanese occupation and in Japanese currency," the checks "became
obsolete -as the account subject thereto is considered null and void in
accordance with Executive Order No. 49 of the President of the
Philippines."
OBLIGATIONS AND CONTRACTS; PAYMENT BY CHECK,
WHICH WERE LOST OR DESTROYED.—The stipulation that
the seller "shall not hold the vendee responsible for any loss of these
checks," which were to be void if not presented for payment at the
Bank within 90 days from date of acceptance," was unconscionable,
void and unenforceable in so far as the said stipulation would stretch
the vendor's liability for those checks beyond 90 days. It was not in
accord with law, equity or good conscience to hold a party responsible
for something he or she had no access to and could not make use of
but which was under the absolute control and disposition of the other
party.
SALE; LOSS OF THE FUNDS REPRESENTED BY CHECKS
IN PAYMENT; TIME FOR PAYMENT.—In adjudging the
vendee to be the party to shoulder the loss of the amount of the check
issued in payment of the obligation, and ordering the vendee to pay
the amount to the vendor, the judgment was not intended to be in the
nature of an extension of time of payment.
CONTRACTS AND OBLIGATIONS; RESCISSION; CASUAL
BREACH OF CONTRACT.—"The general rule is that recission
will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are so substantial and fundamental as to
defeat the object of the parties." (Song Fo & determination.
Co. vs.HawaiianPhilippine Co., 47 Phil., 821, 827.)
ID.; INTEREST, SUSPENSION OF THE RUNNING OF,
ALTHOUGH DEBT HAS NOT BEEN PAID.—The matter of the
suspension of the running of interest on the loan is governed by
principles which regard reality rather than technicality, substance
rather than form. Good faith of the offeror or ability to make good the
offer should in simple justice excuse the debtor from paying interest
after the offer was rejected. A debtor cannot be considered delinquent
who offered checks backed by sufficient deposit or ready to pay cash
if the creditor chose that means of payment. Technical defects of the
offer cannot be adduced to destroy its effects when the objection to
accept the payment was based on entirely different grounds. Thus,
although the defective consignation made by the debtor did not
discharge the mortgage debt, the running of interest on the loan is
suspended by the offer and tender of payment.
ID. ; DEBT MORATORIUM.—The mortgagor is not entitled to
suspension of payment under the debt moratorium law or orders
because the bulk of the debt was a pre-war obligation and the
moratorium order as to such obligation has been repealed except
where the debtor has suffered war damage and has filed claim for it.
Moreover, the debtor herself caused her creditor to be brought into this
case which resulted in the filing of the cross-claim to foreclose the
mortgage.
Palacio vs Fely Transportation Co., 5 scra 1011 1962
1. Corporations; Subsidiary Civil Liability for Damages; Fiction
of corporate entity not to be used to evade liability.-
Where the main purpose in forming the corporation was to evade one's
subsidiary liability for damages, in a criminal case, the corporation
may not be heard to say that it has a personality separate and distinct
from its members, because to allow it to do so would be to sanction
the use of the fiction of corporate entity as a shield to further an end
subversive of justice. (La Campana Coffee Factory, et al. vs.Kaisahan
ng mga Manggagawa, etc., et al., L-5677, May 25, 1953). The
Supreme Court can even substitute the real party in interest in place of
the defendant corporation in order to avoid multiplicity of suits and
thereby save the parties unnecessary expenses and delay (Alonso
vs.Villamor, 16 Phil. 315).
Palay, Inc. vs Clave 124 scra 636 1983
38
1. Civil Law; Contracts; Contract to sell real estate subdivision lots
on installment; Rescission; Notice to defaulting lot buyer in his
payments, indispensable; Judicial action for rescission of contract to
sell not necessary where contract provides for its revocation and
cancellation for violation of any of its terms and conditions, provided
written notice is sent to defaulter informing him of the rescission.-
Well settled is the role, as held in previous jurisprudence, that judicial
action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions. However, even in the cited cases, there
was at least a written notice sent to the defaulter informing him of the
rescission. As stressed in University of the Philippines vs. Walfrido de
los Angeles the act of a party in treating a contract as cancelled should
he made known to the other.
2. Civil Law; Contracts; Extrajudicial rescission has legal effect,
unless the other party impugns it.-
This was reiterated in Zulueta vs. Mariano where we held that
extrajudicial rescission has legal effect where the other party does not
oppose it. Where it is objected to, a judicial determination of the issue
is still necessary. In other words, resolution of reciprocal contracts
may be made extra judicially unless successfully impugned in Court.
If the debtor impugns the declaration, it shall be subject to judicial
3. Civil Law; Contracts; Waiver of notices; Contract of
adhesion; Waiver of right of defaulting lot buyer to be notified of
rescission of contract must be certain and unequivocal and
intelligently made; Contracts to sell by real estate developers are
contracts of adhesion; Public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions such
as waiver of notice.-
The contention that private respondent had waived his right to be
notified under paragraph 6 of the contract is neither meritorious
because it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. A
waiver must be certain and unequivocal, and intelligently made; such
waiver follows only where liberty of choice has been fully accorded.
Moreover, it is a matter of public policy to protect buyers of real estate
on installment payments against onerous and oppressive conditions.
Waiver of notice is one such onerous and oppressive condition to
buyers of real estate on installment payments.
4. Civil Law; Contracts; Refund of installments to lot buyer, proper,
where property of defaulting lot buyer already sold to a third person
and absent evidence that other lots are still available.-
As a consequence of the resolution by petitioners, rights to the lot
should be restored to private respondent or the same should be
replaced by another acceptable lot. However, considering that the
property had already been sold to a third person and there is no
evidence on record that other lots are still available, private respondent
is entitled to the refund of installments paid plus interest at the legal
rate of 12% computed from the date of the institution of the action. It
would be most inequitable if petitioners were to be allowed to retain
private respondent’s payments and at the same time appropriate the
proceeds of the second sale to another.
5. Civil Law; Corporation Law; General rule that a corporation may
not be made to answer for acts or liabilities of its stockholders or those
of legal entities to which it may be connected and vice versa;
Exceptions to rule that veil of corporate fiction may not be pierced.-
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. As a
general rule, a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities to which it
may be connected and vice versa. However, the veil of corporate
fiction may be pierced when it is used as a shield to further an end
subversive of justice; or for purposes that could not have been
intended by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to perpetuate fraud or
confuse legitimate issues; or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or business conduit for the sole
benefit of the stockholders.
6. Civil Law; Corporation Law; Absence of badges of fraud of
subdivision owner when it rescinded a contract to sell extrajudicially
and sold the property to a third person.-
We find no badges of fraud on petitioners’ part. They had literally
relied, albeit mistakenly, on paragraph 6 (supra) of its contract with
private respondent when it rescinded the contract to sell extrajudicially
and had sold it to a third person.
7. Civil Law; Corporation Law; President of real estate corporation
cannot be held personally liable where he appears to be controlling
stockholder absent sufficient proof that he used the corporation to
defraud defaulting lot buyer; Mere ownership by a single stockholder
or by another corporation of all or nearly all capital stock of
corporation not sufficient ground for disregarding corporate
personality; Case at bar.-
In this case, petitioner Onstott was made liable because he was then
the President of the corporation and he appeared to be the controlling
stockholder. No sufficient proof exists on record that said petitioner
used the corporation to defraud private respondent. He cannot,
therefore, be made personally liable just because he “appears to be the
controlling stockholder”. Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality.
Pabalan vs NLRC 184 scra 495 1990
1. Remedial Law; Summons; Labor Law; When petitioners filed
their opposition and supplemental position papers, summons were
served and there was no deprivation of due process.-
The Court finds these grounds to be devoid of merit. As the record
shows while originally it was PIF which was impleaded as respondent
before the labor arbiter, petitioners also appeared in their behalf
through counsel. Thereafter when the supplemental position paper was
filed by complainants, petitioners were impleaded as respondents to
which they filed an opposition inasmuch as they filed their own
supplemental position papers. They were therefore properly served
with summons and they were not deprived of due process.
2. Remedial Law; Summons; Ownership by single stockholder, not
a ground for disregarding the separate corporate personality.-
The settled rule is that the corporation is vested by law with a
personality separate and distinct from the persons composing it,
including its officers as well as from that of any other legal entity to
which it may be related. Thus, a company manager acting in good faith
within the scope of his authority in terminating the services of certain
employees cannot be held personally liable for damages. Mere
ownership by a single stockholder or by another corporation of all or
nearly all capital stocks of the corporation is not by itself sufficient
ground for disregarding the separate corporate personality.
3. Remedial Law; Summons; Corporations; Officers of
corporation are not liable for their official acts, unless they exceeded
authority.-
As a general rule, officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their
authority.
Del Rosario vs NLRC 187 scra 777 1990
1. Corporation Law; A corporation is bestowed judicial
personality separate and distinct from its stockholders; When the
judicial personality of the corporation is used to defeat public
convenience, justify wrong, protect fraud or defend crime, the
corporation shall be considered as mere association of persons and its
responsible officers and/or stockholders shall be held individually
liable.-
Under the law a corporation is bestowed juridical personality, separate
and distinct from its stockholders [Civil Code, Art. 44; Corporation
Code, sec. 2]. But when the juridical personality of the corporation is
used to defeat public convenience, justify wrong, protect fraud or
defend crime, the corporation shall be considered as a mere
association of persons, and its responsible officers and/or stockholders
shall be held individually liable. For the same reasons, a corporation
shall be liable for the obligations of a stockholder, or a corporation and
its successor-in-interest shall be considered as one and the liability of
the former shall attach to the latter.
2. Corporation Law; A corporation is bestowed judicial
personality separate and distinct from its stockholders; To
disregard the separate judicial personality of a corporation, the wrong
doing must be clearly and convincingly established.-
But for the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
3. Corporation Law; A corporation is bestowed judicial
personality separate and distinct from its
stockholders; Substantial identity of the incorporators of the two
corporations does not necessarily imply fraud.-
Likewise, substantial identity of the incorporators of the two
corporations does not necessarily imply fraud.
4. Labor Law; POEA; A judgment against a recruiter should initially
be enforced against the cash and surety bonds filed with the POEA.-
At this juncture, the Court finds it appropriate to point out that a
judgment against a recruiter should initially be enforced against the
cash and surety bonds filed with the POEA.
5. Labor Law; POEA; The obligations guaranteed by the bonds are
continuing.-
Quite evidently, these bonds do not answer for a single specific
liability, but for all sorts of liabilities of the recruiter to the worker and
to the POEA. Moreover, the obligations guaranteed by the bonds are
continuing. Thus, the bonds are subject to replenishment when they
are garnished, and failure to replenish shall cause the suspension or
cancellation of the recruiter’s license [Rule II, sec. 19]. Furthermore,
a cash bond shall be refunded to a recruiter who surrenders his license
only upon posting of a surety bond of similar amount valid for three
(3) years [Rule II, sec. 20]. All these, to ensure recovery from the
recruiter.
Villia Rey Transit vs Ferrer 25 scra 845 1968
1. Evidence; Admissibility of secondary evidence when original is in
adverse party's custody; Requisites of.-
Section 5 of Rule 130 of the Rules of Court provides for the requisites
for the admissibility of secondary evidence when the original is in the
custody of the adverse party, thus: (1) opponent's possession of the
a original; (2) reasonable notice to opponent to produce the original; (3)
satisfactory proof of its existence; and (4) failure or refusal of
opponent to produce the original in court. Regarding the f irst element,
it is not necessary for a party seeking to introduce secondary evidence
to show that the original is in the actual possession of his adversary. It
is enough that the circumstances are such as to indicate that the writing
is in his possession or under his control. Neither is it required that the
party entitled to the custody of the instrument should, on being notified
39
to produce it, admit having it in his possession. The party calling for
such evidence may introduce a copy thereof as in the case of loss.
2. Corporation law; Corporation separate and distinct from members
thereof; Piercing the corporate veil, when necessary.-
The doctrine that a corporation is a legal entity distinct and separate
from the members and stockholders who compose it is recognized and
respected in all cases which are within reason and the law. When the
fiction is urged as a means of perpetrating a fraud or an illegal act or
as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
3. Contracts; Validity of stipulations in restraint of trade.-
The 10-year restrictive clause in the contract between Villarama and
Pantranco while in the nature of an agreement suppressing
competition, is nevertheless reasonable and not harmful or obnoxious
to public interest. The disputed stipulation is only incidental to the
main agreement which is that of sale, the restraint is only partial: first,
in scope, it refers only to application for TPU by the seller in
competition with the lines sold to the buyer; second, in duration, it is
only for ten (10) years; and, third, with respect to situs or territory, the
restraint is only along the lines covered by the certif icates sold. It does
not appear that the ultimate result of the clause or stipulation would
leave solely to Pantranco the right to operate along the lines in
question, thereby establishing a monopoly. The main purpose of the
restraint is to protect for a limited time the business of the buyer. The
rule is that a contract in restraint of trade is valid provided there is a
limitation upon either time or place.
4. Contracts; Purchaser in good faith; Rule of caveat emptor.-
The 10-year prohibition upon Villarama is not against his application
f or, or purchase of, certif icates of public convenience, but merely the
operation of TPU along the lines covered by the certificates sold by
him to Pantranco. Consequently, the sale between Fernando and the
Corporation is valid, such that the rightful ownership of the disputed
certificates still belongs to the plaintiff being the purchaser in good
faith and for value thereof. In view of the rule of caveat emptor, what
was acquired by Ferrer in the sheriff's sale was only the right which
Fernando had in the certificates of public convenience on the day of
the sale. Of the same principle is the provision of Article 1544. of the
Civil Code, that "If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith. if it should be
movable property."
B. Alter Ego Cases
Arnold vs Willets and Paterson, Ltd., 44 Phil 634 1923
CONSTRUCTION OF CONTRACT.—Where A entered into a
written contract with the firm of W & P by which he was employed as
agent of the firm for a period of five years, and a dispute arose between
them as to the compensation which A should receive for his services,
and A wrote a letter, known in the record as Exhibit B, which clearly
defined and specified the compensation which he was to receive, to
which one member of the firm gave his "conforme," A's compensation
for his services is measured and controlled by Exhibit B.
WHEN CONTRACT WITH FIRM BINDS CORPORATION.—
Where A entered upon the discharge of his duties under a contract with
the firm of W & P, and the firm organized a corporation, which took
over all of its assets and continued to conduct the business of the firm
as a corporation and which dealt with and treated A as its agent, in the
40
same manner as the firm had previously done, the corporation is bound
by the contract which the firm made with A.
WHEN CONTRACT BY INDIVIDUAL BINDS
CORPORATION.—Where a contract is made with A by W in his
own name, and W is the owner of all of the capital stock of the
corporation, and the corporation deals with A as its agent under the
contract, the contract which W made with A becomes a contract
between A and the corporation, and the corporation is bound by the
contract.
IN THE ABSENCE OF FRAUD "CREDITORS' COMMITTEE"
OF INSOLVENT CORPORATION CANNOT RESCIND
CONTRACT OF CORPORATION.—Where a corporation
becomes insolvent, and its affairs were placed in the hands of a
"creditors' committee," the "committee" is bound by any valid contract
made between A and the corporation, and, in the absence of fraud, the
"creditors' committee" has no power to rescind the contract.
La Campana Coffee vs Kaisahan 93 Phil 160 1953
1. Industrial Disputes; Two Factors Operating under One
Management; Effect of One of Them Bieng a Registered
Corporation.-
—C Coffee Factory, Inc., and C Gaugau Packing are operating as one
business though with two trade names. The owner of the latter is T ;
and the former, though an incorporated business, is in reality owned
exclusively by and his family. The two factories had but one office,
one management and one payroll until July 17, the day the case was
certified to the Court of Industrial Relations, when the person who was
discharging the office of cashier for both branches of the business
began preparing separate payrolls for the two. And the laborers of the
gaugau factory and the coffee factory were interchangeable, that is,
the laborers from the gaugau factory were sometimes transferred to
the coffee factory and vice-versa. Held: The attempt to make the two
factories appear as two separate businesses, when in reality they are
but one, is but a device to defeat the ends of the law (the Act governing
capital and labor relations) and should not be permitted to prevail.
Although the coffee factory is a corporation and, by legal fiction, an
entity existing separate and apart from the persons composing it, that
is, T and his family, it is settled that this fiction of law, which has been
introduced as a matter of convenience and to subserve the ends of
justice cannot be invoked to further an end subversive of that purpose.
(13 Am. Jur., 160-162; Annotation 1 A. L. R. 612, s. 34 A. L. R. 599.):
2. Id.; Jurisidictional once Acquired not Lost Even if Permit of Labor
Union id Suspended.-
—Once the Court of Industrial Relations has duly acquired
jurisdiction over a case, such jurisdiction is not lost even after the
Department of Labor has suspended the permit of the petitioning labor
union.
3. Id; Jurisdictional Number of Laborers Required for a Labor to Sue
in Their Behalf.-
—Although the coffee factory has only 14 laborers and only five of
these are members of the labor union, yet as the gaugau factory has
more than the jurisdiction number (31) required by law and the two
factories are operating under one single management, the industrial
court has jurisdiction to try the case as against C Coffee Factory, Inc.
Yutivo Sons Hardware vs CTA 1 scra 160 1961
Corporations; Piercing the veil of corporate fiction.—A
corporation is an entity separate and distinct from its stockholders and
from other corporations to which it may be connected. However, when
the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons, or, in the case of two
corporations, merge them into one. When the corporation is the
mere alter ego or business conduit of a person, it may be disregarded.
Same; Taxation; Sales tax; Tax evasion.—A corporation cannot be
said to have been organized as a tax evasion device when there was no
tax to evade.
Same; Evidence; Fraudulent tax evasion.—The intention to
minimize taxes, when used in the context of fraud, must be proven by
clear and convincing evidence amounting to more than mere
preponderance. It cannot be justified by mere speculation. This is
because fraud is never lightly to be presumed.
Same; Fraud; Evidence on fraud.—Fraud is never imputed and the
courts never sustain findings of fraud upon circumstances which, at
most, create only suspicion.
Same; Concept of tax cvasion.—Tax evasion connotes fraud through
the use of pretenses and forbidden devices to lessen or defeat taxes.
Same; Tax avoidance.—A taxpayer has the legal right to decrease
the amount of what otherwise would be his taxes or altogether avoid
them by means which the law permits. Any legal means used by the
taxpayer to reduce taxes are all right. Therefore, a man may perform
an act that he honestly believes to be sufficient to exempt him from
taxes. He does not incur fraud thereby even if the act is thereafter
found to be insufficient.
Same.—Mere understatement of tax in itself does not prove fraud.
Same; Where two corporations were treated as one for tax
purposes.—Where it appears that SM was a mere subsidiary,
instrumentality or department of Yutivo, the Tax Court correctly
disregarded the alleged separate corporate personality of SM in order
to arrive at the true tax liability of Yutivo.
Taxation: Sales tax; Prescription.—Deficiency sales taxes for 1947
to 1949, which were assessed on November 7, 1950, were assessed
within the five-year period prescribed in section 331 of the Tax Code.
The deficiency sales tax for 1950, which was assessed on December
16, 1954, was likewise assessed within the five-year period.
Same; When the taxpayer is estopped to invoke prescription.—
Estoppel has been employed to prevent the application of the statute
of limitations against the government in certain instances in which the
taxpayer has taken some affirmative action to prevent the collection
of the tax within the statutory period. It is generally held that a
taxpayer is estopped to repudiate waivers of the statute of limitations
upon which the government relied. Where the taxpayer made several
requests for reinvestigation of a tax assessment, it may be considered
to have waived the defense of presCription.
Same; Fraud surcharge.—Where no element of fraud is present, the
imposition of the 50% surcharge on the deficiency sales tax is
improper. The circumstance that the sales made by the taxpayer's
subsidiary should be considered as sales of the taxpayer 'does not
necessarily establish fraud nor the willful filing of a false or fraudulent
return.
Same; Gross selling price does not include the sales tax billed as a
separate item.—lf a manufacturer, producer, or importer, in fixing
the gross selling price of an article sold by him, has included an
amount intended to cover the sales tax in the gross selling price of the
articles, the sales tax should be based on the gross selling price less
the amount intended to cover the tax, if the same is billed as a separate
item. Unless billed to the purchaser as a separate item in the invoice,
the amounts intended to cover the sales tax shall be considered as part
of the gross selling price of the articles sold, and deduction thereof
will not be allowed.
41
Court of Tax Appeals; Decisions.—The issue of whether the
decision of the Tax Court was concurred in by at least two judges
becomes academic in view of the elevation of the case to the Supreme
Court.
Liddell & Co. vs Collector 2 scra 632 1961
Judges; Disqualification; Participation in prior proceedings as
administrative official.—The mere participation of a judge in prior
proceeding relating to the subject in the capacity of an administrative
official does not disqualify him from acting as judge.
Court of Tax Appeals; Decision signed after 30 days from
submission of case, valid.—The requirement that cases brought
before the Tax Court shall be decided within 30 days after the
submission thereof for decision is merely directory. Hence, decisions
signed after the lapse of said period are valid.
Corporation Law; When corporate form may be ignored.—Where
a corporation is a dummy and serves no business purpose and is
intended only as a blind, the corporate form may be ignored.
Taxation; Sales Tax; When taxpayer may not deny tax liability.—
A taxpayer may not deny tax liability on the ground that the sales were
made through another and distinct corporation when it is proved that
the latter is virtually owned by the former or that they are practically
one and the same corporation.
Same; Surcharge when not imposable.—Where, as in the case at
bar, the sales made by the taxpayer to the corporation had been
embodied in proper documents subject to inspection by the tax
authorities, the return filed on the basis of such sales and not on those
to the public, cannot be said a false return and subject the taxpayer to
a surcharge. But penalty for late payment should be imposed.
Same; Deficiency sales tax, how computed.—Deficiency sales tax
should be based on the selling price to the public after deducting the
tax paid on the original sales.
Ramirez Telephone vs Bank America 29 scra 191
1. Corporation law; Corporate personality; When corporate
personality may be disregarded; Where defendant stockholder holds
75% of the stock of the corporation together with his wife.-
While respect for the corporate personality as such is the general rule,
the veil of corporate fiction may be pierced and the funds of the
corporation may be garnished to satisfy the debts of a principal
stockholder, to administer the ends of justice.
2. Remedial law; Appeal from Court of Appeals to Supreme Court;
Findings of fact of Court of Appeals.-
Factual findings of the Court of Appeals are not subject to review in
appealed cases to ,the Supreme Court.
Guatson International vs NLRC GR 100322 1994
1. Labor Law; Illegal Dismissal; An employee who is forced to
resign is considered to have been illegally dismissed.-
The issue therefore, boils down to the question of whether Jolly
Almoradie was indeed illegally dismissed by being forced to resign in
the manner narrated by him. From a synthesis of the evidence on
record, we fully agree with the finding of the NLRC that Jolly
Almoradie’s resignation was NOT voluntary. The NLRC did not err
in disregarding the conclusions reached by the Labor Arbiter because
the latter’s findings are not supported by substantial evidence.
2. Labor Law; Illegal Dismissal; An employer’s threat that he will
file charges against an employee and that he has a very good lawyer
could constitute force or coercion that vitiates the free will of said
employee in writing his resignation letter.-
We do not agree with petitioners’ proposition that Mr. Ocier’s mere
utterances of the words “I will file charges against you,” and “I have
a very good lawyer,” do not constitute force or coercion as to vitiate
the free will of Almoradie in writing his resignation letter.
Intimidation may vitiate consent when the following requisites are
present: 1) that the intimidation caused the consent to be given; 2) that
the threatened act be unjust or unlawful; 3) that the threat be real or
serious, there being evident disproportion between the evil and the
resistance which all man can offer, leading to the choice of doing that
act which is forced on the person to do as the lesser evil; and 4) that it
produces a well-grounded fear from the fact that the person from
whom it comes has the necessary means or ability to inflict the
threatened injury to his person or property.
3. Labor Law; Illegal Dismissal; Corporations; Piercing the Veil
of Corporate Fiction; When valid ground exists, the legal fiction that
a corporation is an entity with a juridical personality separate and
distinct from its members or stockholders may be disregarded.-
Anent NLRC’s grant of separation pay and backwages to private
respondent Jolly M. Almoradie, petition- ers argue that the companies,
Guatson Travel Company, Philac and Merex have separate and
distinct legal personalities such that the two latter companies should
not be held liable, assuming, for the sake of argument that private
respondent was illegally dismissed. We uphold the NLRC. The three
companies are owned by one family, such that majority of the officers
of these companies are the same. The companies are located in one
building and use the same messengerial service. Moreover, there was
no showing that private respondent was paid separation pay when he
was absorbed by Philac upon closure of Merex; nor was there evidence
that he resigned from Philac when he transferred to Guatson Travel.
Under the doctrine of piercing the veil of corporate fiction, when valid
ground exists, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or
stockholders may be disregarded. We have applied this doctrine in the
case of “Philippine Scout Veterans Security and Investigation Agency
(PSVSIA), et al. v. The Hon. Secretary of Labor,” G.R. No. 92357,
July 21, 1993.
4. Labor Law; Illegal Dismissal; Reinstatement; Separation pay
awarded in lieu of reinstatement since employee did not pray for the
latter relief, and also because the relationship between the parties had
become strained as to preclude a harmonious working relationship.-
Where there is a finding of illegal dismissal, the employee is entitled
to both reinstatement and award of backwages from the time the
compensation was withheld, in this case in 1988, up to a maximum of
three years, applying the Mercury Drug Rule. Reinstatement,
however, will not be required not only for the reason that it was not
prayed for by the respondent, but also because the relationship
between Almoradie and Ocier had become strained as to preclude a
harmonious working relationship. In lieu of reinstatement, separation
pay is awarded. As the term suggests, separation pay is the amount
that an employee receives at the time of his severance from the service
and is designed to provide the employee with the wherewithal during
the period that he is looking for another employment.
5. Labor Law; Illegal Dismissal; Reinstatement; Separation pay
computed at the rate of one month’s pay for every year of service, to
include the three-year period wherein backwages are awarded.-
However the award of separation pay should be, as we have
consistently ruled, equivalent to one (1) month for every year of
service, instead of one-half (1/2) month as awarded by the NLRC. In
the computation of separation pay, the three (3) year period wherein
backwages are awarded, must be included.
Concept Builders, Inc. vs NLRC GR 108734 1996
42
1. Corporation Law; Doctrine of Piercing the Veil of Corporate
Fiction; The separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to promote
justice; When the notion of separate juridical personality is used to
defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of
corporate fiction pierced.-
It is a fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit
or an alter ego of another corporation.
2. Corporation Law; Some probative factors of identity that will
justify the application of the doctrine of piercing the corporate veil.-
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and circumstances of each case.
No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, to wit: “1. Stock
ownership by one or common ownership of both corporations. 2.
Identity of directors and officers. 3. The manner of keeping corporate
books and records. 4. Methods of conducting the business.”
3. Corporation Law; “Instrumentality Rule,” Explained.-
The SEC en banc explained the “instrumentality rule” which the courts
have applied in disregarding the separate juridical personality of
corporations as follows: “Where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate
entity of the ‘instrumentality’ may be disregarded. The control
necessary to invoke the rule is not majority or even complete stock
control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be
kept in mind that the control must be shown to have been exercised at
the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for
which the complaint is made.”
4. Corporation Law; Test in determining the applicability of the
doctrine of piercing the veil of corporate fiction.-
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. The
absence of any one of these elements prevents ‘piercing the corporate
veil.’ In applying the ‘instrumentality’ or ‘alter ego’ doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to
that operation.”
5. Corporation Law; The question of whether a corporation is a mere
alter ego, a mere sheet or paper corporation, a sham or a subterfuge is
purely one of fact.-
Thus, the question of whether a corporation is a mere alter ego, a mere
sheet or paper corporation, a sham or a subterfuge is purely one of
fact.
6. Labor Law; Writs of Execution; Sheriffs; Pleadings and
Practice; Should the losing party, his agent or representative, refuse
or prohibit the Sheriff or his representative entry to the place where
the property subject of execution is located or kept, the judgment
creditor may apply to the NLRC or the Labor Arbiter concerned for a
break-open order.-
In view of the failure of the sheriff, in the case at bar, to effect a levy
upon the property subject of the execution, private respondents had no
other recourse but to apply for a break-open order after the third-party
claim of HPPI was dismissed for lack of merit by the NLRC. This is
in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that: “Should the losing party,
his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of
execution is located or kept, the judgment creditor may apply to the
Commission or Labor Arbiter concerned for a break-open order.”
C. Equity Cases
TESCO vs WCC 104 scra 354 1981
1. Labor Law; Workmen’s Compensation; Lack of
employeremployee relationship.-
To start with, a few basic principles should be re-stated: the existence
of employer-employee relationship is the jurisdictional foundation for
recovery of compensation under the Workmen’s Compensation Law.
The lack of employer-employee relationship, however, is a matter of
defense that the employer should properly raise in the proceedings
below. The determination of this relationship involves a finding of
fact, which is conclusive and binding and not subject to review by this
Court.
2. Labor Law; Workmen’s Compensation; Corporation
Law; Piercing the veil in compensation cases.-
Petitioner even admitted that TESCO and UMACOR are sister
companies operating under one single management and housed in the
same building. Although respect for the corporate personality as such,
is the general rule, there are exceptions. In appropriate cases, the veil
of corporate fiction may be pierced as when the same is made as a
shield to confuse the legitimate issues.
3. Labor Law; Workmen’s Compensation; Factual questions
cannot be raised for the first time on appeal to the Supreme Court.-
While, indeed, jurisdiction cannot be conferred by acts or omission of
the parties, TESCO’s denial at this stage that it is the employer of the
deceased is obviously an afterthought, a devise to defeat the law and
evade its obligations. This denial also constitutes a change of theory
on appeal which is not allowed in this jurisdiction. Moreover, issues
not raised before the Workmen’s Compensation Commission cannot
be raised for the first time on appeal. For that matter, a factual question
may not be raised for the first time on appeal to the Supreme Court.
4. Labor Law; Workmen’s Compensation; Certiorari; Non-
exhaustion of administrative remedies makes the certiorari filed as
premature.-
This Certiorari proceeding must also be held to have been prematurely
brought. Before a petition for Certiorari can be instituted, all remedies
available in the trial Court must be exhausted first. Certiorari cannot
be resorted to when the remedy of appeal is present. What is sought to
be annulled is the award made by the Referee. However, TESCO did
not pursue the remedies available to it under Rules 23, 24 and 25 of
the Rules of the Workmen’s Compensation Commission, namely, an
43
appeal from the award of the Referee, within fifteen days from notice,
to the Commission; a petition for reconsideration of the latter’s
resolution, if adverse, to the Commission en banc; and within ten days
from receipt of an unfavorable decision by the latter, an appeal to this
Court. As petitioner had not utilized these remedies available to it,
Certiorari will not lie, it being prematurely filed.
5. Labor Law; Workmen’s Compensation; Certiorari; Exceptions
to the rule on non-exhaustion not present in case at bar.-
Although this rule admits of exceptions, as where public welfare and
the advancement of public policy so dictate, the broader interests of
justice so require, or where the Orders complained of were found to
be completely null and void, or that the appeal was not considered the
appropriate remedy, the case at bar does not fall within any of these
exceptions.
AD Santos vs Vasquez 22 scra 1156 1968
1. Workmen's Compensation Act; Notice of controversion; Effect
of failure to file.-
Where the employer knew of the employee's illness, the failure of the
employer to file with the Commission notice of controversion is a
waiver of the defense that the claim for compensation was not .filed
within the statutory period and a forfeiture of the employer's right to
controvert the claim. Constructively, such failure is an admission that
the claim is compensable.
2. Corporation law; Juridical personality; Piercing the corpo-rate
veil.-
When the veil of corporate fiction is made as a shield to perpetrate a
fraud and/or confuse legitimate issues, the same should be pierced.
4. Due Process
McConnel vs CA 1 scra 723 91961
Obligations; Contracts; Corporations; When stockholders are liable
for obligations contracted by the corporation.— Whenever the
corporate entity is being used as an alter ego orbusiness conduit for
the sole benefit of the stockholders, or to defeat public convenience,
justify wrong, protect fraud. or defend crime, the individual
stockholders may be held liable for the obligations contracted by the
corporation.
Actions; Parties; Jurisdiction; Suit to enforce- judgment against non-
parties.—-In the case at bar, the trial court has jurisdiction over the
instant suit which is not an action to enforce a judgment within five
(5) years from its rendition, but an action to have non-parties to that
judgment held responsible for its payment.
Emilio cano Enterprises vs CIR, 13 SCRA 291
1965
1. Corporations; Separate legal personality from members
disregarded when used as shield to subvert justice.-
The legal fiction that a corporation has a personality separate and
distinct from its members or stockholders cannot be invoked if its
purpose is to use it as a shield to further an end subversive of justice,
especially where the corporation is a closed family corporation.
2. Corporations; Suit against corporate officers in their official
capacity considered as suit against corporation.-
Where the defendants are sued not in their private capacity but as
president and manager, respectively, of the corporation of which they
were officers, their connection with the case must be deemed to be
impressed with the representation of the corporation, and verily, the
order against them is in effect against the corporation.
NAMARCO vs Associated Finance Co. Inc., 19 scra 962
1. Corporation; Stockholders; When stockholder is guilty of fraud
in dealing with another corporation.-
A stockholder is guilty of fraud where, through false representation,
he succeeded in inducing another corporation to enter into an
exchange agreement with the corporation he represented and over
whose business he had absolute control and where it further appears
that said stockholder had full knowledge of the fact that his
corporation was in no position to comply with the obligation which he
had caused it to assume.
2. Corporation; When corporate fiction may be disregarded;
Stockholder’s liability for corporation’s obligations.-
Said stockholder can not seek refuge behind the general principle that
a corporation has a personality distinct and separate from that of its
stockholders and that the latter are not personally liable for the
corporate obligations. The court is justified in piercing the veil of
corporate fiction and in holding said stockholder solidarily liable with
the corporation for the sums of money adjudged in favor of the
aggrieved corporation. When the corporation is the mere alter ego of
a person, the corporate fiction may be disregarded; the same being true
when the corporation is controlled, and its affairs are so conducted as
to make it merely an instrumentality, agency or conduit of another.
Jacinto vs CA 198 scra 211 1992
1. Corporation Law; Veil of corporate fiction may be pierced when
made as a shield to perpetuate fraud and/or confuse legitimate issues.-
The conflicting statements by defendant Jacinto place in extreme
doubt his credibility anent his alleged participation in said transactions
and We are thus persuaded to agree with the findings of the lower
court that the latter (Roberto Jacinto) was practically the corporation
itself. Indeed, a painstaking examination of the records show that there
is no clear-cut delimitation between the personality of Roberto Jacinto
as an individual and the personality of Inland Industries, Inc. as a
corporation. The circumstances aforestated lead Us to conclude that
the corporate veil that en-shrouds defendant Inland Industries, Inc.
could be validly pierced, and a host of cases decided by our High Court
is supportive of this view. Thus it held that ‘when the veil of corporate
fiction is made as a shield to perpetuate fraud and/or confuse
legitimate issues, the same should be pierced.’ (Republic vs. Razon,
20 SCRA 234; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156; Emilio
Cano Enterprises, Inc. vs. Court of Appeals, 13 SCRA 290). Almost
in the same vein is the dictum enunciated by the same court in the case
of Commissioner of Internal Revenue vs. Norton Harrison Co., (11
SCRA 714), that ‘Where a corporation is merely an adjunct, business
conduit or alter ego, the fiction of separate and distinct corporate entity
should be disregarded.’
2. Corporation Law; Remedial Law; Evidence; Judgment may be
validly rendered on issues not alleged in the pleadings if evidence
thereto is presented with the express or implied consent of the adverse
party.-
Pursuant thereto, “when evidence is presented by one party, with the
express or implied consent of the adverse party, as to issues not alleged
in the pleadings, judgment may be rendered validly as regards those
issues, which shall be considered as if they have been raised in the
pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.”
3. Corporation Law; Remedial Law; Evidence; No serious
objection on the part of petitioner when respondent Metropolitan Bank
and Trust Company sought to prove that petitioner and the corporation
are one or that he is the corporation.-
While on the face of the complaint there is no specific allegation that
the corporation is a mere alter ego of petitioner, subsequent
developments, from the stipulation of facts up to the presentation of
evidence and the examination of witnesses, unequivocably show that
respondent Metropolitan Bank and Trust Company sought to prove
44
that petitioner and the corporation are one or that he is the corporation.
No serious objection was heard from petitioner.
Arcilla vs CA 215 scra 120 1986
1. Remedial Law; Civil Procedure; An entity which was not made a
party in the main case and which did not seek to intervene has no
personality to seek a review of the public respondent’s Amended
Decision under Rule 45 of the Rules of Court.-
The grant of affirmative relief based on the first assigned error would
really redound to the benefit of an entity which was not made a party
in the main case and which did not seek to intervene therein.
Therefore, it has no personality to seek a review of the public
respondent’s Amended Decision under Rule 45 of the Rules of Court.
Only the original parties to the main case may do so.
2. Remedial Law; Civil Procedure; Defenses and objections other
than the failure to state a cause of action and lack of jurisdiction not
pleaded either in a motion to dismiss or in the answer are deemed
waived.-
Moreover, petitioner neglected to set up in his Answer the defense that
he is not personally liable to the private respondent because the
“vales” were corporate obligations of Csar Marine Resources, Inc.. Of
course, that defense would have been inconsistent with his
volunteered admission that the KKK loan–—which resulted in the
procurement of the proforma invoice from the private respondent–—
was for his benefit. In any case, the failure to set it up as an affirmative
defense amounted to a waiver thereof. Section 2, Rule 9 of the Rules
of Court expressly provides that defenses and objections, other than
the failure to state a cause of action and lack of jurisdiction, not
pleaded either in a motion to dismiss or in the answer are deemed
waived. Petitioner, as a lawyer, knows or is supposed to know this
rule.
3. Remedial Law; Civil Procedure; Corporation Law; Piercing the
veil of corporate fiction; Even if the obligation was incurred in the
name of the corporation, the petitioner would still be personally liable
therefore because for all legal intents and purposes, he and the
corporation are one and the same.-
Moreover, by no stretch of even the most fertile imagination may one
be able to conclude that the challenged Amended Decision directed
Csar Marine Resources, Inc. to pay the amounts adjudged. By its clear
and unequivocal language, it is the petitioner who was declared liable
therefor and consequently made to pay. That the latter was ordered to
do so as president of the corporation would not free him from the
responsibility of paying the due amount simply because according to
him, he had ceased to be corporate president; such conclusion stems
from the fact that the public respondent, in resolving his motion for
clarificatory judgment, pierced the veil of corporate fiction and cast
aside the contention that both he and the corporation have separate and
distinct personalities. In short, even if We are to assume arguendo that
the obligation was incurred in the name of the corporation, the
petitioner would still be personally liable therefor because for all legal
intents and purposes, he and the corporation are one and the same.
Csar Marine Resources, Inc. is nothing more than his business conduit
and alter ego. The fiction of a separate juridical personality conferred
upon such corporation by law should be disregarded.
AC Ransom Labor Union vs NLRC 142 scra 269
1. Labor Law; Illegal Dismissal; Backwages; Liability for
payment of backwages by an employer corporation; Officer of a
corporation, acting in the interest of a corporation, is presumed to be
the employer.-
Since RANSOM is an artificial person, it must have an officer who
can be presumed to be the employer, being the “person acting in the
interest of (the) employer” RANSOM. The corporation, only in the
technical sense, is the employer.
2. Labor Law; Illegal Dismissal; Backwages; Liability for
payment of backwages by an employer corporation; Responsible
officer of an employer corporation can be held personally and
criminally liable for non-payment of back wages to workers.-
The responsible officer of an employer corporation can be held
personally, not to say even criminally, liable for non-payment of back
wages.
3. Labor Law; Illegal Dismissal; Backwages; Liability for
payment of backwages by an employer corporation; Reason for
policy of the law to hold an employer corporation liable for
payment of backwages; Case at bar.-
If the policy of the law were otherwise, the corporation employer can
have devious ways for evading payment of back wages. In the instant
case, it would appear that RANSOM, in 1969, foreseeing the
possibility or probability of payment of back wages to the 22 strikers,
organized ROSARIO to replace RANSOM, with the latter to be
eventually phased out if the 22 strikers win their case. RANSOM
actually ceased operations on May 1, 1973, after the December 19,
1972 Decision of the Court of Industrial Relations was promulgated
against RANSOM.
4. Labor Law; Illegal Dismissal; Backwages; Liability for
payment of backwages by an employer corporation; Absent
definite proof as to the identity of an officer or officers of the
corporation directly liable for failure to pay backwages, the
responsible officer is the president of the corporation jointly and
severally with other presidents of the same corporation.-
The record does not clearly identify “the officer or officers” of
RANSOM directly responsible for failure to pay the back wages of the
22 strikers. In the absence of definite proof in that regard, we believe
it should be presumed that the responsible officer is the President of
the corporation who can be deemed the chief operation officer thereof.
Thus, in RA 602, criminal responsibility is with the “Manager or in
his default, the person acting as such.” In RANSOM, the President
appears to be the Manager. (e) Considering that non-payment of the
back wages of the 22 strikers has been a continuing situation, it is our
opinion that the personal liability of the RANSOM President, at the
time the back wages were ordered to be paid should also be a
continuing joint and several personal liabilities of all who may have
thereafter succeeded to the office of president; otherwise, the 22
strikers may be deprived of their rights by the election of a president
without leviable assets.
Lim vs NLRC 171 scra 328 1989
1. Labor Law; Employee-employer relationship; Claim that
Calsado was only an independent contractor over whom Sweet Lines
had no control belied by the documents submitted by the former.-
We hold that the employee-employer relations between Calsado and
Sweet Lines have been sufficiently established. The following
documents submitted by the former and not controverted by the latter
should belie the claim that Calsado was only an independent
contractor over whom Sweet Lines had no control. There is in the
above exhibits a consistent and categorical recognition of Calsado as
an employee of petitioner Sweet Lines. Indeed, its notarized
certification that Calsado was its bona fide employee is irrefutable.
The petitioner cannot now argue that the grant to her of the 13th month
pay and even the differential pay was a mere accommodation like the
car plan (which, for that matter, is a benefit usually extended only to
employees). If it is true that Sweet Lines had no control over her and
left her free to determine her work schedule, there would have been
no reason at all for its approval of her application for sick leave from
March 7, 1985 to April 3, 1985. The termination letter itself, which
was signed by the other petitioner as Vice President of Sweet Lines,
said she was “entitled” to certain payments as a result of the cessation
of her “employment with Sweet Lines, Inc.”
45
2. Labor Law; Employee-employer relationship; Determination of
the existence of employee-employer relationship is a factual finding
which this Court will not disturb or reverse in the absence of a showing
of grave abuse of discretion.-
At any rate, the determination of the existence of em- ployee-employer
relations is a factual finding which this Court will not disturb or
reverse in the absence of a showing of grave abuse of discretion. We
do not see such justification here. On the contrary, the ascertainment
of the employment status of the private respondent was made on the
basis of the criteria consistently employed by the Court in the
determination of the employee-employer relationship. We find from
the record that all these test have been satisfied.
3. Labor Law; Benefits; Contention of Sweet Lines that separation
pay and back wages are inconsistent with each other not well-taken.-
Finally, we hold that the contention of Sweet Lines that separation pay
and back wages are inconsistent with each other is not well-taken.
Separation pay is granted where reinstatement is no longer advisable
because of strained relations between the employee and the employer.
Back wages represent compensation that should have been earned but
were not collected because of the unjust dismissal. The bases for
computing the two are different, the first being usually the length of
the employee’ service and the second the actual period when he was
unlawfully prevented from working.
De Guzman vs NLRC 211 scra 723 1992
1. Labor Law; Damages; Allegations; Corporation Law; A mere
general manager cannot be held solidarily liable with the corporation
for unpaid labor claims.-
The aforecited cases will not apply to the instant case, however,
because the persons who were there made personally liable for the
employees’ claims were stockholders-officers of the respondent
corporation. In the case at bar, the petitioner, while admittedly the
highest ranking local representative of AMAL in the Philippines, is
nevertheless not a stockholder and much less a member of the board
of directors or an officer thereof.
2. Labor Law; Damages; Allegations; Corporation Law; Same.-
As such, the petitioner cannot be held directly responsible for the
decision to close the business that resulted in his separation and that
of the private respondents. That decision came directly and
exclusively from AMAL. The petitioner’s participation was limited to
the enforcement of this decision in line with his duties as general
manager of the company. Even in a normal situation, in fact, he would
not be liable, as a managerial employee of AMAL, for the monetary
claims of its employees. There should be no question that the private
respondents’ recourse for such claims cannot be against the petitioner
but against AMAL and AMAL alone.
3. Labor Law; Damages; Allegations; Corporation Law; A
general manager who appropriated to himself the assets of his
employer-corporation to pay his claims against the latter after it
folded-up without reserving a portion to pay the claims of other
employees acts in bad faith and liable for damages.-
It is not disputed that the petitioner in the case at bar had his own
claims against AMAL and consequently had some proportionate right
over its assets. However, this right ceased to exist when, knowing fully
well that the private respondents had similarly valid claims, he took
advantage of his position as general manager and applied AMAL’s
assets in payment exclusively of his own claims.
4. Labor Law; Damages; Allegations; Same.-
Applying these provisions, we hold that although the petitioner cannot
be made solidarily liable with AMAL for the monetary demand of its
employees, he is nevertheless directly liable to them for his
questionable conduct in attempting to deprive them of their just share
in the assets of AMAL.
5. Damages; Obligations; Judgment; Pleading and
Practice; Moral damages can be awarded even if not prayed for and
even where no actual damages are established where a party acted in
bad faith.-
It is settled that the court can grant the relief warranted by the
allegation and the proof even if it is not specifically sought by the
injured party. In the case at bar, while the private respondents did not
categorically pray for damages, they did allege that the petitioner,
taking advantage of his position as general manager, had appropriated
the properties of AMAL in payment of his own claims against the
company. That was averment enough of the injury they suffered as a
result of the petitioner’s bad faith. The fact that no actual or
compensatory damages was proven before the trial court does not
adversely affect the private respondents’ right to recover moral
damages. We have held that moral damages may be awarded in the
cases referred to in the chapter on Human Relations of the Civil Code
(Articles 19-36) without need of proof that the wrongful act
complained of had caused any physical injury upon the complainant.
6. Damages; Obligations; Judgment; Pleading and
Practice; Award of exemplary damages when moral damages
awarded.-
When moral damages are awarded, exemplary damages may also be
decreed. Exemplary damages are imposed by way of example or
correction for the public good, in addition to moral, temperate,
liquidated or compensatory damages. According to the Code
Commission, “exemplary damages are required by public policy, for
wanton acts must be suppressed. They are an antidote so that the
poison of wickedness may not run through the body politic.” These
damages are legally assessible against him.
7. Damages; Obligations; Judgment; Pleading and
Practice; Appeal; Supreme Court may fix damages without remand
of case to labor arbiter.-
We agree that, strictly speaking, the determination of the amount
thereof would require a remand to the Labor Arbiter. However,
inasmuch as the private respondents were separated in 1986 and this
case has been pending since then, the interests of justice demand the
direct resolution of this motion in this proceeding.
5.Anti-Trust Issues
Garcia vs Executive Secretary GR 132451 1999
1. Constitutional Law; Commercial Law; Definition of
Monopoly; Where two or three or a few companies act in concert to
control market prices and resultant profits, the monopoly is called an
oligopoly or cartel.-
The simplest form of monopoly exists when there is only one seller or
producer of a product or service for which there are no substitutes. In
its more complex form, monopoly is defined as the joint acquisition
or maintenance by members of a conspiracy, formed for that purpose,
of the power to control and dominate trade and commerce in a
commodity to such an extent that they are able, as a group, to exclude
actual or potential competitors from the field, accompanied with the
intention and purpose to exercise such power. Where two or three or
a few companies act in concert to control market prices and resultant
profits, the monopoly is called an oligopoly or cartel. It is a
combination in restraint of trade.
2. Constitutional Law; Commercial Law; The deregulation of the
oil industry is a policy determination of the highest order.-
It bears reiterating at the outset that the deregulation of the oil industry
is a policy determination of the highest order. It is unquestionably a
priority program of Government. The Department of Energy Act of
1992 expressly mandates that the development and updating of the
46
existing Philippine energy program “shall include a policy direction
towards deregulation of the power and energy industry.”
3. Constitutional Law; Commercial Law; Republic Act 8180 was
struck down because, as crafted, three key provisions plainly
encouraged the continued existence if not the proliferation of the
constitutionally proscribed evils of monopoly and restraint of trade.-
The Court respects the legislative finding that deregulation is the
policy answer to the problems. It bears stressing that R.A. 8180 was
declared invalid not because deregulation is unconstitutional. The law
was struck down because, as crafted, three key provisions plainly
encouraged the continued existence if not the proliferation of the
constitutionally proscribed evils of monopoly and restraint of trade.
4. Constitutional Law; Commercial Law; The present petition
lacks a factual foundation specifically highlighting the need to declare
the challenged provision unconstitutional.-
In sharp contrast, the present petition lacks a factual foundation
specifically highlighting the need to declare the challenged provision
unconstitutional. There is a dearth of relevant, reliable, and substantial
evidence to support petitioner’s theory that price control must
continue even as Government is trying its best to get out of regulating
the oil industry. The facts of the petition are, in the main, a general
dissertation on the evils of monopoly.
5. Constitutional Law; Commercial Law; Deregulation means the
lifting of control, governance and direction through rule or regulation.-
Deregulation means the lifting of control, governance and direction
through rule or regulation. It means that the regulated industry is freed
from the controls, guidance, and restrictions to which it used to be
subjected. The use of the word “partial” to qualify deregulation is
sugar-coating.
6. Constitutional Law; Policies and acts of the political departments
of government may be voided by the Court on either of two grounds.-
Doctrinally, policies and acts of the political departments of
government may be voided by this Court on either of two grounds—
infringement of the Constitution or grave abuse of discretion. An
infringement may be proven by demonstrating that the words of the
law directly contradict a provision of the fundamental law, or by
presenting proof that the law authorizes or enables the respondents to
violate the Constitution.
7. Constitutional Law; Deregulation policy per se is not contrary to
the Constitution.-
A close perusal of the assailed Section 19 of RA 8479 and Section 19
of Article XII of the Constitution does not readily reveal their
irreconcilability. Indeed, even petitioner admits that the deregulation
policy per se is not contrary to the Constitution. Neither could it be
successfully argued that the implementation of such policy within the
five-month phase-in period is per se anathema to our fundamental law.
It is his imperative task therefore to adduce before the Court factual
and legal bases to demonstrate clearly and cogently the
unconstitutionality of the acts of Congress and the President in
adopting and implementing full deregulation of petroleum prices at
this time.
8. Constitutional Law; Court cannot inquire into the wisdom or
expediency of the acts of the executive or the legislative department,
unless there is a clear showing of constitutional infirmity or grave
abuse of discretion amounting to lack or excess of jurisdiction;
Meaning of Grave Abuse of Discretion.-
It is basic to our form of government that the Court cannot inquire into
the wisdom or expediency of the acts of the executive or the legislative
department, unless there is a clear showing of constitutional infirmity
or grave abuse of discretion amounting to lack or excess of
jurisdiction. “By grave abuse of discretion is meant such capricious
and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. Mere abuse of discretion is not enough. It must be grave
abuse of discretion, as when the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, and must
be so patent and so gross as to amount to an evasion of a positive duty
or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.” These jurisprudential elements of arbitrariness,
despotism, passion and hostility have not been shown to exist under
the present circumstances.
9. Constitutional Law; Court is not called upon to rule on the wisdom
of the law or to repeal it or modify it if found impractical.-
Now in the present petition, Garcia insists on his old plea for a return
only to partial deregulation of the downstream oil industry, wherein
the main features of deregulation would be permitted but the retail
prices of oil products would still be regulated through an Automatic
Pricing Mechanism. However, I find his contentions to be lacking
legal basis, even if his proposal appears to be expedient, or even
beneficial, especially to the poor. As the Court said in Tañada vs.
Tuvera, “[T]his Court is not called upon to rule on the wisdom of the
law or to repeal it or modify it if we find it impractical. That is not our
function. That function belongs to the legislator. Our task is merely to
interpret and apply the law as conceived and approved by the political
departments of the government in accordance with the prescribed
procedure.”
10. Constitutional Law; A suspension of a valid statute must rest
upon legislative action, it may not be effected solely by a judicial act;
Under our system of government, policy issues are within the domain
of the political branches of government and of the people themselves
as the repository of all state powers.-
To heed the petitioner’s prayer, this Court would have to legislate, a
power granted only to Congress. The operation of a statute may be
duly suspended only by authority of the legislature. Indeed, a
suspension of a valid statute must rest upon legislative action; it may
not be effected solely by a judicial act. Clearly it is a policy decision
of the legislative and executive departments in whose turf we must not
tread, under the principle of separation of powers. The term “political
question” connotes what it means in ordinary parlance, namely, a
question of policy. It refers to “those questions which, under the
Constitution, are to be decided by the people in their sovereign
capacity, or in regard to which full discretionary authority has been
delegated to the legislative or executive branch of the government.” It
is concerned with issues dependent upon the wisdom, not legality, of
a particular measure. The judiciary does not directly settle policy
issues. Under our system of government, policy issues are within the
domain of the political branches of government and of the people
themselves as the repository of all state powers.
11. Constitutional Law; Every law has in its favor the presumption
of constitutionality; Infringement upon constitutional rights must be
proved and established persuasively to invalidate a provision of a law,
if not the entire law itself.-
Well-established is the principle that every law has in its favor the
presumption of constitutionality.To declare a law unconstitutional, the
repugnancy of that law to the Constitution must be clear and
unequivocal. But we recognize that even if a law is aimed at the
attainment of some public good, still its provisions cannot infringe
upon constitutional rights. That infringement, however, must be
proved and established persuasively to invalidate a provision of a law,
if not the entire law itself.
Standard Oil Co. vs US 221 U.S. 1 1910
D. Corporate Powers
Classification of corporate authority:
47
1. Those expressly granted or authorized by law inclusive of the
corporate charter or articles of incorporation
2. Those impliedly granted as are essential or reasonably necessary to
the carrying out of the express powers
3. Those that are incidental to its existence.
Powers expressly granted:
1. Power to sue and be sued (Sec. 36)
2. Power of succession (Sec. 36)
3. Power to adopt and use a corporate seal (Sec. 36) 4. Power to amend
its articles of incorporation (Sec. 36)
5. Power to adopt, amend or repeal by-laws (Sec. 36) 6. Power to issue
or sell stocks/ to admit members (Sec. 36)
7. Power to acquire or alienate real or personal property (Sec. 36)
8. Power to enter into merger or consolidation (Sec. 36)
9. Power to make reasonable donations (Sec. 36)
10. Power to establish pension, retirement, and other plans (Sec. 36)
11. Power to extend or shorten corporate term (Sec. 37)
12. Power to increase or decrease capital stock (Sec. 38)
13. Power to incur, create or increase bonded indebtedness (Sec. 38)
14. Power to deny pre-emptive right (Sec. 39)
15. Power to sell or dispose corporate assets (Sec. 40) 16. Power to
acquire own shares (Sec. 41)
17. Power to invest corporate funds in another corporation or business
or for any other purpose (Sec. 42)
18. Power to declare dividends (Sec. 43)
19. Power to enter into management contract (Sec. 44)
1. Sources of Corporate Powers
Corporate Powers and Capacity - Art 42
Sec. 42. Power to invest corporate funds in another corporation or
business or for any other purpose. - Subject to the provisions of this
Code, a private corporation may invest its funds in any other
corporation or business or for any purpose other than the primary
purpose for which it was organized when approved by a majority of
the board of directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called for
the purpose. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in
the articles of incorporation, the approval of the stockholders or
members shall not be necessary.
1.Express Powers - sec 36
Sec. 36. Corporate powers and capacity. - Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in
the articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and
to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers
and to sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to
the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction
of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and
the Constitution;
8. To enter into merger or consolidation with other corporations as
provided in this Code;
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes
of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to
carry out its purpose or purposes as stated in the articles of
incorporation.
2.Implied Powers - sec 36(11)
11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the
articles of incorporation
3.Incidental Powers - sec 2 Corp Code
Sec. 2. Corporation defined. - A corporation is an artificial being
created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or
incident to its existence.
B. Specified Powers
1. Power to sue and be sued sec 36(1)
1. To sue and be sued in its corporate name;2. Of succession by its
corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
BS Savings Bank vs Sia GR 131214 2000
1. Corporation Law; Contracts; All acts within the powers of a
corporation may be performed by agents of its selection; except so far
as limitations or restrictions imposed by special charter, by-law, or
statutory provisions.-
A corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that are
implied by or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly
authorized officers and agents. Physical acts, like the signing of
documents, can be performed only by natural persons duly authorized
for the purpose by corporate by-laws or by a specific act of the board
of directors. “All acts within the powers of a corporation may be
performed by agents of its selection; and, except so far as limitations
or restrictions which may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law which govern
the relation of agency for a natural person govern the officer or agent
of a corporation, of whatever status or rank, in respect to his power to
act for the corporation; and agents once appointed, or members acting
in their stead, are subject to the same rules, liabilities and incapacities
as are agents of individuals and private persons.”
2. Corporation Law; Contracts; Corporations act only through their
officers and duly authorized agents.-
In the case of natural persons, Circular 28-91 requires the parties
themselves to sign the certificate of non-forum shopping. However,
48
such requirement cannot be imposed on artificial persons, like
corporations, for the simple reason that they cannot personally do the
task themselves. As already stated, corporations act only through their
officers and duly authorized agents. In fact, physical actions, like the
signing and the delivery of documents, may be performed, on behalf
of the corporate entity, only by specifically authorized individuals.
3. Actions; Pleadings and Practice; Forum-Shopping; Circular 28-
91 was prescribed by the Supreme Court to prohibit and penalize the
evils of forum-shopping.-
Circular 28-91 was prescribed by the Supreme Court to prohibit and
penalize the evils of forum shopping. We see no circumvention of this
rationale if the certificate was signed by the corporation’s specifically
authorized counsel, who had personal knowledge of the mat- ters
required in the Circular. In Bernardo v. NLRC, we explained that a
literal interpretation of the Circular should be avoided, if doing so
would subvert its very rationale.
4. Actions; Pleadings and Practice; Forum-Shopping; Technical
rules of procedure should be used to promote, not frustrate, justice.-
We stress that technical rules of procedure should be used to promote,
not frustrate, justice. While the swift unclogging of court dockets is a
laudable objective, the granting of substantial justice is an even more
urgent ideal.
2.Power to extend or shorten corporate Term sec 37 and 81(1)
Sec. 37. Power to extend or shorten corporate term. - A private
corporation may extend or shorten its term as stated in the articles of
incorporation when approved by a majority vote of the board of
directors or trustees and ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or by at least two-thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder or member
at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or
served personally: Provided, That in case of extension of corporate
term, any dissenting stockholder may exercise his appraisal right
under the conditions provided in this code.
Sec. 81. Instances of appraisal right.- Any stockholder of a
corporation shall have the right to dissent and demand payment of the
fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect
of changing or restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect superior to those
of outstanding shares of any class, or of extending or shortening the
term of corporate existence;
3.Power to increase or decrease capital stock sec 38 and 16
Sec. 38. Power to increase or decrease capital stock; incur, create
or increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholder's meeting at which the proposed
increase or diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors
of the corporation and countersigned by the chairman and the secretary
of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by each,
and the amount paid by each on his subscription in cash or property,
or the amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or the incurring, creating
or increasing of any bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of
the corporation and the other shall be filed with the Securities and
Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or decreased
and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the
sworn statement of the treasurer of the corporation lawfully holding
office at the time of the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that
there has been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board
of trustees and of at least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities
and Exchange Commission, which shall have the authority to
determine the sufficiency of the terms thereof.
Sec. 16. Amendment of Articles of Incorporation. - Unless
otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of incorporation
may be amended by a majority vote of the board of directors or
trustees and the vote or written assent of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or written
assent of at least two-thirds (2/3) of the members if it be a non-stock
corporation.
The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Such
articles, as amended shall be indicated by underscoring the change or
49
changes made, and a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly approved
by the required vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities
and Exchange Commission or from the date of filing with the said
Commission if not acted upon within six (6) months from the date of
filing for a cause not attributable to the corporation.
Madrigal & Co. vs Zamora, 151 scra 355 1987
1. Evidence; Findings of administrative agencies are accorded not
only respect but even finality.-
As a general rule, the findings of administrative agencies are accorded
not only respect but even finality. This is especially true with respect
to the Department of Labor, which performs not only a statutory
function but carries out a Constitutional mandate as well. Our
jurisdiction, as a rule, is confined to cases of grave abuse of discretion.
But for certiorari to lie, there must be such arbitrary and whimsical
exercise of power, or that discretion was exercised despotically.
2. Labor Law; Dividends received by the company are corporate
earnings arising from corporate investment.-
The petitioner would, however, have us believe that it in fact sustained
losses. Whatever profits it earned, so it claims were in the nature of
dividends “declared on its shareholdings in other companies in the
earning of which the employees had no participation whatsoever.”
“Cash dividends,” according to it, “are the absolute property of the
stockholders and cannot be made available for disposition if only to
meet the employees’ economic demands.” There is no merit in this
contention. We agree with the National Labor Relations Commission
that “[t]he dividends received by the company are corporate earnings
arising from corporate investment.” Indeed, as found by the
Commission, the petitioner had entered such earnings in its financial
statements as profits, which it would not have done if they were not in
fact profits. Moreover, it is incorrect to say that such profits—in the
form of dividends—are beyond the reach of the petitioner’s creditors
since the petitioner had received them as compensation for its
management services in favor of the companies it managed as a
shareholder thereof. As such shareholder. the dividends paid to it were
its own money, which may then be available for wage increments. It
is not a case of a corporation distributing dividends in favor of its
stockholders, in which case, such dividends would be the absolute
property of the stockholders and hence, out of reach by creditors of
the corporation. Here, the petitioner was acting as stockholder itself,
and in that case, the right to a share in such dividends, by way of salary
increases, may not be denied its employees.
3. Labor Law; Unfair Labor Practice; Reduction of capital to evade
employees demand for salary adjustments, mass lay-off of employees
under the guise of retrenchment policy constitute unfair labor
practice.-
Accordingly, this court is convinced that the petitioner’s capital
reduction efforts were, to begin with, a subterfuge, a deception as it
were, to camouflage the fact that it had been making profits, and
consequently, to justify the mass lay off in its employee ranks,
especially of union members. They were nothing but a premature and
plain distribution of corporate assets to obviate a just sharing to labor
of the vast profits obtained by its joint efforts with capital through the
years. Surely, we can neither countenance nor condone this. It is an
unfair labor practice. As we observed in People’s Bank and Trust
Company v. People’s Bank and Trust Co. Employees Union: xxx xxx
xxx As has been held by this Court in Insular Lumber Company vs.
CA, et al., L-23875, August 29, 1969, 29 SCRA 371, retrenchment
can only be availed of if the company is losing or meeting financial
reverses in its operation, which certainly is not the case at bar.
Undisputed is the fact, that the Bank “at no time incurred losses.” As
a matter of fact. “the net earnings of the Bank would be in the average
of P2,000,000.00 a year from 1960 to 1969 and, during this period of
nine (9) years, the Bank continuously declared dividends to its
stockholders.” Thus the mass layoff or dismissal of the 65 employees
under the guise of retrenchment policy of the Bank is a lame excuse
and a veritable smoke-screen of its scheme to bust the Union and thus
unduly disturb the employment tenure of the employees concerned,
which act is certainly an unfair labor practice.
4. Power to sell, dispose, lease or encumber assets sec 40
Sec. 40. Sale or other disposition of assets. - Subject to the
provisions of existing laws on illegal combinations and monopolies, a
corporation may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose
of all or substantially all of its property and assets, including its
goodwill, upon such terms and conditions and for such consideration,
which may be money, stocks, bonds or other instruments for the
payment of money or other property or consideration, as its board of
directors or trustees may deem expedient, when authorized by the vote
of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock corporation, by the
vote of at least to two-thirds (2/3) of the members, in a stockholder's
or member's meeting duly called for the purpose. Written notice of the
proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as
shown on the books of the corporation and deposited to the addressee
in the post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder may exercise his appraisal right under
the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all
the corporate property and assets if thereby the corporation would be
rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
After such authorization or approval by the stockholders or members,
the board of directors or trustees may, nevertheless, in its discretion,
abandon such sale, lease, exchange, mortgage, pledge or other
disposition of property and assets, subject to the rights of third parties
under any contract relating thereto, without further action or approval
by the stockholders or members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or otherwise
dispose of any of its property and assets if the same is necessary in the
usual and regular course of business of said corporation or if the
proceeds of the sale or other disposition of such property and assets be
appropriated for the conduct of its remaining business.
In non-stock corporations where there are no members with voting
rights, the vote of at least a majority of the trustees in office will be
sufficient authorization for the corporation to enter into any
transaction authorized by this section.
Pena vs CA 193 scra 717 1991
Corporation Law; By-laws; Quorum; Three (3) out of five (5)
members of the board of directors present in the special meeting of
respondent PAMBUSCO do not constitute a quorum to validly
transact business. Section 4 of its amended by-laws requires at least
four (4) members present to constitute a quorum in a special meeting
of its board of directors.—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
50
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.
Same; Board of Directors; Only persons who own at least one (1)
share in their own right may qualify to be directors of a corporation.—
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 ofthe said law, the sale or
disposition of all 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.
Same; Deed of Assignment; Civil Law; Donation; Liberality as a
consideration in the deed of assignment of the respondent
PAMBUSCO in favor of its former corporate officer for services
rendered is not just an ordinary deed of assignment but a donation.—
Respondent court, in upholding the questioned deed of assignment,
which appears to be without any consideration at all, held that the
consideration thereof is the liberality of the respondent PAMBUSCO
in favor of its former corporate officer, respondent Enriquez, for
services rendered. Assuming this to be so, then as correctly argued by
petitioner, it is not just an ordinary, deed of assignment, but is in fact
a donation. Under Article 725 of the Civil Code, in order to be valid,
such a donation must be made in a public document and the acceptance
must be made in the same or in a separate instrument. In the latter case,
the donor shall be notified of the acceptance in an authentic form and
such step must be noted in both instruments. Non-compliance with this
requirement renders the donation null and void. Since undeniably the
deed of assignment dated March 8, 1975 in question, shows that there
was no acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab initio and of no
force and effect.
Islamic Directorate vs CA GR 117897 14 May 1997
1. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; Words and
Phrases; Section 49, Rule 39 of the Revised Rules of Court lays down
the dual aspects of res judicata in actions in personam.-
Section 49, Rule 39 of the Revised Rules of Court lays down the dual
aspects of res judicata in actions in personam, to wit: “Effect of
judgment.—The effect of a judgment or final order rendered by a court
or judge of the Philippines, having jurisdiction to pronounce the
judgment or order, may be as follows: xxx xxx xxx (b) In other cases
the judgment or order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and in the same
capacity; (c) In any other litigation between the same parties or their
succes sors in interest, that only is deemed to have been adjudged in a
former judgment which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or
necessary thereto.” Section 49(b) enunciates the first concept of res
judicata known as “bar by prior judgment,” whereas , Section 49(c) is
referred to as “conclusiveness of judgment.”
2. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; Words and
Phrases; There is “bar by former judgment” when, between the first
case where the judgment was rendered, and the second case where the
judgment is invoked, there is identity of parties, subject matter and
cause of action while there is “conclusiveness of judgment” where
there is only identity of parties but there is no identity of cause of
action, the judgment being conclusive in the second case only as to
those matters actually and directly controverted and determined, and
not as to matters merely involved therein.-
There is “bar by former judgment” when, between the first case where
the judgment was rendered, and the s econd case where such judgment
is invoked, there is identity of parties, subject matter and cause of
action. When the three identities are present, the judgment on the
merits rendered in the first constitutes an absolute bar to the
subsequent action. But where between the first case wherein judgment
is rendered and the second case wherein such judgment is invoked,
there is only identity of parties but there is no identity of cause of
action, the judgment is conclusive in the s econd case, only as to those
matters actually and directly controverted and determined, and not as
to matters merely involved therein. This is what is termed
“conclusiveness of judgment.”
3. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment;Intervention; A party-in-
intervention cannot be considered a principal in a prior case for
purposes of applying the principle of res judicata since the contrary
goes against the true import of the action of intervention as a m ere
subsidiary proceeding without an independent life apart from the
principal action as well as the intrinsic character of the intervenor as a
mere subordinate party in the main case whose right may be said to be
only in aid of the right of the original party.-
Neither of these concepts of res judicata find relevant application in
the case at bench. While there may be identity of subject matter (IDP
property) in both cases, there is no identity of parties. The principal
parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as
petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP,
as represented by the 1971 Board of Trustees or the Tamano Group,
was only made an ancillary party in G.R. No. 107751 as intervenor. It
was never originally a principal party thereto. it must be noted that
intervention is not an independent action, but is merely collateral,
accessory, or ancillary to the principal action. It is just an interlocutory
proceeding dependent on or subsidiary to the case between the original
parties. Indeed, The IDP-Tamano Group cannot be considered a
principal party in G.R. No. 107751 for purposes of applying the
principle of res judicata since the contrary goes against the true import
of the action of intervention as a mere subsidiary proceeding without
an independent life apart from the principal action as well as the
intrinsic character of the intervenor as a mere subordinate party in the
main case whose right may be said to be only in aid of the right of the
original party. It is only in the present case, actually, where the IDP-
Tamano Group became a principal party, as petitioner, with the Iglesia
Ni Cristo, as private res pondent. Clearly, there is no identity of parties
in both cases.
4. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment;Corporation Law; A
juridical person can not be considered essentially a formal party to a
case where it was not duly represented by its legitimate governing
board.-
In this connection, although it is true that Civil Case No. Q-90-6937,
which gave rise to G.R. No. 107751, was entitled, “Iglesia Ni Kristo,
Plaintiff v. Islamic Directorate of the Philippines, Defendant,” the IDP
can not be considered essentially a formal party thereto for the simple
51
reason that it was not duly represented by a legitimate Board of
Trustees in that case. As a necessary consequence, Civil Case No. Q-
90-6937, a case for Specific Performance with Damages, a mere action
in personam , did not become final and executory insofar as the true
IDP is concerned since petitioner corporation, for want of legitimate
representation, was effectively deprived of its day in court in said case.
Res inter alios judicatae nullum aliis praejudicium faciunt. Matters
adjudged in a cause do not prejudice those who were not parties to it.
Elsewise put, no person (natural or juridical) shall be affected by a
proceeding to which he is a stranger.
5. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; While it is true that the
principle of res judicata is a fundamental component of our judicial
system, it should be disregarded if its rigid application would involve
the sacrifice of justice to technicality.-
In any case, while it is true that the principle of res judicata is a
fundamental component of our judicial system, it should be
disregarded if its rigid application would involve the sacrifice of
justice to technicality.
6. Corporation Law; Jurisdiction; Securities and Exchange
Commission; The SEC has the unquestionable authority to pass upon
the issue as to who among the different contending groups is the
legitimate governing board of a corporate body.-
There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the
legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by
virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A:
“Section 3. The Commission shall have absolute jurisdiction,
supervision and control over all corporations, partnerships or
associations , who are the grantees of primary franchises and/or a
license or permit issued by the government to operate in the
Philippines x x x x x x.” x x x x x x x x x Section 5. In addition to the
regulatory and adjudicative functions of the Securities and Exchange
Commission over corpora ti ons , partnerships and other forms of
associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving: x x x x x x x x x c) Controversies in the
selection or appointment of directors, trustees, officers, or managers
of such corporations, partnerships or associations. x x x.”
7. Corporation Law; Contracts; Sales; Where a corporate body
never gave its consent, thru a legitimate governing board, to a deed of
absolute sale, the subject sale is void and produces no effect
whatsoever.-
Premises considered, all acts carried out by the Carpizo Board,
particularly the sale of the Tandang Sora property, allegedly in the
name of the IDP, have to be struck down for having been done without
the consent of the IDP thru a legitimate Board of Trustees. Article
1318 of the New Civil Code lays down the essential requisites of
contracts: “There is no contract unless the following requisites concur:
(1) Consent of the contracting parties; (2) Object certain which is the
subject matter of the contract; (3) Cause of the obligation which is
established.” All these elements must be present to constitute a valid
contract. For, where even one is absent, the contract is void. As
succinctly put by Tolentino, consent is essential for the existence of a
contract, and where it is wanting, the contract is non-existent. In this
case, the IDP, owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the disputed Deed of
Absolute Sale executed in favor of INC. This is, therefore, a case not
only of vitiated consent, but one where consent on the part of one of
the supposed contracting parties is totally wanting. Ineluctably, the
subject sale is void and produces no effect whatsoever.
8. Corporation Law; Contracts; Sales; For the sale of the only
property of a corporation to be valid, the majority vote of the
legitimate board, concurred in by the vote of at least 2/3 of the bona
fide m embers of the corporation, should be obtained.-
The Tandang Sora property, it appears from the records, constitutes
the only property of the IDP. Hence, its sale to a third-party is a sale
or disposition of all the corporate property and assets of I DP falling
squarely within the contemplation of the foregoing section. For the
sale to be valid, the m a jorit y vot e of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide
members of the corporation should have been obtained. These twin
requirements were not met as the Carpizo Group which voted to sell
the Tandang Sora property was a fake Board of Trustees , and those
whose names and s ignatures were affixed by the Carpizo Group
together with the sham Board Resolution authorizing the negotiation
for the sale were, from all indications, not bona fide members of the
IDP as they were ma de to appear to be. Apparently, there are only
fifteen (15) official members of the petitioner corporation including
the eight (8) members of the Board of Trustees.
9. Corporation Law; Contracts; Sales; Securities and Exchange
Commission; Remand of Cases; No end of substantial justice will be
served if the Supreme Court reverses the SEC’s conclusion and
remand the case to the regular courts for further litigation over an issue
which is already determinable based on what is in the records.-
The resolution of the question as to whether or not the SEC had
jurisdiction to declare the subject sale null and void is rendered moot
and academic by the inherent nullity of the highly dubious sale due to
lack of consent of the I DP, owner of the subject property. No end of
substantial justice will be served if we revers e the SEC’s conclusion
on the matter, and remand the case to the regular courts for further
litigation over an issue which is already determinable based on what
we have in the records.
10. Land Titles; Under the Torrens System of Registration, the
minimum requirement for one to be a good faith buyer for value is that
the vendee at least sees the owner’s duplicate copy of the title and
relies upon the same.-
Furthermore, the Court observes that the INC bought the questioned
property from the Carpizo Group without even seeing the owner’s
duplicate copy of the titles covering the property. This is very strange
considering that the subject lot is a large piece of real property in
Quezon City worth millions , and that under the Torrens System of
Registration, the minimum requirement for one to be a good faith
buyer for value is that the vendee at least sees the owner’s duplicate
copy of the title and relies upon the same. The private respondent,
presumably knowledgeable on the aforesaid workings of the Torrens
System, did not take heed of this and nevertheless went through with
the sale with undue haste. The unexplained eagerness of INC to buy
this valuable piece of land in Quezon City without even being
presented with the owner’s copy of the titles casts very serious doubt
on the rightfulness of its position as vendee in the transaction.
5. Power to Deny pre-emptive rights sec 39
Sec. 39. Power to deny pre-emptive right. - All stockholders of a
stock corporation shall enjoy pre-emptive right to subscribe to all
issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of
incorporation or an amendment thereto: Provided, That such pre-
emptive right shall not extend to shares to be issued in compliance
with laws requiring stock offerings or minimum stock ownership by
the public; or to shares to be issued in good faith with the approval of
the stockholders representing two-thirds (2/3) of the outstanding
capital stock, in exchange for property needed for corporate purposes
or in payment of a previously contracted debt.
Datu vs SEC 123 scra 722
52
Corporation Law; No stockholders’ meeting or approval is
necessary for issuance of unsubscribed portion of capital stock.—As
aptly stated by the Securities and Exchange Commission in its
decision: x x x 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’ (Art. V, Sec. 1).
Same; A stockholder enjoys no pre-emptive right to buy unissued
shares of originally authorized capital stock.—“Petitioner bewails the
fact that in view of the lack of notice to him of such subsequent
issuance, he was not able to exercise his right of pre-emption over the
unissued shares. However, 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 reoffered, he cannot therefore claim a dilution of interest.
(Campos and Lopez-Campos Selected Notes and Cases on
Corporation Law, p. 855, citing Yasik V. Wachtel, 25 Del. Ch. 247,
17A. 2d 308 (1941).” (pp. 33-34, Rollo)
Same; Administrative Law; Findings of fact of an administrative
tribunal, i.e., stockholders were notified of the cannot be deemed to
have waived his pre-emptive right to buy additional shares of stock,
are binding on courts.—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. (Gokongwei, Jr. vs. SEC, 97 SCRA 78). In a long string of
cases, the Supreme Court has consistently adhered to the rule that
decisions of administrative officers are not to be disturbed by the
courts except when the former have acted without or in excess of their
jurisdiction or with grave abuse of discretion (Sichangco vs. Board of
Commissioners of Immigration, 94 SCRA 61).
6. Power to purchase own shares sec 41
Sec. 41. Power to acquire own shares. - A stock corporation shall
have the power to purchase or acquire its own shares for a legitimate
corporate purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to be purchased or
acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment
for their shares under the provisions of this Code.
Phil Trust vs Rivera 44 Phil 469 1923
1. CORPORATIONS; DIMINUTION OF CAPITAL.-
A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a
valuable consideration. for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and
under the conditions prescribed by law.
Boman Enviromental vs CA 167 scra 540 1988
1. Corporation Law; Jurisdiction of the SEC; Intra-corporate
Controversy; A suit filed by a stockholder against the corporation to
enforce the latter's promissory note or to compel the corporation to
pay for his shareholdings is cognizable by the SEC alone.-
Fajilan's suit against the corporation to enforce the latter's promissory
note or compel the corporation to pay for his shareholdings is
cognizable by the SEC alone which shall determine whether such
payment will not constitute a distribution of corporate assets to a
stockholder in preference over creditors of the corporation. The SEC
has exclusive supervision, control and regulatory jurisdiction to
investigate whether the corporation has unrestricted retained earnings
to cover the payment for the shares, and whether the purchase is for a
legitimate corporate purpose as provided in Sections 41 and 122 of the
Corporation Code.
2. Corporation Law; Corporations; Trust Fund Doctrine; There
can be no distribution of assets among stockholders without first
paying the corporate creditors.-
The requirement of unrestricted retained earnings to cover the shares
is based on the trust fund doctrine which means that the capital stock,
property and other assets of a corporation are regarded as equity in
trust for the payment of corporate creditors. The reason is that
creditors of a corporation are preferred over the stockholders in the
distribution of corporate assets. There can be no distribution of assets
among the stockholders without first paying corporate creditors.
Hence, any disposition of corporate funds to the prejudice of creditors
is null and void. "Creditors of a corporation have the right to assume
that so long as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its own
stock ..." (Steinberg vs. Velasco, 52 Phil. 953.)
3. Contracts, Interpretation of; Provisions of existing laws are
deemed incorporated in a valid contract without the parties' making
express reference to it.-
These provisions of the Corporation Code should be deemed written
into the agreement between the corporation and the stockholders even
if there is no express reference to them in the promissory note. The
principle is well settled that an existing law enters into and forms part
of a valid contract without need for the parties' expressly making
reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36
SCRA 437).
7.Power to invest corporate funds in another corporation or
business or for any other purpose sec 42
Sec. 42. Power to invest corporate funds in another corporation or
business or for any other purpose. - Subject to the provisions of this
Code, a private corporation may invest its funds in any other
corporation or business or for any purpose other than the primary
purpose for which it was organized when approved by a majority of
the board of directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called for
the purpose. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this Code:
53
Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in
the articles of incorporation, the approval of the stockholders or
members shall not be necessary.
Dela Rama vs Ma-ao Sugar Central 7 scra 247 1969
8. Power to enter into management contract sec 44
Sec. 44. Power to enter into management contract. - No
corporation shall conclude a management contract with another
corporation unless such contract shall have been approved by the
board of directors and by stockholders owning at least the majority of
the outstanding capital stock, or by at least a majority of the members
in the case of a non-stock corporation, of both the managing and the
managed corporation, at a meeting duly called for the purpose:
Provided, That (1) where a stockholder or stockholders representing
the same interest of both the managing and the managed corporations
own or control more than one-third (1/3) of the total outstanding
capital stock entitled to vote of the managing corporation; or (2) where
a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of
directors of the managed corporation, then the management contract
must be approved by the stockholders of the managed corporation
owning at least two-thirds (2/3) of the total outstanding capital stock
entitled to vote, or by at least two-thirds (2/3) of the members in the
case of a non-stock corporation. No management contract shall be
entered into for a period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or
operating agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered into for
such periods as may be provided by the pertinent laws or regulations
9. Power to make donations sec 36(9)
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes
of partisan political activity;
10. Power to provide gratuities to employees sec 36(10)
10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees;
Lopez Realty vs Fontecha GR 76801 11 August 1995
1. Actions; Pleadings and Practice; Appeals; It is well settled that
questions not raised in the lower courts cannot be raised for the first
time on appeal.-
Indeed, it would be offensive to the basic rules of fair play and justice
to allow petitioners to raise questions which have not been passed
upon by the labor arbiter and the public respondent NLRC. It is well
settled that questions not raised in the lower courts cannot be raised
for the first time on appeal. Hence, petitioners may not invoke any
other ground, other than those it specified at the labor arbiter level, to
impugn the validity of the subject resolutions.
2. Corporation Law; A corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed
by its charter or by the general law.-
The general rule is that a corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed
by its charter or by the general law. Thus, directors must act as a body
in a meeting called pursuant to the law or the corporation’s by-laws,
otherwise, any action taken therein may be questioned by any
objecting director or shareholder.
3. Corporation Law; An action of the board of directors during a
meeting, which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal meeting,
or impliedly, by the corporation’s subsequent course of conduct.-
Be that as it may, jurisprudence tells us that an action of the board of
directors during a meeting, which was illegal for lack of notice, may
be ratified either expressly, by the action of the directors in subsequent
legal meeting, or impliedly, by the corporation’s subsequent course of
conduct.
4. Corporation Law; “Ultra Vires” Acts; Words and Phrases; In
legal parlance, “ultra vires” act refers to one which is not within the
corporate powers conferred by the Corporation Code or articles of
incorporation or not necessary or incidental in the exercise of the
powers so conferred.-
Assuming,arguendo, that there was no notice given to Asuncion Lopez
Gonzales during the special meetings held on August 17, 1981 and
September 1, 1981, it is erroneous to state that the resolutions passed
by the board during the said meetings were ultra vires. In legal
parlance, “ultra vires” act refers to one which is not within the
corporate powers conferred by the Corporation Code or articles of
incorporation or not necessary or incidental in the exercise of the
powers so conferred.
5. Corporation Law; “Ultra Vires” Acts; Providing gratuity pay for
its employees is one of the express powers of the corporation under
the Corporation Code.-
The assailed resolutions before us cover a subject which concerns the
benefit and welfare of the company’s employees. To stress, providing
gratuity pay for its employees is one of the express powers of the
corporation under the Corporation Code, hence, petitioners cannot
invoke the doctrine of ultra vires to avoid any liability arising from the
issuance of the subject resolutions.
6. Corporation Law; Section 28 1/2 of the Corporation Law (now
Section 40 of the Corporation Code) requiring authorization of the
stockholders of record for action taken by the board of directors
applies to the sale, lease, exchange or disposition of all or substantially
all of the corporation’s assets.-
Petitioners try to convince us that the subject resolutions had no force
and effect in view of the non-approval thereof during the Annual
Stockholders’ Meeting held on March 1, 1982. To strengthen their
position, petitioners cite section 28 1/2 of the Corporation Law
(Section 40 of the Corporation Code). We are not persuaded. The cited
provision is not applicable to the case at bench as it refers to the sale,
lease, exchange or disposition of all or substantially all of the
corporation’s assets, including its goodwill. In such a case, the action
taken by the board of directors requires the authorization of the
stockholders on record.
7. Corporation Law; Where the stockholders of petitioner, except for
one, also sit as members of the board of directors, it will be illogical
and superfluous to require the stockholders’ approval of certain
resolutions adopted by the board of directors.-
It will be observed that, except for Arturo Lopez, the stockholders of
petitioner corporation also sit as members of the board of directors.
Under the circumstances in field, it will be illogical and superfluous
to require the stockholders’ approval of the subject resolutions. Thus,
even without the stockholders’ approval of the subject resolutions,
petitioners are still liable to pay private respondents’ gratuity pay.
11. Power to enter into a joint venture sec 44
54
Sec. 44. Power to enter into management contract. - No
corporation shall conclude a management contract with another
corporation unless such contract shall have been approved by the
board of directors and by stockholders owning at least the majority of
the outstanding capital stock, or by at least a majority of the members
in the case of a non-stock corporation, of both the managing and the
managed corporation, at a meeting duly called for the purpose:
Provided, That (1) where a stockholder or stockholders representing
the same interest of both the managing and the managed corporations
own or control more than one-third (1/3) of the total outstanding
capital stock entitled to vote of the managing corporation; or (2) where
a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of
directors of the managed corporation, then the management contract
must be approved by the stockholders of the managed corporation
owning at least two-thirds (2/3) of the total outstanding capital stock
entitled to vote, or by at least two-thirds (2/3) of the members in the
case of a non-stock corporation. No management contract shall be
entered into for a period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or
operating agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered into for
such periods as may be provided by the pertinent laws or regulations
Tuason & Co. vs Bolaños 95 Phil 906
1. PARTIES; REAL PARTY IN INTEREST; ATTORNEY MAY
BRING ACTION IN PLAINTIFF'S NAME.-
Section 2, Rule 2. of the Rules of Court requires that an action be
brought in the name of, but not necessarily by, the real property
interest. In fact the practice is for an attorney-at-law to bring the
action, that is, to file the complaint, in the name of the plaintiff.
2. PARTIES; CORPORATION AS PARTY MAY BE
REPRESENTED BY ANOTHER PERSON, NATURAL OR
JUDICIAL.-
There is nothing against one corporation being represented by another
person, natural or juridical, in a suit in court, for the true rule is that
"although a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2, Fletcher Cyc. E. 1082.)
3. COMPLAINTS; AMENDMENT TO CONFORM TO
EVIDENCE NOT NECESSARY TO RENDER JUDGMENT ON
FACTS PROVED THOUGH NOT ALLEGED.-
Where the facts shown entitled plaintiff to relief other than that asked
for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and
the appellate court may treat the pleading as amended to conform to
the evidence, although the pleadings were not actually amended.
(Citing Moran, Rules of Court, 1952 ed., 389-390.)
4. LAND REGISTRATION; REOPENING OF DECREE AFTER
ONE YEAR, NOT ALLOWED.-
A decree of registration can no longer be impunged on the ground of
fraud, error or lack of notice to defendant, after one year has elapsed
from the issuance and entry of the decree. Neither could the decree be
collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings, nor could title to that land
in derogation of that of plaintiff be acquired by adverse possession or
prescription since adverse, notorious and continuous possession under
claim of ownership is ineffective against Torrens title and the right to
secure possession under a decree of registration does not prescribe.
5. ACTIONS; IDENTITY OF CAUSE OF ACTION.-
Where one action is for the recovery of ownership and the other is for
recovery of possession, there is no identity of cause of action.
6. ACTIONS; CLASS SUIT.-
Where the action seeks relief for each individual plaintiff and not relief
for and on behalf of others, the action is not a class suit.
2.Ultra Vires Act - sec 45
Ultra-vires acts – are those that can not be executed or performed by
a corporation because they are not within its express, inherent or
implied powers as defined by its charter or articles of incorporation.
Consequences of ultra-vires acts:
1. On the corporation itself – the proper forum may suspend or revoke,
after proper notice and hearing, the franchise or certificate of
registration of the corporation for serious misrepresentation as to what
the corporation can do or is doing to the great damage or prejudice of
the general public.
2. On the rights of the stockholders – a stockholder may either an
individual or derivative suit to enjoin a threatened ultra-vires act or
contract.
3. On the immediate parties – (a) if the contract is fully executed on
both sides, the contract is effective; (b) if the contract is executory on
both sides, neither party can maintain an action for its non-
performance; and (c) if the contract is executory on one side only, and
has been fully performed on the other, the party who has received the
benefits is estopped to set up that the contract is ultra-vires.
Sec. 45. Ultra vires acts of corporations. - No corporation under this
Code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of the powers so
conferred.
a. Types of Ultra Vires Acts
1. Acts done beyond the powers of the corporation (through BOD);
2. Ultra vires acts by corporate officers;and
3. Acts or contracts which are per se illegal as being contrary to law.
b. Test to Determine Ultra Vires
Montelibano vs Bacolod-Murcia 5 scra 36 1962
1. Sugar Centrals; Milling Contracts; Concessions given by central
to planters, if retracted, will constitute fraud; Case at Bar.-
Since there is no rational explanation for the company's assenting to
the further concessions asked by the planters before the contracts were
signed, except as further inducement for the planters to agree to the
extension of the contract period, to allow the company now to retract
such concessions would be to sanction a fraud upon the planters who
relied on such additional stipulations.
2. Contracts; Novation; Modification before a bargain not novation
in law.-
There can be no novation unless two distinct and successive binding
contracts take place, with the later one designed to replace the
preceding convention. Modifications introduced before a bargain
becomes obligatory can in no sense constitute novation in law.
3. Contracts; Assent and concurrence of parties necessary to perfect
a contract; Setting down of terms not important except in certain
cases.-
55
Except in the cases of statutory forms or solemn agreements, it is the
assent and concurrence of the parties, and not the setting down of its
terms, that constitutes a binding contract.
4. Corporations; Exercise of charter powers; Test to be applied.-
"It is a question, therefore, in each case, of the logical relation of the
act to the corporate purpose expressed in the charter. If that act is one
which is lawful in itself, and not otherwise prohibited, is done for the
purpose of serving corporate ends, and is reasonably tributary to the
promotion of those ends, in a substantial, and not in a remote and
fanciful, sense, it may fairly be considered within charter powers. The
test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incident to
the express powers and reasonably necessary to their exercise. If so,
the corporation has the power to do it; otherwise, not." (Fletcher Cyc.
Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)
5. Corporations; Exercise of charter powers; Question on probable
losses or decrease in profits not reviewable by courts.-
Whether or not a valid and binding resolution passed by the board of
directors, will cause losses or decrease the profits of the corporation,
may not be reviewed by the courts.
C. Cases
Pirovano vs De La Rama Streamship 96 Phil 335 1954
1. CORPORATIONS; DONATIONS; DONATION GlVEN "OUT
OF GRATITUDE FOR SERVICES RENDERED" Is
REMUNERATIVE.-
A donation given by the corporation to the minor children of its late
president because he "was to a large extent responsible for the rapid
and very successful development and expansion of the activities of
this company" is remunerative in nature in contemplation of law.
2. CORPORATIONS; DONATIONS; PERFECTED DONATION
CAN ONLY BE RESCINDED ON LEGAL GROUNDS.-
Where the donation made by the corporation has not only been granted
in several resolutions duly adopted by its board of directors but also it
has been formally ratified by its stockholders, with the concurrence of
its only creditor, and accepted by the donee, the donation -has reached
the stage of perfection which is valid and binding upon the corporation
and as such cannot be rescinded unless there exist legal grounds for
doing so.
3. CORPORATIONS; DONATIONS; DONATION
DISTINGUISHED FROM GRATUITY.-
While a donation may technically be different from a gratuity, in
substance they are the same. They are even similar to a pension. Thus,
it was said that "A pension is a gratuity only when it is granted for
services previously rendered, and which at the time they were
rendered gave rise to no legal obligation." (Words and Phrases,
Permanent Edition, p. 675; O'Dea vs. Cóók, 169 Pac., 306, 176 Cal.,
659.)
4. CORPORATIONS; POWERS OF A CORPORATION; ACTS
PERFORMED WITHIN THE POWERS GRANTED ARE NOT
"ULTRA VIRES".-
Where the corporation was given broad and almost unlimited powers
to carry out the purposes for which it was organized among them, to
aid in any other manner any person in the affairs and prosperity of
whom it has a lawful interest, a donation made to the heirs of its late
president in recognition of the valuable services rendered by the latter
which had immensely contributed to its growth, comes within this
broad grant of power and can not be considered an ultra vires act.
5. CORPORATIONS; POWERS OF A
CORPORATION; "ULTRA VIRES" ILLEGAL ACTS
DISTINGUISHED; EFFECT OF RATIFICATION BY
STOCKHOLDERS.-
Illegal acts of a corporation contemplate the doing of an act which is
contrary to law, morals, or public order, or contravene some rules of
public policy or public duty, and are, like similar transactions between
individuals, void. They can not serve as basis of a court action, nor
acquire validity by performance, ratification, or estoppel. On the other
hand, ultra vires acts or those which are not illegal and void ab initio
but are merely within the scope of the article of incorporation, are
merely voidable and may become binding and enforceable when
ratified by the stockholders.
6. CORPORATIONS; POWERS OF A accommodation party liable on the instrument to a holder for value
CORPORATION; "ULTRA VIRES" ACTS; RATIFICATION BY
STOCKHOLDERS OF "ULTRA VIRES" ACTS CURES
INFIRMITY.-
The ratification by the stockholders of an ultra vires act which is not
illegal cures the infirmity of the corporate act and makes it perfectly
valid and enforceable, specially so if it is not merely executory but
executed and consummated and no creditors are prejudiced thereby.
7. ATTORNEY'S FEES; WHEN MAY BE AWARDED AS
DAMAGES.-
When the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest,
attorney's fees may be awarded as damages (Article 2208, paragraph
2, of the new Civil Code).
Luneta Motors vs AD Santos 5 scra 809 1962
1. Corporations; Power to purchase and deal with personal or real
property; Purpose of the corporation to be considered.-
Under Section 13(5) of the Corporation Law, a corporation created
thereunder may purchase, hold and otherwise deal in such real and
personal property as the purpose for which the corporation was formed
may permit, and the transaction of its lawful business may reasonably
and necessarily require. A corporation authorized under its articles of
incorporation to operate and otherwise deal in automobiles and
automobile accessories and to engage in the transportation of persons
by water, may not engage in the business of land transportation, which
is an entirely different line of business, and, for this reason, may not
acquire any certificate of public convenience to operate a taxicab
service, because such acquisition would be without purpose and would
have no necessary connection with the corporation's legitimate
business.
Republic vs Acoje Mining 3 scra 361 1963
1. Corporations; Ultra vires act defined; When corporate acts may
be performed outside the scope of powers expressly conferred.-
—While as a rule an ultra vires act is one committed outside the object
for which a corporation is created as defined by the law of its
organization and therefore beyond the powers conferred upon it by
law (19 C.J.S., Section 965, p. 419), there are however certain
corporate acts that may be performed outside of the scope of the
powers expressly conferred if they are necessary to promote the
interest or welfare of the corporation, such as the establishment, in the
case at bar, of a local post office in a mining camp which is far
removed from the postal facilities or means of communications
accorded to- people living in a city or municipality.
2. Same; Assumption of responsibility; Responsibility in present
case that of principal and not that of guarantor.-
—That the responsibility of the defendant corporation is not just that
of a guarantor but of a principal is clear from the resolution of its
Board of Directors in which the corporation assumed “full
responsibility for all cash received by the Postmaster”.
56
3. Same; Same; Ultra vires act distinguished from illegal
act; Enforcement of ultra vires act on the ground of estoppel.-
—An illegal act is void and cannot be validated, while an ultra vires
act is merely voidable and can be enforced by performance, ratifi-
cation or estoppel, or on equitable grounds. In the present case the
validity of the resolution of the Board of Directors of the corporation
accepting full responsibility in connection with funds to be received
by its postmaster, should be upheld on the ground of estoppel.
Crisologo Jose vs CA 177 scra 594 1989
Negotiable Instruments Law; Corporations; Rule that an
does not apply to corporations which are accommodation parties;
Reasons.—The aforequoted provision of the Negotiable Instruments
Law which holds an accommodation party liable on the instrument to
a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, does not
include nor apply to corporations which are accommodation parties.
This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of
another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to
charge the indorsee with knowledge that the issue or indorsement of
the instrument by the corporation is for the accommodation of another,
he cannot recover against the corporation thereon.
Same; Same; Same; Same; Exception; An officer or agent of a
corporation shall have the power to execute or indorse a negotiable
paper in the name of the corporation for accommodation only if
specifically authorized to do so; Personal liability of signatories in the
instrument.—By way of exception, an officer or agent of a corporation
shall have the power to execute or indorse a negotiable paper in the
name of the corporation for the accommodation of a third person only
if specifically authorized to do so. Corollarily, corporate officers, such
as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters
in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law and in logic
is that the signatories thereof shall be personally liable therefor, as well
as the consequences arising from their acts in connection therewith.
Same; Same; Same; Same; Consignation; Payment; Remedy of
consignation, proper; Case at bar; Effects of consignation.—We
interpose the caveat,however, that by holding that the remedy of
consignation is proper under the given circumstances, we do not
thereby rule that all the operative facts for consignation which would
produce the effect of payment are present in this case. Those are
factual issues that are not clear in the records before us and which are
for the Regional Trial Court of Quezon City to ascertain in Civil Case
No. Q-33160, for which reason it has advisedly been directed by
respondent court to give due course to the complaint for consignation,
and which would be subject to such issues or claims as may be raised
by defendant and the counterclaim filed therein which is hereby
ordered similarly revived.
Checks; B.P. 22; Presumptive rule to determine whether or not there
was insufficiency of funds in or credit with the drawee bank.—These
are aside the considerations that the disputed period involved in the
criminal case is only a presumptive rule, juris tantum at that, to
determine whether or not there was knowledge of insufficiency of
funds in or credit with the drawee bank; that payment of civil liability
is not a mode for extinguishment of criminal liability; and that the
requisite quantum of evidence in the two types of cases are not the
same.
Harden vs Benguet Consolidated 58 Phil 1140 1948
1. CORPORATIONS; MlNING
CORPORATION; PROHIBITION AGAINST OWNING
INTEREST IN OTHER MINING CORPORATION; RIGHT OF
ACTION.-
Inasmuch as the Corporation Law contains, in section 190 (A),
provisions fully penalizing the violation of subsection 5 of sec- tion
13 of Act No. 1459,—which prohibits the acquisition by one mining
corporation of any interest in another,—and inasmuch as these
provisions have been enacted in the exercise of the general police
powers of the Government, it results that, where one mining
corporation acquires a prohibited interest in another such corporation,
the shareholders of the latter cannot maintain an action to annul the
contract by which such interest was acquired. The remedy must be
sought in a criminal proceeding or quo warranto action, under section
190 (A), instituted by the Government. Until thus assailed in a direct
proceeding the contract by which the interest was acquired will be
treated as valid, as between the parties.
D. Ratification of Ultra Vires Acts
Carlos vs Mindoro Sugar 57 Phil 343 1932
1. Contracts; Deed of Trust.-
—The Mindoro Sugar Company issued certain bonds and assigned
them to the Philippine Trust Company, which guaranteed them. Held:
That in the interpretation of the instrument the acts of the parties
performed at the same time and subsequently thereto must be taken
into account, and accordingly the document held to be a deed of
transfer.
2. Corporations; Power to Guarantee Bonds Issued by Another
Corporation.-
—In view of the facts proved in this case, it is held: That the Philippine
Trust Company was empowered to guarantee the bonds of the
Mindoro S'ugar Company which it acquired, and is therefore obliged
to redeem the four bonds held by the appellant, and which have
become due by reason of a violation of the conditions.
3. Liability for Torts or Crimes
a. For Torts
PNB vs CA 83 scra 237 1978
1. Sugar quota; Banks and Banking; Chattel
Mortgage; Torts; Circumstances which show that the Philippine
National Bank acted unreasonably in raising the price of the lease of
sugar quota allotment from P2.80 to P3.00 per picul.-
As observed by the trial court, time is of the essence in the approval
of the lease of sugar quota allotments, since the same must be utilized
during the milling season, because any allotment which is not filled
during such milling season may be reallocated by the Sugar Quota
Administration to other holders of allotments. There was no proof that
there was any other person at that time willing to lease the sugar quota
allotment of private respondents for a price higher than P2.80 per
picul. “The fact that there were isolated transactions wherein the
consideration for the lease was P3.00 a picul”, according to the trial
court, “does not necessarily mean that there are always ready takers
for said price.” The unreasonableness of the position adopted by the
petitioner’s Board of Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered by Tuazon and the
P3.00 per picul demanded by the Board amounted only to a total sum
of P200.00. Considering that all the accounts of Rita Gueco Tapnio
with the Bank were secured by chattel mortgage on standing crops,
assignment of leasehold rights and interests on her properties, and
57
surety bonds and that she had apparently “the means to pay her
obligation to the Bank, as shown by the fact that she has been granted
several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956”, there was no reasonable basis
for the Board of Directors of petitioner to have rejected the lease
agreement because of a measly sum of P200.00.
2. Sugar quota; Banks and Banking; Chattel
Mortgage; Torts; Assignments; The Philippine National Bank, as
assignee of lease of sugar quota allotment, should show that degree of
care, precaution, and vigilance which circumstances demand in
approving or disapproving a lease of sugar quota, otherwise it will be
liable for damages on account of tort.-
While petitioner had the ultimate authority of approving or
disapproving the proposed lease since the quota was mortgaged to the
bank, the latter certainly cannot escape its responsibility of observing,
for the protection of the interest of private respondents, that degree of
care, precaution and vigilance which the circumstances justly demand
in approving or disapproving the lease of said sugar quota. The law
makes it imperative that every person “must in the exercise of his
rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.” This petitioner
failed to do. Certainly, it knew that the agricultural year was about to
expire, that by its disapproval of the lease private respondents would
be unable to utilize the sugar quota in question. In failing to observe
the reasonable degree of care and vigilance which the surrounding
circumstances reasonably impose, petitioner is consequently liable for
the damages caused on private respondents. Under Article 21 of the
New Civil Code, “any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.” The afore-cited
provisions on human relations were intended to expand the concept of
torts in this jurisdiction by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.
3. Torts; Corporation Law; Corporations can be liable in same
manner as natural persons, for tort-
A corporation is civilly liable in the same manner as natural persons
for torts, because “generally speaking, the rules governing the liability
of a principal or master for a tort committed by an agent or servant are
the same whether the principal or master be a natural person or a
corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable
for every tort which he expressly directs or authorizes, and this is just
as true of a corporation as of a natural person.
b. Criminal Liability
People vs Tan Boon Kong 54 Phil 607 1930
1. CORPORATIONS; LlABILITY OF OFFICERS AND
AGENTS.-
A Corporation can act only through its officers and agents, and where
the business itself involves a violation of the law, the correct rule is
that all who participate in it are liable.
2. CORPORATIONS; CRIMINAL LIABILITY.-
The manager of a corporation who fails to make true return of the
corporation's receipts and sales in violation of sections 1458 and 2723
of the Administrative Code, may be held criminally liable.
Sia vs People 121 scra 655 1983
Criminal Law; Corporation Law; An officer of a corporation can
be held criminally liable for acts or omissions done in behalf of the
corporation only where the law directly requires the corporation to do
an act in a given manner.—The case cited by the Court of Appeals in
support of its stand—Tan Boon Kong case, supra—may however not
be squarely applicable to the instant case in that the corporation was
directly required by law to do an act in a given manner, and the same
law makes the person who fails to perform the act in the prescribed
manner expressly liable criminally. The performance of the act is an
obligation directly imposed by the law on the corporation. Since it is
a responsible officer or officers of the corporation who actually
perform the act for the corporation, they must of necessity be the ones
to assume the criminal liability; otherwise this liability as created by
the law would be illusory, and the deterrent effect of the law, negated.
Same; Same; In the absence of a law making a corporate officer liable
for a criminal offense committed by the corporation, the existence of
criminal liability of the former may not be said to be beyond doubt.
The intention of the parties must be ascertained in such a situation to
determine if criminal liability was intended to result.—In the present
case, a distinction is to be found with the Tan Boon Kong case in that
the act alleged to be a crime is not in the performance of an act directly
ordained by law to be performed by the corporation. The act is
imposed by agreement of parties, as a practice observed in the usual
pursuit of a business or a commercial transaction. The of-fense may
arise, if at all, from the peculiar terms and condition agreed upon by
the parties to the transaction, not by direct provision of the law. The
intention of the parties, therefore, is a factor determinant of whether a
crime was committed or whether a civil obligation alone was intended
by the parties. With this explanation, the distinction adverted to
between the Tan Boon Kong case and the case at bar should come out
clear and meaningful. In the absence of a express provision of law
making the petitioner liable for the criminal offense committed by the
corporation of which he is a president as in fact there is no such
provisions in the Revised Penal Code under which petitioner is being
prosecuted, the existence of a criminal liability on his part may not be
said to be beyond any doubt. In all criminal prosecutions, the existence
of criminal liability for which the accused is made answerable must
be clear and certain. The maxim that all doubts must be resolved in
favor of the accused is always of compelling force in the prosecution
of offenses. This Court has thus far not ruled on the criminal liability
of an officer of a corporation signing in behalf of said corporation a
trust receipt of the same nature as that involved herein. In the case of
Samo vs. People, L-17603-04, May 31, 1962, the accused was not
clearly shown to be acting other than in his own behalf, not in behalf
of a corporation.
Same; Same; Banks; Violation of trust receipt provisions, as in the
non-payment to the bank of the net value of imported merchandise,
does not constitute estafa under Art. 315 (1-[2]) of the R.P.C. which
P.D. 115 now seeks to punish expressly.—The next question is
whether the violation of a trust receipt constitutes estafa under Art.
315 (l-[2]) of the Revised Penal Code, as also raised by the petitioner.
We now entertain grave doubts, in the light of the promulgation of
P.D. 115 providing for the regulation of trust receipts transaction,
which is a very comprehensive piece of legislation, and includes an
express provision that if the violation or offense is committed by a
corporation, partnership, association or other juridical 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 civil liabilities arising
from the criminal offense. The question that suggests itself is,
therefore, whether the provisions of the Revised Penal Code, Article
315, par. 1 (b) are not adequate to justify the punishment of the act
made punishable by P.D. 115, that the necessity was felt for the
promulgation of the decree. To answer this question, it is imperative
to make an in-depth analysis of the conditions usually embodied in a
trust receipt to test their legal sufficiency to constitute the basis for
holding the violation of said conditions as estafa under Article 315 of
the Revised Penal Code which P.D. 115 now seeks to punish
expressly.
58
Same; Same; Same; Same.—We consider the view that the trust
receipt arrangement gives rise only to civil liability as the more
feasible, before the promulgation of P.D. 115. The transaction being
contractual, the intent of the parties should govern. Since the trust
receipt has, by its nature, to be executed upon the arrival of the goods
imported, and acquires legal standing as such receipt only upon
acceptance by the “entrustee,” the trust receipt transaction itself, the
antecedent acts consisting of the application of the L/C, the approval
of the L/C and the making of the marginal deposit and the effective
importation of the goods, all through the efforts of the importer who
has to find his supplier, arrange for the payment and shipment of the
imported goods—all these circumstances would negate any intent of
subjecting the importer to criminal prosecution, which could possibly
give rise to a case of imprisonment for non-payment of a debt. The
parties, therefore, are deemed to have consciously entered into a
purely commercial transaction that could give rise only to civil
liability, never to subject the “entrustee” to criminal prosecution.
Unlike, for instance, when several pieces of jewelry are received by a
person from the owner for sale in commission, and the former
misappropriates for his personal use and benefit, either the jewelries
or the proceeds of the sale, instead of returning them to the owner as
is his obligation, the bank is not in the same concept as the jewelry
owner with full power of disposition of the goods, which the bank does
not have, for the bank has previously extended a loan which the L/C
represents to the importer, and by that loan, the importer should be the
real owner of the goods. If under the trust receipt the bank is made to
appear as the owner, it was but an artificial expedient, more of a legal
fiction than fact, for if it were really so, it could dispose of the goods
in any manner it wants, which it cannot do, just to give consistency
with the purpose of the trust receipt of giving a stronger security for
the loan obtained by the importer. To consider the bank as the true
owner from the inception of the transaction would be to disregard the
loan feature thereof, a feature totally absent in the case of the
transaction between the jewel-owner and his agent.
Same; Same; Same; Contracts; The facts of this case show that the
execution of the trust receipt was intended merely to afford stronger
security for the loan evidenced by the letter of credit.—There is,
moreover, one circumstance appearing on record, the significance of
which should be properly evaluated. As stated in petitioner’s brief
(page 2), not denied by the People, “before the Continental Bank
approved the application for a letter of credit (Exhibit ‘D’),
subsequently covered by the trust receipt, the Continental Bank
examined the financial capabilities of the applicant, Metal
Manufacturing Company of the Philippines because that was the
bank’s standard procedure (Testimony of Mr. Ernesto Garlit, Asst.
Manager of the Foreign Department, Continental Bank, t.s.n., August
30, 1965). The Continental Bank did not examine the financial
capabilities of therein petitioner, Jose O. Sia, in connection with the
same letter of credit. (Ibid).” From this fact, it would appear as
positively established that the intention of the parties in entering into
the “trust receipt” agreement is merely to afford a stronger security for
the loan evidenced by the letter of credit, may be not as an ordinary
pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al.,
63 Phil. 814, citing In re Dunlap C (206 Fed. 726) but neither as a
transaction falling under Article 315-1 (b) of the Revised Penal Code
giving rise to criminal liability, as previously explained and
demonstrated.
Same; Same; Same; Same; The President of a corporation cannot be
held liable for estafa under Art. 315 of the R.P.C. on account of the
corporation’s violation of the terms of the trust receipt which speaks
exclusively of the corporation’s liability.—It is worthy of note that the
civil liability imposed by the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, as one arising from the
contract, as distinguished from the civil liability arising out of a crime,
the petitioner was never intended to be equally liable as the
corporation. Without being made so liable personally as the
corporation is, there would then be no basis for holding him criminally
liable, for any violation of the trust receipt. This is made clearly so
upon consideration of the fact that in the violation of the trust
agreement and in the absence of positive evidence to the contrary, only
the corporation benefited, not the petitioner personally, yet, the
allegation of the information is to the effect that the misappropriation
or conversion was for the personal use and benefit of the petitioner,
with respect to which there is variance between the allegation and the
evidence.
Same; Same; Same; Same; Inasmuch as the Bank had full knowledge
that the imported goods still will have to be manufactured before they
could be sold, no estafa for non-payment to the bank of the
manufactured goods sold can be said to have been committed as the
“authority to sell” expressed in the trust receipt cannot be definitely
said to cover the sale of the finished products. P.D. 115, on the other
hand, covers such a situation.—It is also worthy of note that while the
trust receipt speaks of authority to sell, the fact is undisputed that the
imported goods were to be manufactured into finished products first
before they could be sold, as the Bank had full knowledge of. This fact
is, however, not embodied in the trust agreement, thus impressing on
the trust receipt vagueness and ambiguity which should not be the
basis for criminal prosecution, in the event of a violation of the terms
of the trust receipt. Again, P.D. 115 has express provision relative to
the “manufacture or process of the good with the purpose of ultimate
sale,” as a distinct condition from that of “to sell the goods or procure
their sale” (Section 4, (1). Note that what is embodied in the receipt in
question is the sale of imported goods, the manufacture thereof not
having been mentioned. The requirement in criminal prosecution, that
there must be strict harmony, not variance, between the allegation and
the evidence, may therefore, not be said to have been satisfied in the
instant case.
C. Moral Damages
ABS-CBN vs CA GR 128690 January 1999
1. Civil Law; Contracts; A contract is a meeting of minds between
two persons whereby one binds himself to give something or to render
some service to another for a consideration.-
The first issue should be resolved against ABS-CBN. A contract is a
meeting of minds between two persons whereby one binds himself to
give something or to render some service to another for a
consideration. There is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which
is the subject of the contract; and (3) cause of the obligation, which is
established. A contract undergoes three stages: (a) preparation,
conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties; (b)
perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and (c)
consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract.
2. Civil Law; Contracts; Contracts that are consensual in nature are
perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment a contract is produced.-
Contracts that are consensual in nature are perfected upon mere
meeting of the minds. Once there is concurrence between the offer and
the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced. The offer must be certain. To convert
the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes
a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer annuls the
offer.
59
3. Civil Law; Contracts; Acceptance of an Offer; Words and
Phrases; The acceptance of an offer must be unqualified and absolute,
i.e., it “must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds.”-
ABS-CBN’s reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals and Villonco Realty Company v. Bormaheco, Inc., is
misplaced. In these cases, it was held that an acceptance may contain
a request for certain changes in the terms of the offer and yet be a
binding acceptance as long as “it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether
such request is granted or not.” This ruling was, however, reversed in
the resolution of 29 March 1996, which ruled that the acceptance of
an offer must be unqualified and absolute, i.e., it “must be identical in
all respects with that of the offer so as to produce consent or meeting
of the minds.”
4. Commercial Law; Corporation Code; Board of
Directors; Under the Corporation Code, unless otherwise provided by
said Code, corporate powers, such as the power to enter into contracts,
are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or
contracted managers.-
Under the Corporation Code, unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors. However, the Board may delegate
such powers to either an executive committee or officials or contracted
managers. The delegation, except for the executive committee, must
be for specific purposes. Delegation to officers makes the latter agents
of the corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply. For such officers to be
deemed fully clothed by the corporation to exercise a power of the
Board, the latter must specially authorize them to do so. That Del
Rosario did not have the authority to accept ABS-CBN’s counter-offer
was best evidenced by his submission of the draft contract to VIVA’s
Board of Directors for the latter’s approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds.
5. Civil Law; Contracts; Damages; Except as provided by law or by
stipulation, one is entitled to compensation for actual damages only
for such pecuniary loss suffered by him as he has duly proved.-
We find for ABS-CBN on the issue of damages. We shall first take up
actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is
the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for
actual damages only for such pecuniary loss suffered by him as he has
duly proved. The indemnification shall comprehend not only the value
of the loss suffered, but also that of the profits that the obligee failed
to obtain. In contracts and quasi-contracts the damages which may be
awarded are dependent on whether the obligor acted with good faith
or otherwise. In case of good faith, the damages recoverable are those
which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. In crimes and
quasi-delicts, the defendant shall be liable for all damages which are
the natural and probable consequences of the act or omission
complained of, whether or not such damages have been foreseen or
could have reasonably been foreseen by the defendant.
6. Civil Law; Contracts; Damages; Actual damages may likewise
be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiff’s
business standing or commercial credit.-
Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiff’s business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract,
quasi-contract, delict, or quasidelict. It arose from the fact of filing of
the complaint despite ABS-CBN’s alleged knowledge of lack of cause
of action.
7. Civil Law; Contracts; Damages; In cases where a writ of
preliminary injunction is issued, the damages which the defendant
may suffer by reason of the writ are recoverable from the injunctive
bond.-
It may further be observed that in cases where a writ of preliminary
injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond. In this
case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of
Ap- peals to challenge the order on the matter. Clearly then, it was not
necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be
held responsible for the premium RBS paid for the counterbond.
8. Civil Law; Contracts; Damages; The general rule is that
attorney’s fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate.-
As regards attorney’s fees, the law is clear that in the absence of
stipulation, attorney’s fees may be recovered as actual or
compensatory damages under any of the circumstances provided for
in Article 2208 of the Civil Code. The general rule is that attorney’s
fees cannot be recovered as part of damages because of the policy that
no premium should be placed on the right to litigate. They are not to
be awarded every time a party wins a suit. The power of the court to
award attorney’s fees under Article 2208 demands factual, legal, and
equitable justification. Even when a claimant is compelled to litigate
with third persons or to incur expenses to protect his rights, still
attorney’s fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party’s persistence in a case other than
an erroneous conviction of the righteousness of his cause.
9. Civil Law; Contracts; Damages; Moral damages 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.-
Moral damages 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 award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured
party to obtain means, diversion, or amusements that will serve to
obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts
must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on the
part of the trial court.
10. Civil Law; Contracts; Damages; The award of moral damages
cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only
by one having a nervous system.-
The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses.
It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. The
statement in People v. Manero and Mambulao Lumber Co. v. PNB
that a corporation may recover moral damages if it “has a good
reputation that is debased, resulting in social humiliation” is an obiter
dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.
60
11. Civil Law; Contracts; Damages; The basic law on exemplary
damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil
Code.-
The basic law on exemplary damages is Section 5, Chapter 3, Title
XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages. They are
recoverable in criminal cases as part of the civil liability when the
crime was committed with one or more aggravating circumstances; in
quasi-delicts, if the defendant acted with gross negligence; and in
contracts and quasicontracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
12. Civil Law; Contracts; Damages; Bad Faith; Malice or bad faith
is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity. Such must be substantiated by evidence.-
It may be reiterated that the claim of RBS against ABS-CBN is not
based on contract, quasi-contract, delict, or quasi-delict. Hence, the
claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code. The elements of abuse of
right under Article 19 are the following: (1) the existence of a legal
right or duty, (2) which is exercised in bad faith, and (3) for the sole
intent of preju-dicing or injuring another. Article 20 speaks of the
general sanction for all other provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra
bonus mores, and has the following elements: (1) there is an act which
is legal, (2) but which is contrary to morals, good custom, public order,
or public policy, and (3) and it is done with intent to injure. Verily
then, malice or bad faith is at the core of Articles 19, 20, and 21.
Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity. Such must be
substantiated by evidence.
13. Civil Law; Contracts; Damages; The adverse result of an action
does not per se make the action wrongful and subject the actor to
damages, for the law could not have meant to impose a penalty on the
right to litigate. If damages result from a person’s exercise of a right,
it is damnum absque injuria.-
There is no adequate proof that ABS-CBN was inspired by malice or
bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal
submission of a draft contract. Settled is the rule that the adverse result
of an action does not per se make the action wrongful and subject the
actor to damages, for the law could not have meant to impose a penalty
on the right to litigate. If damages result from a person’s exercise of a
right, it is damnum absque injuria.
Filipinas Broadcasting vs AMEC-BCCM GR 141994 2005
1. Constitutional Law; Freedom of Expression; Libel; Broadcast
Industry; Radio host’s remarks such as “greed for money on the
part of AMEC’s administrators”; “AMEC is a dumping ground,
garbage of x x x moral and physical misfits”; and AMEC students
who graduate “will be liabilities rather than assets” of the society are
libelous per se.-
—A libel is a public and malicious imputation of a crime, or of a vice
or defect, real or imaginary, or any act or omission, condition, status,
or circumstance tending to cause the dishonor, discredit, or contempt
of a natural or juridical person, or to blacken the memory of one who
is dead. There is no question that the broadcasts were made public and
imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegre’s remarks such as
“greed for money on the part of AMEC’s administrators”; “AMEC is
a dumping ground, garbage of x x x moral and physical misfits”; and
AMEC students who graduate “will be liabilities rather than assets” of
the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically
and morally unfit teachers abound.
2. Same; Same; Same; Same; Hosts of documentary or public
affairs programs should present the public issues “free from inaccurate
and misleading information.”-
—Every defamatory imputation is presumed malicious. Rima and
Alegre failed to show adequately their good intention and justifiable
motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have
presented the public issues “free from inaccurate and misleading
information.” Hearing the students’ alleged complaints a month before
the exposé, they had sufficient time to verify their sources and
information. However, Rima and Alegre hardly made a thorough
investigation of the students’ alleged gripes. Neither did they inquire
about nor confirm thepurported irregularities in AMEC from the
Department of Education, Culture and Sports. Alegre testified that he
merely went to AMEC to verify his report from an alleged AMEC
official who refused to disclose any information. Alegre simply relied
on the words of the students “because they were many and not because
there is proof that what they are saying is true.” This plainly shows
Rima and Alegre’s reckless disregard of whether their report was true
or not
3. Same; Same; Same; Same; Privilege of Neutral
Reportage; Words and Phrases; Under the principle of neutral
reportage, a republisher who accurately and disinterestedly
reports certain defamatory statements against public figures is
shielded from liability, regardless of the republisher’s subjective
awareness of the truth or falsity of the accusation; The privilege of
neutral reportage applies where the defamed person is a public figure
who is involved in an existing controversy, and a party to that
controversy makes the defamatory statement.-
—Contrary to FBNI’s claim, the broadcasts were not “the result of
straight reporting.” Significantly, some courts in the United States
apply the privilege of “neutral reportage” in libel cases involving
matters of public interest or public figures. Under this privilege, a
republisher who accurately and disinterestedly reports certain
defamatory statements made against public figures is shielded from
liability, regardless of the republisher’s subjective awareness of the
truth or falsity of the accusation. Rima and Alegre cannot invoke the
privilege of neutral reportage because unfounded comments abound
in the broadcasts. Moreover, there is no existing controversy involving
AMEC when the broadcasts were made. The privilege of neutral
reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy
makes the defamatory statement.
4. Same; Same; Same; Same; Doctrine of Fair Comment; Under
the doctrine of fair comment, fair commentaries on matters of public
interest are privileged and constitute a valid defense in an action for
libel or slander.-
—FBNI’s reliance on Borjal is misplaced. In Borjal, the Court
elucidated on the “doctrine of fair comment,” thus: [F]air
commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine
of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is
presumed innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the discredit-able
imputation is directed against a public person in his public capacity, it
is not necessarily actionable. In order that such discreditable
imputation to a public official may be actionable, it must either be a
false allegation of fact or a comment based on a false supposition. If
the comment is an expression of opinion, based on established facts,
then it is immaterial that the opinion happens to be mistaken, as long
as it might reasonably be inferred from the facts. (Emphasis supplied)
61
5. Same; Same; Same; Same; If the comments made by media
practitioners are an expression of opinion based on established facts,
it is immaterial that the opinion happens to be mistaken, as long as it
might reasonably be inferred from the facts.-
—True, AMEC is a private learning institution whose business of
educating students is “genuinely imbued with public interest.” The
welfare of the youth in general and AMEC’s students in particular is
a matter which the public has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject broadcasts dealt with matters
of public interest. However, unlike in Borjal, the questioned
broadcasts are not based on established facts. The record supports the
following findings of the trial court: x x x Had the comments been an
expression of opinion based on established facts, it is immaterial that
the opinion happens to be mistaken, as long as it might reasonably be
inferred from the facts. However, the comments of Rima and Alegre
were not backed up by facts. Therefore, the broadcasts are not
privileged and remain libelous per se.
6. Same; Same; Same; Same; Radio Code of the Kapisanan ng
mga Broadkaster sa Pilipinas, Ink.;The Radio Code lays down the
code of ethical conduct governing practitioners in the radio
broadcast industry; The public has a right to expect and demand that
radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals, and a professional code of
conduct provides the standards for determining whether a person has
acted justly, honestly and with good faith in the exercise of his rights
and performance of his duties as required by Article 19 of the Civil
Code.-
—The broadcasts fail to meet the standards prescribed in the Radio
Code, which lays down the code of ethical conduct governing
practitioners in the radio broadcast industry. The Radio Code is a
voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio
broadcast industry that radio broadcast practitioners are sub-ject to a
code by which their conduct are measured for lapses, liability and
sanctions. The public has a right to expect and demand that radio
broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of
conduct provides the standards for determining whether a person has
acted justly, honestly and with good faith in the exercise of his rights
and performance of his duties as required by Article 19 of the Civil
Code. A professional code of conduct also provides the standards for
determining whether a person who willfully causes loss or injury to
another has acted in a manner contrary to morals or good customs
under Article 21 of the Civil Code.
7. Libel; Damages; Corporations; Obiter Dictum; The Court’s
statement in Mambulao Lumber Co. v. PNB, 22 SCRA 359 (1968),
that “a corporation may have a good reputation which, if besmirched,
may also be a ground for the award of moral damages” is an obiter
dictum.-
—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 Court of Appeals cites Mambulao
Lumber Co. v. PNB, et al. to justify the award of moral damages.
However, the Court’s statement in Mambulao that “a corporation may
have a good reputation which, if besmirched, may also be a ground for
the award of moral damages” is an obiter dictum.
8. Same; Same; Same; Since Article 2219(7) of the Civil Code does
not qualify whether the plaintiff is a natural or juridical person, a
juridical person such as a corporation may validly complain for libel
or any other form of defamation and claim for moral damages.-
— AMEC’s claim for moral damages falls under item 7 of Article
2219 of the Civil Code. This provision expressly authorizes the
recovery of moral damages in cases of libel, slander or any other form
of defamation. Article 2219(7) does not qualify whether the plaintiff
is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of
defamation and claim for moral damages.
9. Same; Same; Where the broadcast is libelous per se, the law
implies damages, in which case, evidence of an honest mistake or the
want of character or reputation of the party libeled goes only in
mitigation of damages.-
—Where the broadcast is libelous per se, the law implies damages. In
such a case, evidence of an honest mistake orthe want of character or
reputation of the party libeled goes only in mitigation of damages.
Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus, AMEC
is entitled to moral damages. However, we find the award of P300,000
moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any
substantial or material damage to its reputation. Therefore, we reduce
the award of moral damages from P300,000 to P150,000.
10. Attorney’s Fees; The power of the court to award attorney’s fees
under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion
without a premise, its basis being improperly left to speculation and
conjecture.-
—The award of attorney’s fees is not proper because AMEC failed to
justify satisfactorily its claim for attorney’s fees. AMEC did not
adduce evidence to warrant the award of attorney’s fees. Moreover,
both the trial and appellate courts failed to explicitly state in their
respective decisions the rationale for the award of attorney’s fees. In
Inter-Asia Investment Industries, Inc. v. Court of Appeals, we held
that: [I]t is an accepted doctrine that the award thereof as an item of
damages is the exception rather than the rule, and counsel’s fees are
not to be awarded every time a party wins a suit. The power of the
court to award attorney’s fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification, without which the
award is a conclusion without a premise, its basis being improperly
left to speculation and conjecture. In all events, the court must
explicitly state in the text of the decision, and not only in the decretal
portion thereof, the legal reason for the award of attorney’s fees.
(Emphasis supplied)
11. Torts; Damages; Broadcast Industry; Joint tort feasors are all
the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or
who approve of it after it is done, if done for their benefit; The
corporation which operates the radio station, and who is the employer
of the radio hosts, is solidarily liable to pay for damages arising from
libelous broadcasts.-
—The basis of the present action is a tort. Joint tort feasors are jointly
and severally liable for the tort which theycommit. Joint tort feasors
are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a tort,
or who approve of it after it is done, if done for their benefit. Thus,
AMEC correctly anchored its cause of action against FBNI on Articles
2176 and 2180 of the Civil Code. As operator of DZRC-AM and
employer of Rima and Alegre, FBNI is solidarily liable to pay for
damages arising from the libelous broadcasts. As stated by the Court
of Appeals, “recovery for defamatory statements published by radio
or television may be had from the owner of the station, a licensee, the
operator of the station, or a person who procures, or participates in,
the making of the defamatory statements.” An employer and employee
are solidarily liable for a defamatory statement by the employee within
the course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation. In this case, Rima and
Alegre were clearly performing their official duties as hosts of FBNI’s
radio program Exposé when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of
62
their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
12. Same; Same; The radio operator’s alleged constant reminder to
its broadcasters to “observe truth, fairness and objectivity and to
refrain from using libelous and indecent language” is not enough to
prove due diligence in the supervision of its broadcasters.-
—There is insufficient evidence on record that FBNI exercised due
diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in the
supervision of Rima and Alegre. FBNI did not show how it exercised
diligence in supervising its broadcasters. FBNI’s alleged constant
reminder to its broadcasters to “observe truth, fairness and objectivity
and to refrain from using libelous and indecent language” is not
enough to prove due diligence in the supervision of its broadcasters.
Adequate training of the broadcasters on the industry’s code of
conduct, sufficient information on libel laws, and continuous
evaluation of the broadcasters’ performance are but a few of the many
ways of showing diligence in the supervision of broadcasters.
13. Same; Same; Membership in the Kapisanan ng mga Broadkaster
sa Pilipinas, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and
regulations.-
—FBNI claims that it “has taken all the precaution in the selection of
Rima and Alegre as broadcasters, bearing in mind their
qualifications.” However, no clear and convincing evidence shows
that Rima and Alegre underwent FBNI’s “regimented process” of
application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation, which is one of FBNI’s
requirements before it hires a broadcaster. Significantly, membership
in the KBP, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and regulations.
Clearly, these circumstances show FBNI’s lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
liable to pay damages together with Rima and Alegre.
III. FINANCIAL STRUCTURE
A. DEBT SECURITIES
Generally - Lirag Textile Mills, Inc., vs SSS GR No.L-33205 1987
Authority to issue Debt Securities:
Power to Incur, create or increase bonded indebtedness - sec 38
Section 38. Power to increase or decrease capital stock; incur, create
or increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholder's meeting at which the proposed
increase or diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors
of the corporation and countersigned by the chairman and the secretary
of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by each,
and the amount paid by each on his subscription in cash or property,
or the amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or the incurring, creating
or increasing of any bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of
the corporation and the other shall be filed with the Securities and
Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or decreased
and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the
sworn statement of the treasurer of the corporation lawfully holding
office at the time of the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that
there has been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board
of trustees and of at least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities
and Exchange Commission, which shall have the authority to
determine the sufficiency of the terms thereof.
Types of Debt Securities
Unsecured Bonds are not secured by a specific asset, but rather
by "the full faith and credit" of the issuer. In other words, the investor
has the issuer's promise to repay but has no claim on specific
collateral.
Secured Bond is a type of bond that is secured by the issuer's
pledge of a specific asset, which is a form of collateral on the loan. In
the event of a default, thebond issuer passes title of the asset onto the
bondholders.
63
Income Bond is a type of debt security in which only the face
value of the bondis promised to be paid to the investor, with any
coupon payments being paid only if the issuing company has enough
earnings to pay for the coupon payment.
Convertible Bond is a type of bondthat the holder can convert
into a specified number of shares of common stock in the issuing
company or cash of equal value.
Callable Bond is a type of bond (debt security) that allows the
issuer of the bond to retain the privilege of redeeming the bond at
some point before the bond reaches its date of maturity.
B. EQUITY SHARES
Generally - Garcia vs Lim Chiu Sing, 59 Phil 562
1. EXCEPTION TO A RULING; EFFECT OF FAILURE TO FlLE
EXCEPTION.-
Failure. to file an exception to a ruling made in open court denying a
motion for the, inclusion of a party as defendant deprives the
petitioner, upon appeal, of the right to raise the question whether or
not such denial was proper or improper.
2. ID. ; COMPENSATION OF CREDITS.-
A stockholder's indebtedness to a banking corporation cannot be
compensated with the amount of his shares in the same institution,
there being no relation of creditor and debtor with regard to such
shares.
3. CONTRACT; STIPULATION AS TO COSTS AND
ATTORNEY'S FEES.-
The percentage stipulated in a contract, for costs and attorney's fees
for the collection of an indebtedness, includes judicial costs.
Issuance of Shares:
Certificate of stock sec 63
Section 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.
PreEmptive Rights sec 39
Section 39. Power to deny pre-emptive right. - All stockholders of a
stock corporation shall enjoy pre-emptive right to subscribe to all
issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of
incorporation or an amendment thereto: Provided, That such pre-
emptive right shall not extend to shares to be issued in compliance
with laws requiring stock offerings or minimum stock ownership by
the public; or to shares to be issued in good faith with the approval of
the stockholders representing twothirds (2/3) of the outstanding
capital stock, in exchange for property needed for corporate purposes
or in payment of a previously contracted debt.
POWER TO DENY PRE-EMPTIVE RIGHTS
Pre-emptive right – is a right granted by law to all existing
stockholders of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
stockholdings, subject only to the limitations imposed under Sec. 39.
The basis for the grant of this right is the preservation, unimpaired
and undiluted, of the old stockholders‟ relative and proportionate
voting strength and control, that is, the existing ratio of their
proprietary interest and voting power in the corporation.
All stockholders of a stock corporation shall enjoy pre-emptive right
to subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is
denied by the articles of incorporation or an amendment thereto.
Exceptions:
1. Shares to be issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public; or
2. Shares to be issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate purposes or in
payment of a previously contracted debt.
The exceptions do not apply to stockholders of a close corporation.
The right may be lost by waiver, expressly or impliedly by inability
or failure to exercise it after having been notified.
The pre-emptive right covers all issues or disposition of share of any
class. It includes new share issued pursuant to an increase in capital
stock, unissued shares which form part of the original capital stock
and treasury shares
Consideration sec 62
Section 62. Consideration for stocks. - Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration
for the issuance of stock may be any or a combination of any two or
more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the stock
issued;
3. Labor performed for or services actually rendered to the
corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated
capital; and
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion.
Where the consideration is other than actual cash, or consists of
intangible property such as patents of copyrights, the valuation thereof
shall initially be determined by the incorporators or the board of
directors, subject to approval by the Securities and Exchange
Commission.
Shares of stock shall not be issued in exchange for promissory notes
or future service.
The same considerations provided for in this section, insofar as they
may be applicable, may be used for the issuance of bonds by the
corporation.
The issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority
64
conferred upon it by the articles of incorporation or the by-laws, or in
the absence thereof, by the stockholders representing at least a
majority of the outstanding capital stock at a meeting duly called for
the purpose.
National Exchange vs Dexter 51 Phil 601
1. CORPORATIONS; STOCK SUBSCRIPTIONS; SPECIAL
STIPULATION.-
A special stipulation contained in a subscription to corporate stock
which, if valid, would lessen the capital of the company and relieve
the subscriber from liability to be sued upon the subscription is illegal.
2. CORPORATIONS; STOCK SUBSCRIPTIONS; PAYMENT
FOR SHARES; LEGAL PROVISIONS IN FORCE IN PHILIPPINE
ISLANDS.-
In section 74 of the Organic Act of July 1, 1902, as well as in section
28 of the Jones Law of August 29, 1916, it is declared that all
franchises granted by the Government of the Philippine Islands shall
forbid the issuance of stock except in exchange for actual cash or for
property at a f air valuation equal to the par value of the stock. Pursuant
to this provision the Philippine Commission inserted in section 16 of
the Corporation Law of March 1, 1906, a provision declaring that no
corporation shall issue stock except in exchange for actual cash paid
to the corporation or for property actually received by it at a fair
valuation equal to the par value of the stock.
3. CORPORATIONS; STOCK SUBSCRIPTIONS; STIPULATION
FOR PAYMENT OF SUBSCRIPTION FROM DIVIDENDS.-
Under the provisions above cited, a stipulation in a stock subscription
to the effect that the subscription shall be payable from the first
dividends to be paid on the shares is unlawful in so far as it purports
to relieve the subscriber f rom liability to be sued; and the subscriber
is liable for the par value of the stock to the same extent as if such
stipulation had not been inserted in the contract.
4. CORPORATIONS; STOCK SUBSCRIPTIONS; SHARES
SUBSCRIBED AFTER INCORPORATION EFFECTED.-
The law in force in the Philippine Islands makes no distinction, in
respect to -the liability of the subscriber, between shares subscribed
before incorporation is effected and shares subscribed thereafter. All
subscribers alike are bound to pay full par value in cash or its
equivalent, and any attempt to discriminate in favor of one subscriber
by relieving him of this liability wholly or in part is forbidden.
Par Value
Par value shares – those whose value are fixed in the articles of
incorporation.
Par value shares cannot be issued nor sold by the corporation at less
than par.
No Par Value
No par value shares – those whose issued price are not stated in the
certificate of stock but which may be fixed in the articles of
incorporation, or by the board of directors when so authorized by the
said articles or by the by-laws, or in the absence thereof, by the
stockholders themselves.
Limitations of no par value shares:
1. Such shares, once issued, are deemed fully paid and thus, non
assessable;
2. The consideration for its issuance should not be less than P5.00;
3. The entire consideration for its issuance constitutes capital, hence,
not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance
companies, public utilities and building and loan associations.
Advantages to the issuance of no par value shares:
1. Flexibility in price;
2. Evasion of the danger of liability upon watered stock; and
3. Disappearance of personal liability on the part of the holder thereof
for unpaid subscription.
Payment of the Balance of the Subscription sec 66, 67
Section 66. Interest on unpaid subscriptions. - Subscribers for stock
shall pay to the corporation interest on all unpaid subscriptions from
the date of subscription, if so required by, and at the rate of interest
fixed in the by-laws. If no rate of interest is fixed in the by-laws, such
rate shall be deemed to be the legal rate. (37)
Section 67. Payment of balance of subscription. - Subject to the
provisions of the contract of subscription, the board of directors of any
stock corporation may at any time declare due and payable to the
corporation unpaid subscriptions to the capital stock and may collect
the same or such percentage thereof, in either case with accrued
interest, if any, as it may deem necessary. Payment of any unpaid
subscription or any percentage thereof, together with the interest
accrued, if any, shall be made on the date specified in the contract of
subscription or on the date stated in the call made by the board. Failure
to pay on such date shall render the entire balance due and payable and
shall make the stockholder liable for interest at the legal rate on such
balance, unless a different rate of interest is provided in the bylaws,
computed from such date until full payment. If within thirty (30) days
from the said date no payment is made, all stocks covered by said
subscription shall thereupon become delinquent and shall be subject
to sale as hereinafter provided, unless the board of directors orders
otherwise. (38)
Lingayen Gulf vs Baltazar 93 Phil 404
1. Corporations; Stock Subscriptions; Plublication Required of Call
for Payment of Unpaid Subscriptions; Rule Different azs to Insolvent
Corporations.-
—If the corporation involved is insolvent, all unpaid stock
subscription, become payable on demand and are immediately
recoverable in an action instituted by the assignee.. :But when the
corporation is a solvent concern, the law requires that notice of any
call for the payment of unpaid subscription should be made not only
personally but also by publication. (Act 1459, section 40 as amended.)
2. Id.; Salaries of Officers.-
—The by-laws of the corporation are silent as to the salary of the
President. While resolutions of the incorporators and stockholders
provide salaries for the general manager, secretary-treasurer and other
employees, there was no provision for the President's salary. On the
other hand, other resolutions provide for per diems to be paid to the
President and the directors for each meeting attended. Held: This leads
to the conclusion that the President and the board of directors were
expected to serve without salary, and that the per diems paid to them
were sufficient compensation for their services.
Liability for unpaid subscriptions
Unpaid subscriptions are not due and payable until a call is made by
the corporation for payment. (Apocada vs. NLRC)
Keller vs COB Group 141 Scra 86
1. Evidence; Appeal; Supreme Court not bound by factual findings of
lower court which are contradicted by the evidence.-
A review of the record shows that Judge Tamayo acted under a
misapprehension of facts and his findings are contradicted by the
evidence. The Ap-pellate Court adopted the findings of Judge
Tamayo. This is a case where this Court is not bound by the factual
65
findings of the Appellate Court. (See Director of Lands vs. Zartiga, L-
46068-69, September 30, 1982, 117 SCRA 346, 355).
2. Evidence; Admissions of liability by a party may be given in
evidence against it.-
Section 22, Rule 130 of the Rules of Court provides that the act,
declaration or omission of a party as to a relevant fact may be given in
evidence against him “as admissions of a par-ty.” The admissions of
Bax are supported by the documentary evidence. It is noteworthy that
all the invoices, with delivery receipts, were presented in evidence by
Keller, Exhibits KK-1 to KK- 277-a and N to N-149-a, together with
a tabulation thereof, Exhibit KK, covering the period from October
15, 1969 to January 22, 1971. Victor A. Mayo. Keller’s finance
manager, submitted a statement of account showing that COB Group
Marketing owed Keller P184,509.60 as of July 31, 1971 (Exh. JJ).
That amount is reflected in the customer’s ledger, Exhibit M.
3. Evidence; Pleadings and Practice; It is error for the courts below to
conclude that the defendants overpaid the plaintiff where one of them
was declared in default and the other did not allege any overpayment
in his answer.-
The statement of the Appellate Court that COB Group Marketing
alleged in its answer that it overpaid Keller P100,596.72 is manifestly
erroneous first, because COB Group Marketing did not file any
answer, having been declared in default, and second, because Bax and
the other stockholders, who filed an answer, did not allege any
overpayment. As already stated, even before they filed their answer,
Bax admitted that COB Group Marketing owed Keller around
P179,000 (Exh. I).
4. Evidence; Pleadings and Practice; Same.-
The lower courts not only allowed Bax to nullify his admissions as to
the liability of COB Group Marketing but they also erroneously
rendered judgment in its favor in the amount of its supposed
overpayment in the sum of P100,596.72 (Exh. 8-A), in spite of the fact
that COB Group Marketing was declared in default and did not file
any counterclaim for the supposed overpayment.
5. Evidence; Alleged failure of plaintiff to thresh out COB Group
Marketing, Inc.’s liability to the former has no factual basis and is
contradicted by the documentary evidence.-
The lower courts harped on Keller’s alleged failure to thresh out with
representatives of COB Group Marketing their “diverse statements of
credits and payments”. This contention has no factual basis. In Exhibit
J, quoted above, it is stated by Bax and Keller’s Oefeli that “discussion
(was) held on May 8, 1971”.
6. Evidence; An alleged reconciliation statement made long after the
case was filed is not credible.-
That means that there was a conference on the COB Group
Marketing’s liability. Bax in that discussion did not present his
reconciliation statements to show overpayment. His Exhibits 7 and 8
were an afterthought. He presented them long after the case was filed.
The petitioner regards them as “fabricated”.
7. Evidence; Failure to protest correctness of statement of account
deemed admission of liability as therein reflected.-
Bax admitted that Keller sent his company monthly statements of
accounts (20-21 tsn, September 2, 1976) but he could not produce any
formal protest against the supposed inaccuracy of the said statements
(22). He lamely explained that he would have to dig up his company’s
records for the formal protest (23-24). He did not make any written
demand for reconciliation of accounts (27-28).
8. Corporation Law; Actions; Stockholders maybe sued by a
corporate cre ditor to the extent of their unpaid subscriptions.-
As to the liability of the stockholders, it is settled that a stockholder is
personally liable for the financial obligations of a corporation to the
extent of his unpaid subscription (Vda. de Salvatierra vs. Garlitos, 103
Phil. 757, 763; 18 CJS 1311-2).
9. Actions; Evidence; Pleadings; Where claim alleged in the
complaint was P182,994.60 only, the fact that the evidence shows
defen-dants’ liability to be more than that will not justify a higher
award.-
While the evidence shows that the amount due from COB Group
Marketing is P184,509.60 as of July 31, 1971 or P186,354.70 as of
August 31, 1971 (Exh. JJ), the amount prayed for in Keller’s
complaint is P182,994.60 as of July 31, 1971 (18-19 Record on
Appeal). This latter amount should be the one awarded to Keller
because a judgment entered against a party in default cannot exceed
the amount prayed for (Sec. 5, Rule 18, Rules of Court).
10. Mortgages; After 90 days from finality of judgment and the
monetary award remains unpaid, foreclosure of mortgage collaterals
shall follow.-
If after ninety (90) days from notice of the finality of the judgment in
this case the judgment against COB Group Marketing has not been
satisfied fully, then the mortgages executed by Manahan and Lorenzo
should be foreclosed and the proceeds of the sales applied to the
obligation of COB Group Marketing. Said mortgage obligations
should bear six percent legal interest per annum after the expiration of
the said 90-day period.
Deliquency Subscription sec 68 - 71
Section 68. Delinquency sale. - The board of directors may, by
resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued interest, and
the date, time and place of the sale which shall not be less than thirty
(30) days nor more than sixty (60) days from the date the stocks
become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally or by registered mail. The
same shall furthermore be published once a week for two (2)
consecutive weeks in a newspaper of general circulation in the
province or city where the principal office of the corporation is
located.
Unless the delinquent stockholder pays to the corporation, on or before
the date specified for the sale of the delinquent stock, the balance due
on his subscription, plus accrued interest, costs of advertisement and
expenses of sale, or unless the board of directors otherwise orders, said
delinquent stock shall be sold at public auction to such bidder who
shall offer to pay the full amount of the balance on the subscription
together with accrued interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction of a share. The stock
so purchased shall be transferred to such purchaser in the books of the
corporation and a certificate for such stock shall be issued in his favor.
The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance
of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to pay the
full amount of the balance on the subscription together with accrued
interest, costs of advertisement and expenses of sale, for the smallest
number of shares or fraction of a share, the corporation may, subject
to the provisions of this Code, bid for the same, and the total amount
due shall be credited as paid in full in the books of the corporation.
Title to all the shares of stock covered by the subscription shall be
vested in the corporation as treasury shares and may be disposed of by
said corporation in accordance with the provisions of this Code. (39a-
46a)
Section 69. When sale may be questioned. - No action to recover
delinquent stock sold can be sustained upon the ground of irregularity
or defect in the notice of sale, or in the sale itself of the delinquent
stock, unless the party seeking to maintain such action first pays or
tenders to the party holding the stock the sum for which the same was
sold, with interest from the date of sale at the legal rate; and no such
action shall be maintained unless it is commenced by the filing of a
complaint within six (6) months from the date of sale. (47a)
66
Section 70. Court action to recover unpaid subscription. - Nothing in
this Code shall prevent the corporation from collecting by action in a
court of proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and expenses. (49a)
Section 71. Effect of delinquency. - No delinquent stock shall be voted
for or be entitled to vote or to representation at any stockholder's
meeting, nor shall the holder thereof be entitled to any of the rights of
a stockholder except the right to dividends in accordance with the
provisions of this Code, until and unless he pays the amount due on
his subscription with accrued interest, and the costs and expenses of
advertisement, if any.
Phil trust vs Rivera 44 Phil 469
1. CORPORATIONS; DIMINUTION OF CAPITAL.-
A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a
valuable consideration. for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and
under the conditions prescribed by law.
Miranda vs Tarlac Rice Mill 57 phil 619
1. Corporations; Payment of Subscriptions to Capital Stock.-
—Section 38 of the Corporation Law provides that the board of
directors of every corporation may at any time declare due and payable
to the corporation unpaid subscriptions to the capital stock and may
collect the same with interest accrued thereon or such percentage of
said unpaid subscriptions as it may deem necessary.
2. Id.; Id.; Action to Recover Amount Paid in to the Corporation.-
—This is not an action by the corporation to recover on a subscription
agreement, but an action by the administratrix of a stockholder to
recover what was paid in to the corporation by the stockholder. Neither
the fact that the corporation has ceased to do business, nor the fact that
the other stockholders have not been required to pay for their shares,
in accordance with their subscription agreement, would justify an
order requiring the corporation to return to the plaintiff the amount
paid by the stockholder.
3. Id.; A Stock Subscription is a Contract.-
—A stock subscription is a contract between the corporation and the
subscriber, and courts will enforce it for or against either. A
corporation has no legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares, and any agreement to
this effect is invalid. (Velasco vs. Poizat, 37 Phil., 802.)
De Silva vs Aboitiz 44 Phil 755
1. CORPORATION LAW; PAYMENT OF UNPAID
SUBSCRIPTION.-
The defendant corporation being an artificial entity created by virtue
of the Corporation Law, Act No. 1459, and the plaintiff having f ailed
to pay a part of his subscription, the board of directors not only made
use of its discretionary power granted by section 2 of said Act in
declaring his subscription due and his shares delinquent, and ordering
the sale thereof, as their value was not paid by him, but far from
violating the provision of sec tion 46 of the by-laws Of the corporation
in not applying a part of the profits obtained by the corporation upon
the payment of said subscription, it complied with said provision,
which expressly prohibits the payment of dividends to a shareholder
whose subscription was not fully paid up.
Fun Cun vs Summers 44 Phil 705
1. BANKING CORPORATION; SHARES OF STOCK; LIEN OF
CORPORATION UPON THE SAME.-
A banking corporation has no lien upon its own stock for the
indebtedness of the stockholders even when the by-laws provide that
the shares shall be transferable only upon the books of the corporation
and that no such transfer shall be made if the holder of the shares is
indebted to the corporation.
2. BANKING CORPORATION; SHARES OF STOCK; EFFECT OF
PART PAYMENT OF SUBSCRIPTION;SPECIAL AGREEMENT.-
In the absence of special agreement to the contrary, a subscriber for a
certain number of shares of stock does not, upon payment of one-half
of the subscription price, become entitled to the issuance of certificates
for one-half the number of shares subscribed for; the subscriber's right
consists only in an equity entitling him to a certificate for the total
number of shares subscribed for by him upon payment of the
remaining portion of the subscription price.
3. BANKING CORPORATION; SHARES OF
STOCK; ASSIGNMENT OF EQUITY.-
An equity in shares of stock may be assigned, the assignment
becoming effective as between the parties and as to third parties with
notice.
4. BANKING CORPORATION; SHARES OF STOCK; PRIORITY
OF LIEN.-
An attachment levied upon assigned rights or interests in an action
against the assignor after the attaching creditor has received notice of
the assignment creates no lien as against the assignee.
5. BANKING CORPORATION; SHARES OF STOCK; CHATTEL
MORTGAGE.-
Whether in this jurisdiction an equity in shares of stock may properly
be made the subject of a chattel mortgage, quære, but such chattel
mortgage will at least operate as a conditional equitable assignment.
Nava vs Peers Marketing 74 Scra 65
1. Corporations; The Code of By-laws of a corporation may include
rules governing transfer of shares.-
The corporation can include in its by-laws rules, not inconsistent with
law, governing the transfer of its shares of stock.
2. Corporations; Shares of stock of a corporation may be transferred
by delivery of the stock certificate properly indorsed.-
As prescribed in section 35, shares of stock may be transferred by
delivery to the transferee of the certificate properly indorsed. “Title
may be vested in the transferee by delivery of the certificate with a
written assignment or indorsement thereof” (18 C.J.S. 928). There
should be compliance with the mode of transfer prescribed by law (18
C.J.S. 930).
3. Corporations; A stock subscription is a subsisting liability and the
corporation has a right to demand payment thereof.-
A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable.
4. Corporations; Corporation cannot release subscriber from payment
of Ins obligation without the unanimous consent of stockholders.-
A corporal ion cannot release an original subscriber from paying for
his shares without a valuable consideration or without the unanimous
consent of the stockholders.
5. Corporations; Where 110 stock certificate was issued to original
subscriber representing that portion of his subscription which he paid
for, the assignment of said subscriber’s corporate share is effective
only between the parties to the transaction and the transferee cannot
demand from the corporation the issuance of certificates of stock
representing the paid subscribed shares.-
Under the facts of the case, there is no clear legal duty on the part of
the officers of the corporation to register the twenty shares in Nava’s
name. Hence, there is no cause of action for mandamus, x x x As
already stressed, in this case no stock certificate was issued to Po.
Without the stock certificate, which is the evidence of ownership of
corporate stock, the assignment of corporate shares is effective only
between the parties to the transaction (Davis vs. Wachter, 140 So.
361). The delivery of the stock certificate, which represents the shares
67
to be alienated, is essential for the protection of both the corporation
and its stockholders (Smallwood vs. Moretti, 128 So. 2d 628).
Trust Fund Doctrine sec 43 and 122
Trust fund doctrine – treating the capital of the corporation, inclusive
of the unpaid portion of subscriptions to said capital, as a “trust fund”
which the creditors have a right to look up to for the satisfaction of
their claims.
Failure or refusal of the corporation, through its board of directors to
enforce or collect payment of unpaid subscription will not prevent the
creditors or the receiver of the corporation to institute a court action to
collect the unpaid portion thereof (trust fund doctrine).
Section 43. Power to declare dividends. - The board of directors of a
stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding stock held by
them: Provided, That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called
for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in
excess of one hundred (100%) percent of their paid-in capital stock,
except: (1) when justified by definite corporate expansion projects or
programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation,
such as when there is need for special reserve for probable
contingencies. (n)
Section 122. Corporate liquidation. - Every corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for
three (3) years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, the corporation is authorized
and empowered to convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs, any asset distributable
to any creditor or stockholder or member who is unknown or cannot
be found shall be escheated to the city or municipality where such
assets are located.
Except by decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and
liabilities. (77a, 89a, 16a)
Classes of Shares
Classification of Shares sec 6
Section 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both,
any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series
of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public utilities, and
building and loan associations shall not be permitted to issue no-par
value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case
of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par value. The board
of directors, where authorized in the articles of incorporation, may fix
the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective
upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully
paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided;
That shares without par value may not be issued for a consideration
less than the value of five (P5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated
in the certificate of stock, each share shall be equal in all respects to
every other share.
Where the articles of incorporation provide for non-voting shares in
the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation
or other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights.
68
Preferred Shares
Preferred stock – a stock that gives the holder a preference over the
holder of common stocks with respect to the payment of dividends
and/or with respect to distribution of capital upon liquidation.
Limitations on preferred stock:
1. Must be issued with a stated par value; and
2. The preferences must be stated in the articles of incorporation and
in the certificate of stock, otherwise, each share shall be, in all respect,
equal to every other share.
The guarantee to preference as to dividends does not create a relation
of debtor and creditor between the corporation and the holders of such
stock. The board has the discretion to determine whether or not to
declare dividends.
Preferred shares are presumed to be non-participating.
Participating preferred shares – the holders thereof are still given the
right to participate with the common stockholders in dividends beyond
their stated preference.
Cumulative preferred share – those that entitle the owner thereof to
payment not only of current dividends but also back dividends not
previously paid whether or not, during the past years, dividends were
declared or paid.
In absence of express stipulation, preferred shares are presumed to be
non-cumulative.
Non-cumulative preferred shares – those which grant the holders of
such shares only to the payment of current dividends but not back
dividends, when and if dividends are paid, to the extent agreed upon
before any other stockholders are paid the same.
Types of non-cumulative preferred shares:
1. Discretionary dividend type – gives the holder of such shares the
right to have dividends paid thereon in a particular year depending on
the judgment or discretion of the board of directors.
2. Mandatory if earned type – impose a positive duty on directors to
declare dividends every year when profits are earned.
3. Earned cumulative or dividend credit – gives the holder thereof the
right to arrears in dividends if there were profits earned during the
previous years but dividends were not declared.
Unless the right to vote is clearly withheld, a preferred stockholder has
the right to vote.
Preference upon liquidation must be clearly indicated otherwise they
shall be placed on equal footing with other shares.
Founder’s Shares sec 7
Section 7. Founders' shares. - Founders' shares classified as such in the
articles of incorporation may be given certain rights and privileges not
enjoyed by the owners of other stocks, provided that where the
exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years
subject to the approval of the Securities and Exchange Commission.
The five-year period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission.
Redeemable Shares sec 8
Redeemable shares may be issued by the corporation when expressly
so provided in the articles of incorporation.
They may be purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation, and upon such other
terms and conditions as may be stated in the articles of incorporation,
which terms and conditions must also be stated in the certificate of
stock representing said shares.
Section 8. Redeemable shares. - Redeemable shares may be issued by
the corporation when expressly so provided in the articles of
incorporation. They may be purchased or taken up by the corporation
upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation, and
upon such other terms and conditions as may be stated in the articles
of incorporation, which terms and conditions must also be stated in the
certificate of stock representing said shares.
Republic Planters Bank vs Hon. Agana GR 51765 1997
1. Corporation Law; Shares of Stock; Preferred Shares of
Stock; Words and Phrases; A preferred share of stock is one which
entitles the holder thereof to certain preferences over the holders of
common stock.-
Before passing upon the merits of this petition, it may be pertinent to
provide an overview on the nature of preferred shares and the
redemption thereof, considering that these issues lie at the heart of the
dispute. A preferred share of stock, on one hand, is one which entitles
the holder thereof to certain preferences over the holders of common
stock. The preferences are designed to induce persons to subscribe for
shares of a corporation. Preferred shares take a multiplicity of forms.
The most common forms may be classi- fied into two: (1) preferred
shares as to assets; and (2) preferred shares as to dividends. The former
is a share which gives the holder thereof preference in the distribution
of the assets of the corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive dividends on said share
to the extent agreed upon before any dividends at all are paid to the
holders of common stock. There is no guaranty, however, that the
share will receive any dividends.
2. Corporation Law; Shares of Stock; Preferred Shares of
Stock; Preferences granted to preferred stockholders do not give them
a lien upon the property of the corporation nor make them creditors of
the corporation, the right of the former being always subordinate to
the latter; Shareholders, both common and preferred, are considered
risk takers who invest capital in the business and who can look only
to what is left after corporate debts and liabilities are fully paid.-
Thus, the declaration of dividends is dependent upon the availability
of surplus profit or unrestricted retained earnings, as the case may be.
Preferences granted to preferred stockholders, moreover, do not give
them a lien upon the property of the corporation nor make them
creditors of the corporation, the right of the former being always
subordinate to the latter. Dividends are thus payable only when there
are profits earned by the corporation and as a general rule, even if there
are existing profits, the board of directors has the discretion to
determine whether or not dividends are to be declared. Shareholders,
both common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after
corporate debts and liabilities are fully paid.
3. Corporation Law; Shares of Stock; Preferred Shares of
Stock; Redeemable Shares; Words and Phrases; Redeemable shares
are shares usually preferred, which by their terms are redeemable at a
fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price; Redemption may
not be made where the corporation is insolvent or if such redemption
will cause insolvency or inability of the corporation to meet its debts
as they mature.-
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Redeemable shares, on the other hand, are shares usually preferred,
which by their terms are redeemable at a fixed date, or at the option of
either issuing corporation, or the stockholder, or both at a certain
redemption price. A redemption by the corporation of its stock is, in a
sense, a repurchase of it for cancellation. The present Code allows
redemption of shares even if there are no unrestricted retained earnings
on the books of the corporation. This is a new provision which in effect
qualifies the general rule that the corporation cannot purchase its own
shares except out of current retained earnings. However, while
redeemable shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its books to cover
debts and liabilities inclusive of capital stock. Redemption, therefore,
may not be made where the corporation is insolvent or if such
redemption will cause insolvency or inability of the corporation to
meet its debts as they mature.
4. Corporation Law; Shares of Stock; Preferred Shares of
Stock; Redeemable Shares; Statutory Construction; It is settled
doctrine in statutory construction that the word “may” denotes
discretion, and cannot be construed as having a mandatory effect.-
What respondent judge failed to recognize was that while the stock
certificate does allow redemption, the option to do so was clearly
vested in the petitioner bank. The redemption therefore is clearly the
type known as “optional.” Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the corporation and
the stockholder is without right to either compel or refuse the
redemption of its stock. Furthermore, the terms and conditions set
forth therein use the word “may.” It is a settled doctrine in statutory
construction that the word “may” denotes discretion, and cannot be
construed as having a mandatory effect. We fail to see how respondent
judge can ignore what, in his words, are the “very wordings of the
terms and conditions in said stock certificates” and construe what is
clearly a mere option to be his legal basis for compelling the petitioner
to redeem the shares in question.
5. Corporation Law; Shares of Stock; Preferred Shares of
Stock; Redeemable Shares; Banks and Banking; A directive issued by
the Central Bank Governor obviously meant to preserve the status quo
and to prevent the financial ruin of a banking institution, limiting the
exercise of a right granted by law to a corporate entity, may be
considered as an exercise of police power.-
The redemption of said shares cannot be allowed. As pointed out by
the petitioner, the Central Bank made a finding that said petitioner has
been suffering from chronic reserve deficiency, and that such finding
resulted in a directive, issued on January 31, 1973 by then Gov. G.S.
Licaros of the Central Bank, to the President and Acting Chairman of
the Board of the petitioner bank prohibiting the latter from redeeming
any preferred share, on the ground that said redemption would reduce
the assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was
obviously meant to preserve the status quo, and to prevent the financial
ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the exercise of
a right granted by law to a corporate entity, may thus be considered as
an exercise of police power. The respondent judge insists that the
directive constitutes an impairment of the obligation of contracts. It
has, however, been settled that the Constitutional guaranty of non-
impairment of obligations of contract is limited by the exercise of the
police power of the state, the reason being that public welfare is
superior to private rights.
6. Corporation Law; Shares of Stock; Preferred Shares of
Stock; “Interest bearing stocks,” on which the corporation agrees
absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only.-
Both Sec. 16 of the Corporation Law and Sec. 43 of the present
Corporation Code prohibit the issuance of any stock dividend without
the approval of stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special meeting
duly called for the purpose. These provisions underscore the fact that
payment of dividends to a stockholder is not a matter of right but a
matter of consensus. Furthermore, “interest bearing stocks,” on which
the corporation agrees absolutely to pay interest before dividends are
paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus
only. Clearly, the respondent judge, in compelling the petitioner to
redeem the shares in question and to pay the corresponding dividends,
committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the
stock certificate, as well as the clear mandate of the law.
7. Action; Prescription; A right of action that is founded upon a
written contract prescribes in ten (10) years.-
Anent the issue of prescription, this Court so holds that the claim of
private respondent is already barred by prescription as well as laches.
Art. 1144 of the New Civil Code provides that a right of action that is
founded upon a written contract prescribes in ten (10) years. The
letter-demand made by the private respondents to the petitioner was
made only on January 5, 1979, or almost eighteen years after receipt
of the written contract in the form of the stock certificate. As noted
earlier, this letter-demand, significantly, was not formally offered in
evidence, nor were any other evidence of demand presented.
Therefore, we conclude that the only time the private respondents saw
it fit to assert their rights, if any, to the preferred shares of stock, was
after the lapse of almost eighteen years. The same clearly indicates
that the right of the private respondents to any relief under the law has
already prescribed.
8. Action; Laches; Defined; Words and Phrases.-
Moreover, the claim of the private respondents is also barred by
laches. Laches has been defined as the failure or neglect, for an
unreasonable length of time, to do that which by exercising due
diligence could or should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it
or declined to assert it.
Treasury Shares sec 9
Treasury shares are shares of stock which have been issued and fully
paid for, but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means.
Such shares may again be disposed of for a reasonable price fixed by
the board of directors.
Treasury shares may again be issued for a price less than par.
Treasury shares have no voting and dividend rights. Such rights are
only granted to outstanding shares of stock. (CIR vs. Manning)
Section 9. Treasury shares. - Treasury shares are shares of stock which
have been issued and fully paid for, but subsequently reacquired by
the issuing corporation by purchase, redemption, donation or through
some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors.
Commissioner vs Manning 66 scra 14
1. Same; Same; A stock dividend cannot be declared out of
outstanding stock in the guise of treasury stock dividend, but only
from retained earnings.-
Such being the true nature of the 24,700 shares, their declaration as
treasury stock dividend in 1958 was a complete nullity and plainly
violative of public policy. A stock dividend, being one payable in
capital stock, cannot be declared out of outstanding corporate stock,
but only from retained earnings.
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2. Same; Same; Where corporate earnings are used to purchase
outstanding stock treated as treasury stock as a technical, but
prohibited device, to avoid effects of income taxation, distribution of
said corporate earnings in the form of stock dividends will subject
stockholders receiving them to income tax.-
The declaration of MANTRASCO’s alleged treasury stock dividends
in favor of the former, brings, however, into clear focus the ultimate
purpose which the parties to the trust instrument aimed to realize: to
make the respondents the sole owners of Reese’s interest in
MANTRASCO by utilizing the periodic earnings of that company and
its subsidiaries to directly subsidize their purchase of the said interests,
and by making it appear outwardly, through the formal declaration of
non-existent stock dividends in the treasury, that they have not
received any income from those firms when, in fact, by that
declaration they secured to themselves the means to turn around as full
owners of Reese’s shares. In other words, the respondents, using the
trust instrument as a convenient technical device, bestowed unto
themselves the full worth and value of Reese’s corporate holdings
with the use of the very earnings of the companies. Such package
device, obviously not designed to carry out the usual stock dividend
purpose of corporate expansion re-investment, e.g., the acquisition of
additional facilities and other capital budget items, but exclusively for
expanding the capital base of the respondents in MANTRASCO,
cannot be allowed to deflect the respondents’ responsibilities toward
our income tax laws. The conclusion is thus ineluctable that whenever
the companies involved herein parted with a portion of their earnings
“to buy” the corporate holdings of Reese, they were in ultimate effect
and result making a distribution of such earnings to the respondents.
All these amounts are consequently subject to income tax as being, in
truth and in fact, a flow of cash benefits to the respondents.
3. Same; Same; Where corporate earnings are used to buy out a
majority stockholder’s shares therein over a period of years, the
income tax burden on the beneficiaries of such plan shall correspond
to the annual corporate disbursement.-
We are of the opinion, however, that the Commissioner erred in
assessing the respondents the total acquisition cost (P7,973,860) of the
alleged treasury stock dividends in one lump sum. The records shows
that the earnings of MANTRASCO over a period of years were used
to gradually wipe out the holdings therein of Reese. Consequently,
those earnings, which we hold, under the facts disclosed in the case at
bar, as in effect having been distributed to the respondents, should be
taxed for each of the corresponding years when payments were made
to Reese’s estate on account of his 24,700 shares. With regard to
payments made with MANTRASCO earnings in 1958 and the years
before, while indeed those earnings were utilized in those years to
gradually pay off the value of Reese’s holdings in MANTRASCO,
there is no evidence from which it can be inferred that prior to the
passage of the stockholders’ resolution of December 22, 1958 the
contributed equity of each of the respondents rose correspondingly. It
was only by virtue of the authority contained in the said resolution that
the respondents actually, albeit illegally, appropriated and partitioned
among themselves the stockholders’ equity representing Reese’s
interests in MANTRASCO. As those payments accrued in favor of the
respondents in 1958 they are and should be liable, for income tax
purposes, to the extent of the aggregate amount paid, from 1955 to
1958, by MANTRASCO to buy off Reese’s shares.
4. Same; Same; Income tax law indifferent as to source of income
liable to tax.-
The fact that the resolution authorizing the distribution of the said
earnings is null and void is of no moment. Under the National Internal
Revenue Code, income tax is assessed on income received from any
property, activity or service that produces income. The Tax Code
stands as an indifferent, neutral party on the matter of where the
income comes from.
5. Corporation law; Taxations; Meaning and scope of treasury shares.-
Although authorities may differ on the exact legal and accounting
status of so-called “treasury shares,” they are more or less in
agreement that treasury shares are stocks issued and fully paid for and
re-acquired by the corporation either by purchase, donation, forfeiture
or other means. Treasury shares are therefore issued shares, but being
in the treasury they do not have the status of outstanding shares.
Consequently, although a treasury share, not having been retired by
the corporation re-acquiring it, may be reissued or sold again, such
share, as long as it is held by the corporation as a treasury share,
participates neither in dividends, because dividends cannot be
declared by the corporation to itself, nor in the meetings of the
corporation as voting stock, for otherwise equal distribution of voting
powers among stockholders will be effectively lost and the directors
will be able to perpetuate their control of the corporation, though it
still represents a paid-for interest in the property of the corporation.
The foregoing essential features of a treasury stock are lacking in the
questioned shares. Thus, (a) under paragraph 4(c) of the trust
agreement, the trustees were authorized to vote all stock standing in
their names x x x; (b) under paragraph 4(d), “Any and all dividends
paid on said shares after the death of the OWNER shall be subject to
the provisions of this Agreement;” (c) under paragraph 5(b) the
amount of retained earnings to be declared as dividends was made
subject to the approval of the trustees of the 24,700 shares; x x x. The
manifest intention of the parties to the trust agreement was, in sum and
substance, to treat the 24,700 shares of Reese as absolutely
outstanding shares of Reese’s estate until they were fully paid.
Watered Stocks sec 65
Section 65. Liability of directors for watered stocks. - Any director or
officer of a corporation consenting to the issuance of stocks for a
consideration less than its par or issued value or for a consideration in
any form other than cash, valued in excess of its fair value, or who,
having knowledge thereof, does not forthwith express his objection in
writing and file the same with the corporate secretary, shall be
solidarily, liable with the stockholder concerned to the corporation and
its creditors for the difference between the fair value received at the
time of issuance of the stock and the par or issued value of the same.
Watered stock – one which is issued by the corporation as fully paid-
up shares when in fact the whole amount of the value thereof has not
been paid.
Directors or officers shall be solidarily liable with the stockholder
concerned to the corporation and its creditors for the difference
between the fair value received at the time of issuance of the stock and
the par or issued value of the same for the following acts:
1. Consenting to the issuance of watered stocks; or
2. Having knowledge thereof, failing to forthwith express his
objection in writing and file the same with the corporate secretary.
All creditors, whether prior or subsequent to the issuance of watered
stock may enforce payment of such water.
Ways in which watered stocks may be issued:
1. For a monetary consideration less than its par or issued value;
2. For a consideration in property, tangible or intangible, valued in
excess of its fair market value;
3. Gratuitously or under an agreement that nothing shall be paid at all;
or
4. In the guise of stock dividends when there are no surplus profits of
the corporation.
Evil effects of stock watering:
1. The corporation is deprived of its capital thereby hurting its business
prospects, financial capability and responsibility;
2. Stockholders who paid their subscriptions in full, or promised to
pay the same, are injured and prejudiced by the reduction of their
proportionate interest in the corporation; and
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3. Present and future creditors are deprived of corporate assets for the
protection of their interest.
Two theories advanced as the basis for the liability on water stocks:
1. Trust fund doctrine – treating the capital of the corporation,
inclusive of the unpaid portion of subscriptions to said capital, as a
“trust fund” which the creditors have a right to look up to for the
satisfaction of their claims.
2. Fraud or misrepresentation theory – liability is based on the false
representation made by the corporation and the stockholder concerned
to the creditors that the true par value or issued price of the shared has
been paid or promised to be paid full.
Effects of issuance of watered stock:
1. As to the corporation – when a corporation is guilty of ultra-vires
acts which constitute an injury to or fraud upon the public, or which
will tend to injure or defraud the public, the State may institute a quo-
warranto proceeding to forfeit its charter for the misuse or abuse of its
franchise.
2. As between the corporation and the subscriber – the subscription is
void; the subscriber is liable to pay the full par or issued value thereof,
to render it valid and effective.
3. As to the consenting stockholders – they are estopped from raising
any objection thereto.
4. As to dissenting stockholder – in view of the dilution of their
proportionate interest in the corporation, they may compel the
payment of the “water” in the stock solidarily against the responsible
and consenting directors and officers inclusive of the holder of the
watered stock.
5. As to creditors – they may enforce payment of the difference in the
price, or the water in the stock, solidary against the responsible
directors/officers and the stockholders concerned.
6. As against transferees of the watered stock – his right is the same as
that of his transferor. If however, a certificate of stock has been issued
and duly indorsed to a bona fide purchaser, without knowledge, actual
or constructive, the latter cannot be held liable, at least as against the
corporation, since he took the shares on reliance of the
misrepresentation made by the corporation that the stock certificate is
valid and subsisting. This is because a corporation is prohibited from
issuing certificates of stock until the full value of the subscriptions
have been paid and could not, therefore, deny the validity of the stock
certificate it issued as against a purchaser in good faith.
Subscribers for stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription, if so required by, and at
the rate of interest fixed in the by-laws. If no rate of interest is fixed in
the by-laws, such rate shall be deemed to be the legal rate.
Quasi-Reorganization sec 38
Section 38. Power to increase or decrease capital stock; incur, create
or increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholder's meeting at which the proposed
increase or diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors
of the corporation and countersigned by the chairman and the secretary
of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by each,
and the amount paid by each on his subscription in cash or property,
or the amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or the incurring, creating
or increasing of any bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of
the corporation and the other shall be filed with the Securities and
Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or decreased
and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the
sworn statement of the treasurer of the corporation lawfully holding
office at the time of the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that
there has been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board
of trustees and of at least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities
and Exchange Commission, which shall have the authority to
determine the sufficiency of the terms thereof. (17a)
Reduction of Capital Stock
POWER TO INCREASE/DECREASE CAPITAL; INCUR,
CREATE OR INCREASE BONDED INDEBTEDNESS
Requirements and procedure:
1. Approval by the majority vote of the board of directors or trustees;
2. Ratification by the stockholders representing at least 2/3 of the
outstanding capital stock or 2/3 of the members in case of non-stock
corporations;
3. The ratification must be at a meeting duly called for that purpose;
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4. Prior written notice of the proposed action must be made stating
the time and place of meeting addressed to each stockholder or
member at his place of residence, either by mail or personal service;
5. A certificate in duplicate must be signed by a majority of the
directors of the corporation, countersigned by the chairman and the
secretary of the stockholder‟s meeting, setting forth the matters
contained in subsection 1 to 7 of Sec. 38;
6. In case of increase in capital stock, 25% of such increased capital
must be subscribed and that at least 25% of the amount subscribed
must be paid either in cash or property;
7. In case of decrease in capital stock, the same must not prejudice
the right of the creditors;
8. Filing of the certificate of increase and amended articles with the
SEC; and
9. Approval thereof by the SEC.
3 ways of increasing the capital stock:
1. Increasing the par value of the existing number of shared without
increasing the number of shares;
2. Increasing the number of existing shares without increasing the
par value thereof; and
3. Increasing the number of existing shares and at the same time
increasing the par value of the shares.
Existence of unissued or unsubscribed share out of the original
capital stock will not prohibit the increase of capital stock.
Reasons for decreasing capital stock:
1. To reduce or wipe out existing deficit where no creditors would
thereby be affected;
2. When capital is more than what is necessary to procreate the
business or reduction of capital surplus; or
3. To write down the value of its fixed assets to reflect the present
actual value in case where there is a decline in the value of the fixed
assets of the corporation.
A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a
valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and
under the conditions prescribed by law. Moreover, strict compliance
with the statutory regulations is necessary. (Philippine Trust
Company vs. Rivera)
A reduction of capital stock may not be used as a subterfuge, a
deception as it were, to camouflage the fact that a corporation has
been making profits to obviate a just sharing to labor. (Madrigal &
Co. vs. Zamora)
A corporation which has the power to borrow or raise money, to
contract for labor or services, or otherwise contract a debt has the
implied power to issue bonds in payment or as a security provided it
violates no prohibition or restriction in its charter or any other
statutes.
Corporate bonds must be registered and approved by the SEC before
they are issued.
**Stock Splits
Dividends and Other Distributions
Dividends – are corporate profits set aside, declared and ordered by
the Board of Directors to be paid to the stockholders.
Dividends can only be declared out of unrestricted retained earnings.
Unrestricted retained earnings – undistributed earnings of a
corporation which have not been allocated for any managerial,
contractual or legal purpose and which are free for distribution to the
stockholders as dividends.
Types of dividends:
1. Cash dividend – those that are payable in lawful money.
2. Property dividend – those that take form of bonds, notes, evidences
of indebtedness or stock in other corporations.
3. Stock dividends – refer to the corporation‟s shares of stock.
Rules on dividends due on delinquent stock:
1. Cash dividend – first applied to the unpaid balance on subscription
costs and expenses.
2. Stock dividend – withheld until subscription is fully paid.
General rule: Stock corporations are prohibited from retaining surplus
profits in excess of 100% of their paid-in capital stock.
Exceptions:
1. When justified by definite corporate expansion projects or programs
approved by the board of directors; or
2. When the corporation is prohibited under any loan agreement with
any financial institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such consent has not
yet been secured; or
3. When it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there
is need for special reserve for probable contingencies.
General rule: The board of directors exercise exclusive authority in
declaring dividends.
Exception: In declaring stock dividends, the approval of the
stockholders representing at least 2/3 of the outstanding capital stock
is required.
The judgment of the board of directors in the matter of declaring
dividends is conclusive except when they act in bad faith, or for a
dishonest purpose or act fraudulently, oppressively, unreasonably or
unjustly or abuse of discretion can be shown so as to impair the rights
of the complaining stockholders to their just proportion of corporate
profits.
The essential test of bad faith is to determine if the policy of the
directors is dictated by their personal interest rather than the corporate
welfare.
The right of the stockholders to be paid dividends vest as soon as they
have been lawfully and finally declared by the Board of Directors.
No revocation of dividend may be had unless it has not been officially
communicated to the stockholders or is in the form of stock dividends
which is revocable at any time prior to distribution.
Stock dividends cannot be issued to a person who is not a stockholder.
(Neilson & Co., Inc. vs. Lepanto Consolidated Mining Co.)
Directors are not liable for declaration of dividend contrary to law,
unless attended with bad faith, gross negligence or willful and
knowing assent. (Ladia)
Right to Dividends sec 43
Section 43. Power to declare dividends. - The board of directors of a
stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding stock held by
them: Provided, That any cash dividends due on delinquent stock shall
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first be applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called
for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in
excess of one hundred (100%) percent of their paid-in capital stock,
except: (1) when justified by definite corporate expansion projects or
programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation,
such as when there is need for special reserve for probable
contingencies. (n)
Delinquent stocks are entitled to the right to dividends (any cash
dividends due on delinquent stockholders shall first be applied to the
unpaid balance on his subscription plus cost and expenses, while stock
dividends shall be withheld until his unpaid subscription is paid in
full).
Types of Dividends and Other Distributions
Types of dividends:
1. Cash dividend – those that are payable in lawful money.
2. Property dividend – those that take form of bonds, notes, evidences
of indebtedness or stock in other corporations.
3. Stock dividends – refer to the corporation‟s shares of stock.
Nielsen & Co. vs Lepanto Consolidated 26 scra 540 1968
1. Pleading and practice; Appeal; Change of theory on appeal not
allowable.-
It is the rule, and the settled doctrine, that a party cannot change his
theory on appeal—that is, that a party cannot raise in the appellate
court any question of law or of fact that was not raised in the court
below or which was not within the issue made by the parties in their
pleadings (Sec. 19, Rule 49, old Rules of Court; Sec. 18 of Revised
Rules of Court; Hautea v. Magallon, L-20345, Nov. 28, 1964;
Northern Motors, Inc. v. Prince Line, L-13884, Feb. 29, 1960;
American Express Co. v. Natividad, 46 Phil. 207; Agoncillo v. Javier,
38 Phil. 424; Molina v. Somes, 24 Phil. 49).
2. Civil Law; Contracts; "Agency" and "lease of service" compared
and distinguished.-
In both agency and lease of services one of the parties binds himself
to render some service to the other party. Agency, however, is
distinguished from lease of work or services in that the basis of agency
is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer,
while the agent represents his principal. Agency is a preparatory
contract, as agency "does not stop with the agency because the purpose
is to enter into other contracts." The most characteristic feature of an
agency relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is
destined to execute juridical acts (creation, modification or extinction
of relations with .third parties). Lease of services contemplate only
material (non-juridical) acts." (Reyes Puno, An Outline of Philippine
Civil Law, Vol. V, p. 277).
3. Civil Law; Obligations and contracts; Moratorium law; Republic
Act No. 342 not applicable to debts contracted during the war.-
Republic Act No. 342 does not apply to debts contracted during the
war and did not lift the moratorium in relation thereto (Uy v. Kalaw
Katigbak, L-1830, Dec. 31, 1949; Sison v. Mirasol, L-4711, Oct. 3,
1952; Compañia Maritima v. Court of Appeals, L-14949, May 30,
1960). Said Rep. Act No. 342, however, modified Executive Order
No. 32 as to pre-war debts, making the protection available only to
debtors who had war damage claims (Sison v. Mirasol, L-4711, Oct.
3, 1952, cited in Abraham, et al. v. Intestate Estate of Ysmael, et al.,
L-16741, Jan. 31, 1962).
4. Corporation law; Shares of stock; Consideration for which shares
of stock may be issued; A share of stock coming from stock dividends
declared cannot be issued to one who is not a stockholder of a
corporation.-
From the provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash;
(2) property; and (3) undistributed profits. Shares of stock are given
the special name "stock dividends" only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash
or property then those shares do not fall under the category of "stock
dividends". A corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a stockholder,
or in payment of its indebtedness. It is the shares of stock ,that are
originally issued by the corporation and forming part of the capital that
can be exchanged for cash or services rendered, or property; that is, if
the corporation has original shares of stock unsold or unsubscribed,
either coming from the original capitalization or f rom the increased
capitalization. Those shares of stock may be issued to a person who is
not a stockholder, or to a person already a stockholder in exchange for
services rendered or for cash or property. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
5. Corporation law; "Stock dividend"; "Dividend"; Concept and
nature-
A "stock dividend" is any dividend payable in shares of stock of the
corporation declaring or authorizing such dividend. It is, as what the
term itself implies, a distribution of the shares of stock of the
corporation among the stockholders as dividends. A stock dividend of
a corporation is a dividend paid in shares of stock instead of cash, and
is properly payable only out of surplus profits (Sec. 16, Corporation
Law). So, a stock dividend is actually two things: (1) a dividend, and
(2) the enforced use of the dividend money to purchase additional
shares of stock at par. (Words and Phrases, p. 270). When a
corporation issues stock dividends, it shows that the corporation's
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available f or distribution, in
money or kind, should opportunity offer. Far from being a realization
of profits for the stockholder, it tends rather ,to postpone said
realization, in ,that the fund represented by the new stock has been
transferred from surplus to assets and no longer available for actual
distribution (Fisher v. Trinidad, 43 Phil. 973). Thus, it is apparent that
stock dividends are issued only to stockholders. This is so because
only stockholders are entitled to dividends. They are the only ones
who have a right to a proportional share in that part of the surplus
which is declared as dividends. A stock dividend really adds nothing
to the interest of the stockholder; the proportional interest of each
stockholder remains the same (Towne v. Eisner, 62 L. Ed. 372). If a
stockholder is deprived of his stock dividends—and this happens if the
shares of stock f orming part of the stock dividends are issued to a
nonstockholder—then the proportion of the stockholder's interest
changes radically. Stock dividends are civil fruits of the original
investment, and to the owners of the shares belong the civil fruits (Art.
441, Civil Code). The term "dividend" both in the technical sense and
its ordinary acceptation, is that part or portion of the profits of the
enterprise which the corporation, by its governing agents, sets apart
for ratable division among the holders of the capital stock. It means
the fund actually set aside, and declared by the directors of the
corporation as a dividend, and duly ordered by the directory, or by the
stockholders, at a corporate meeting, to be divided or distributed
among the stockholders according to their respective interests (7
Thompson on Corporations 134135)
74
Legal Restrictions on Dividends and Other Distributions
Declaration and Payment of Dividends
CIR vs CA GR 108576
1. Taxation; Courts; Court of Tax Appeals; The findings of facts of a
special court (CTA) exercising particular expertise on the subject of
tax, generally binds the Supreme Court.-
We must emphasize that the application of Sec. 83(b) depends on the
special factual circumstances of each case. The findings of facts of a
special court (CTA) exercising particular expertise on the subject of
tax, generally binds this Court, considering that it is substantially
similar to the findings of the CA which is the final arbiter of questions
of facts. The issue in this case does not only deal with facts but
whether the law applies to a particular set of facts. Moreover, this
Court is not necessarily bound by the lower courts’ conclusions of law
drawn from such facts.
2. Taxation; Withholding Tax System; Tax Amnesty; A person
assessed for deficiency withholding tax under Sections 53 and 54 of
the 1939 Tax Code is being held liable in its capacity as a withholding
agent and not in its personality as a taxpayer.-
May the withholding agent, in such capacity, be deemed a taxpayer
for it to avail of the amnesty? An income taxpayer covers all persons
who derive taxable income. ANSCOR was assessed by petitioner for
deficiency withholding tax under Sections 53 and 54 of the 1939 Code.
As such, it is being held liable in its capacity as a withholding agent
and not in its personality as a taxpayer.
3. Taxation; Withholding Tax System; Tax Amnesty; The
withholding agent is merely a tax collector, not a taxpayer and is not
protected by the amnesty under Presidential Decree 67.-
In the operation of the withholding tax system, the withholding agent
is the payor, a separate entity acting no more than an agent of the
government for the collection of the tax in order to ensure its
payments; the payer is the taxpayer—he is the person subject to tax
impose by law; and the payee is the taxing authority. In other words,
the withholding agent is merely a tax collector, not a taxpayer. Under
the withholding system, however, the agent-payor becomes a payee
by fiction of law. His (agent) liability is direct and independent from
the taxpayer, because the income tax is still imposed on and due from
the latter. The agent is not liable for the tax as no wealth flowed into
him—he earned no income. The Tax Code only makes the agent
personally liable for the tax arising from the breach of its legal duty to
withhold as distinguished from its duty to pay tax since: “the
government’s cause of action against the withholding agent is not for
the collection of income tax, but for the enforcement of the
withholding provision of Section 53 of the Tax Code, compliance with
which is imposed on the withholding agent and not upon the
taxpayer.” Not being a taxpayer, a withholding agent, like ANSCOR
in this transaction, is not protected by the amnesty under the decree.
4. Taxation; Withholding Tax System; Tax Amnesty; Statutory
Construction; Tax amnesty, much like a tax exemption, is never
favored nor presumed in law and if granted by a statute, the terms of
the amnesty like that of a tax exemption must be construed strictly
against the taxpayer and liberally in favor of the taxing authority.-
Codal provisions on withholding tax are mandatory and must be
complied with by the withholding agent. The taxpayer should not
answer for the non-performance by the withholding agent of its legal
duty to withhold unless there is collusion or bad faith. The former
could not be deemed to have evaded the tax had the withholding agent
performed its duty. This could be the situation for which the amnesty
decree was intended. Thus, to curtail tax evasion and give tax evaders
a chance to reform, it was deemed administratively feasible to grant
tax amnesty in certain instances. In addition, a “tax amnesty, much
like a tax exemption, is never favored nor presumed in law and if
granted by a statute, the terms of the amnesty like that of a tax
exemption must be construed strictly against the taxpayer and liberally
in favor of the taxing authority.” The rule on strictissimi juris equally
applies. So that, any doubt in the application of an amnesty law/decree
should be resolved in favor of the taxing authority.
5. Taxation; Corporation Law; Stock Dividends; Stock dividends,
strictly speaking, represent capital and do not constitute income to its
recipient—in a loose sense, stock dividends issued by the corporation,
are considered unrealized gain, and cannot be subjected to income tax
until that gain has been realized.-
Having been derived from a foreign law, resort to the jurisprudence of
its origin may shed light. Under the US Revenue Code, this provision
originally referred to “stock dividends” only, without any exception.
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.” As capital, the stock
dividends postpone the realization of profits because the “fund
represented by the new stock has been transferred from surplus to
capital and no longer available for actual distribution.” Income in tax
law is “an amount of money coming to a person within a specified
time, whether as payment for services, interest, or profit from
investment.” It means cash or its equivalent. It is gain derived and
severed from capital, from labor or from both combined—so that to
tax a stock dividend would be to tax a capital increase rather than the
income. In a loose sense, stock dividends issued by the corporation,
are considered unrealized gain, and cannot be subjected to income tax
until that gain has been realized. Before the realization, stock
dividends are nothing but a representation of an interest in the
corporate properties. As capital, it is not yet subject to income tax. It
should be noted that capital and income are different. Capital is wealth
or fund; whereas income is profit or gain or the flow of wealth. The
determining factor for the imposition of income tax is whether any
gain or profit was derived from a transaction.
6. Taxation; Corporation Law; Stock Dividends; Depending on the
circumstances, the proceeds of redemption of stock dividends are
essentially distribution of cash dividends, which when paid becomes
the absolute property of the stockholder, who, having realized gain
from that redemption, cannot escape income tax.-
Although redemption and cancellation are generally considered
capital transactions, as such, they are not subject to tax. However, it
does not necessarily mean that a shareholder may not realize a taxable
gain from such transactions. Simply put, depending on the
circumstances, the proceeds of redemption of stock dividends are
essentially distribution of cash dividends, which when paid becomes
the absolute property of the stockholder. Thereafter, the latter becomes
the exclusive owner thereof and can exercise the freedom of choice.
Having realized gain from that redemption, the income earner cannot
escape income tax.
7. Taxation; Corporation Law; Stock Dividends; Criteria in
Determining Whether Amount Distributed in the Redemption of Stock
Dividends Should be Treated as Equivalent of “Taxable Dividend.”-
As qualified by the phrase “such time and in such manner,” the
exception was not intended to characterize as taxable dividend every
distribution of earnings arising from the redemption of stock
dividends. So that, whether the amount distributed in the redemption
should be treated as the equivalent of a “taxable dividend” is a
question of fact, which is determinable on “the basis of the particular
facts of the transaction in question.” No decisive test can be used to
determine the application of the exemption under Section 83(b). The
use of the words “such manner” and “essentially equivalent” negative
any idea that a weighted formula can resolve a crucial issue—Should
the distribution be treated as taxable dividend. On this aspect,
American courts developed certain recognized criteria, which includes
the following: 1) the presence or absence of real business purpose, 2)
the amount of earnings and profits available for the declaration of a
regular dividend and the corporation’s past record with respect to the
declaration of dividends, 3) the effect of the distribution as compared
with the declaration of regular dividend, 4) the lapse of time between
issuance and redemption, 5) the presence of a substantial surplus and
a generous supply of cash which invites suspicion as does a meager
policy in relation both to current earnings and accumulated surplus.
75
8. Taxation; Corporation Law; Stock Dividends; Requisites for
Application of Exempting Clause of Section 83(b) of the 1939 Tax
Code.-
For the exempting clause of Section 83(b) to apply, it is indispensable
that: (a) there is redemption or cancellation; (b) the transaction
involves stock dividends; and (c) the “time and manner” of the
transaction makes it “essentially equivalent to a distribution of taxable
dividends.” Of these, the most important is the third.
9. Taxation; Corporation Law; Stock Dividends; Words and
Phrases; “Redemption of Stocks,” Explained.-
Redemption is repurchase, a reacquisition of stock by a corporation
which issued the stock in exchange for property, whether or not the
acquired stock is cancelled, retired or held in the treasury. Essentially,
the corporation gets back some of its stock, distributes cash or property
to the shareholder in payment for the stock, and continues in business
as before. The redemption of stock dividends previously issued is used
as a veil for the constructive distribution of cash dividends. In the
instant case, there is no dispute that ANSCOR redeemed shares of
stocks from a stockholder (Don Andres) twice (28,000 and 80,000
common shares). But where did the shares redeemed come from? If
its source is the original capital subscriptions upon establishment of
the corporation or from initial capital investment in an existing
enterprise, its redemption to the concurrent value of acquisition may
not invite the application of Sec. 83(b) under the 1939 Tax Code, as it
is not income but a mere return of capital. On the contrary, if the
redeemed shares are from stock dividend declarations other than as
initial capital investment, the proceeds of the redemption is additional
wealth, for it is not merely a return of capital but a gain thereon.
10. Taxation; Corporation Law; Stock Dividends; Words and
Phrases; Trust Fund Doctrine; In the absence of evidence to the
contrary, the Tax Code presumes that every distribution of corporate
property, in whole or in part, is made out of corporate profits, such as
stock dividends; Under the trust fund doctrine, the capital stock,
property and other assets of the corporation are regarded as equity in
trust for the payment of the corporate creditors.-
It is not the stock dividends but the proceeds of its redemption that
may be deemed as taxable dividends. Here, it is undisputed that at the
time of the last redemption, the original common shares owned by the
estate were only 25,247.5. This means that from the total of 108,000
shares redeemed from the estate, the balance of 82,752.5 (108,000 less
25,247.5) must have come from stock dividends. Besides, in the
absence of evidence to the contrary, the Tax Code presumes that every
distribution of corporate property, in whole or in part, is made out of
corporate profits, such as stock dividends. The capital cannot be
distributed in the form of redemption of stock dividends without
violating the trust fund doctrine—wherein the capital stock, property
and other assets of the corporation are regarded as equity in trust for
the payment of the corporate creditors. Once capital, it is always
capital. That doctrine was intended for the protection of corporate
creditors.
11. Taxation; Corporation Law; Stock Dividends; Words and
Phrases; Net Effect Test; The time alone that lapsed from the issuance
to the redemption is not a sufficient indicator to determine taxability—
it is necessary to determine the “net effect” of the transaction between
the shareholder-income taxpayer and the acquiring (redeeming)
corporation; The “net effect” test is not evidence or testimony to be
considered—it is rather an inference to be drawn or a conclusion to be
reached.-
With respect to the third requisite, ANSCOR redeemed stock
dividends issued just 2 to 3 years earlier. The time alone that lapsed
from the issuance to the redemption is not a sufficient indicator to
determine taxability. It is a must to consider the factual circumstances
as to the manner of both the issuance and the redemption. The “time”
element is a factor to show a device to evade tax and the scheme of
cancelling or redeeming the same shares is a method usually adopted
to accomplish the end sought. Was this transaction used as a
“continuing plan,” “device” or “artifice” to evade payment of tax? It
is necessary to determine the “net effect” of the transaction between
the share-holder-income taxpayer and the acquiring (redeeming)
corporation. The “net effect” test is not evidence or testimony to be
considered; it is rather an inference to be drawn or a conclusion to be
reached. It is also important to know whether the issuance of stock
dividends was dictated by legitimate business reasons, the presence of
which might negate a tax evasion plan.
12. Taxation; Corporation Law; Stock Dividends; The issuance of
stock dividends and its subsequent redemption must be separate,
distinct, and not related, for the redemption to be considered a
legitimate tax scheme.-
The issuance of stock dividends and its subsequent redemption must
be separate, distinct, and not related, for the redemption to be
considered a legitimate tax scheme. Redemption cannot be used as a
cloak to distribute corporate earnings. Otherwise, the apparent
intention to avoid tax becomes doubtful as the intention to evade
becomes manifest. It has been ruled that: “[A]n operation with no
business or corporate purpose—is a mere devise which put on the form
of a corporate reorganization as a disguise for concealing its real
character, and the sole object and accomplishment of which was the
consummation of a preconceived plan, not to reorganize a business or
any part of a business, but to transfer a parcel of corporate shares to a
stockholder.”
13. Taxation; Corporation Law; Stock Dividends; It is the “net effect
rather than the motives and plans of the taxpayer or his corporation”
that is the fundamental guide in administering Sec. 83(b).-
ANSCOR invoked two reasons to justify the redemptions—(1) the
alleged “filipinization” program and (2) the reduction of foreign
exchange remittances in case cash dividends are declared. The Court
is not concerned with the wisdom of these purposes but on their
relevance to the whole transaction which can be inferred from the
outcome thereof. Again, it is the “net effect rather than the motives
and plans of the taxpayer or his corporation” that is the fundamental
guide in administering Sec. 83(b). This tax provision is aimed at the
result. It also applies even if at the time of the issuance of the stock
dividend, there was no intention to redeem it as a means of distributing
profit or avoiding tax on dividends.
14. Taxation; Corporation Law; Stock Dividends; The existence of
legitimate business purposes in support of the redemption of stock
dividends is immaterial in income taxation—it has no relevance in
determining “dividend equivalence.”-
The existence of legitimate business purposes in support of the
redemption of stock dividends is immaterial in income taxation. It has
no relevance in determining “dividend equivalence.” Such purposes
may be material only upon the issuance of the stock dividends. The
test of taxability under the exempting clause, when it provides “such
time and manner” as would make the redemption “essentially
equivalent to the distribution of a taxable dividend,” is whether the
redemption resulted into a flow of wealth. If no wealth is realized from
the redemption, there may not be a dividend equivalence treatment. In
the metaphor of Eisner v. Macomber, income is not deemed “realized”
until the fruit has fallen or been plucked from the tree.
15. Taxation; Corporation Law; Stock Dividends; Elements in the
Imposition of Income Tax.-
The three elements in the imposition of income tax are: (1) there must
be gain or profit, (2) that the gain or profit is realized or received,
actually or constructively, and (3) it is not exempted by law or treaty
from income tax. Any business purpose as to why or how the income
was earned by the taxpayer is not a requirement. Income tax is
assessed on income received from any property, activity or service that
produces the income because the Tax Code stands as an indifferent
neutral party on the matter of where income comes from.
16. Taxation; Corporation Law; Stock Dividends; The issuance and
the redemption of stocks are two different transactions; The substance
of the whole transaction, not its form, usually controls the tax
consequences.-
The ruling in the American cases cited and relied upon by ANSCOR
that “the redeemed shares are the equivalent of dividend only if the
shares were not issued for genuine business purposes,” or the
76
“redeemed shares have been issued by a corporation bona fide” bears
no relevance in determining the non-taxability of the proceeds of
redemption. ANSCOR, relying heavily and applying said cases,
argued that so long as the redemption is supported by valid corporate
purposes the proceeds are not subject to tax. The adoption by the
courts below of such argument is misleading if not misplaced. A
review of the cited American cases shows that the presence or absence
of “genuine business purposes” may be material with respect to the
issuance or declaration of stock dividends but not on its subsequent
redemption. The issuance and the redemption of stocks are two
different transactions. Although the existence of legitimate corporate
purposes may justify a corporation's acquisition of its own shares
under Section 41 of the Corporation Code, such purposes cannot
excuse the stock-holder from the effects of taxation arising from the
redemption. If the issuance of stock dividends is part of a tax evasion
plan and thus, without legitimate business reasons, the redemption
becomes suspicious which may call for the application of the
exempting clause. The substance of the whole transaction, not its
form, usually controls the tax consequences.
17. Taxation; Corporation Law; Stock Dividends; Although a
corporation under certain exceptions, has the prerogative when to
issue dividends, yet when no cash dividends was issued for about three
decades, this circumstance negates the legitimacy of the corporation’s
alleged purposes of authorizing redemption to reduce foreign
exchange remittance in case cash dividends are declared.-
The Board Resolutions authorizing the redemptions state only one
purpose—reduction of foreign exchange remittances in case cash
dividends are declared. Not even this purpose can be given credence.
Records show that despite the existence of enormous corporate profits
no cash dividend was ever declared by ANSCOR from 1945 until the
BIR started making assessments in the early 1970’s. Although a
corporation under certain exceptions, has the prerogative when to
issue dividends, yet when no cash dividends was issued for about three
decades, this circumstance negates the legitimacy of ANSCOR’s
alleged purposes.
18. Taxation; Corporation Law; Stock Dividends; A “taxable
dividend” under Section 83(b) is part of the “entire income” subject to
tax under Section 22 in relation to Section 21 of the 1939 Tax Code.-
After considering the manner and the circumstances by which the
issuance and redemption of stock dividends were made, there is no
other conclusion but that the proceeds thereof are essentially
considered equivalent to a distribution of taxable dividends. As
“taxable dividend” under Section 83(b), it is part of the “entire
income” subject to tax under Section 22 in relation to Section 21 of
the 1939 Code. Moreover, under Section 29(a) of said Code, dividends
are included in “gross income.” As income, it is subject to income tax
which is required to be withheld at source. The 1997 Tax Code may
have altered the situation but it does not change this disposition.
19. Taxation; Corporation Law; Common and Preferred Stocks; The
exchange of common stocks with preferred stocks, or preferred for
common or a combination of either for both, may not produce a
recognized gain or loss, so long as the provisions of Section 83(b) is
not applicable.-
Exchange is an act of taking or giving one thing for another involving
reciprocal transfer and is generally considered as a taxable transaction.
The exchange of common stocks with preferred stocks, or preferred
for common or a combination of either for both, may not produce a
recognized gain or loss, so long as the provisions of Section 83(b) is
not applicable. This is true in a trade between two (2) persons as well
as a trade between a stockholder and a corporation. In general, this
trade must be parts of merger, transfer to controlled corporation,
corporate acquisitions or corporate reorganizations. No taxable gain
or loss may be recognized on exchange of property, stock or securities
related to reorganizations.
20. Taxation; Corporation Law; Common and Preferred
Stocks; Words and Phrases; Doctrine of Equality of Shares; A
common stock represents the residual ownership interest in the
corporation, a basic class of stock ordinarily and usually issued
without extraordinary rights or privileges and entitles the shareholder
to a pro rata division of profits; Preferred stocks are those which entitle
the shareholder to some priority on dividends and asset distribution;
Under the doctrine of equality of shares, all stocks issued by the
corporation are presumed equal with the same privileges and
liabilities, provided that the Articles of Incorporation is silent on such
differences.-
Reclassification of shares does not always bring any substantial
alteration in the subscriber’s proportional interest. But the exchange is
different—there would be a shifting of the balance of stock features,
like priority in dividend declarations or absence of voting rights. Yet
neither the reclassification nor exchange per se, yields realize income
for tax purposes. A common stock represents the residual ownership
interest in the corporation. It is a basic class of stock ordinarily and
usually issued without extraordinary rights or privileges and entitles
the shareholder to a pro rata division of profits. Preferred stocks are
those which entitle the shareholder to some priority on dividends and
asset distribution. Both shares are part of the corporation’s capital
stock. Both stockholders are no different from ordinary investors who
take on the same investment risks. Preferred and common
shareholders participate in the same venture, willing to share in the
profits and losses of the enterprise. Moreover, under the doctrine of
equality of shares—all stocks issued by the corporation are presumed
equal with the same privileges and liabilities, provided that the
Articles of Incorporation is silent on such differences.
Liability for Improper Dividends and Distributions
Steinberg vs Velasco 52 Phil 953 1929
WHAT CREDITORS MAY ASSUME.—The creditors of a
corporation have the right to assume that so long as there are debts and
liabilities, the board of directors of the corporation will not use its
assets to purchase its own stock or to declare dividends to its
stockholders when the corporation is insolvent.
DUTIES OF DIRECTORS.—The directors of a corporation are bound
to care for its property and manage its affairs in good faith, and for a
violation of their duties resulting in waste of its assets or injury to its
property, they are liable to account the same as any other trustee.
LIABILITY OF DIRECTORS.—If the directors of a corporation do
acts clearly beyond their power, by reason of which a loss ensued, or
dispose of its property without authority, they will be required to make
good the loss out of their private estate.
IGNORANCE IS NO DEFENSE.—A director of a corporation is
bound to exercise ordinary skill and judgment and cannot excuse his
negligence or unlawf ul acts on the ground of ignorance or
inexperience.
Transfer of Investment Securities
Any security or its derivatives the sale or transfer of which, by law, is
under the supervision and regulation of the Office of the Insurance
Commission, HLURB, or BIR.
Ownership of Securities
Right to Issuance sec 64
Section 64. Issuance of stock certificates. - No certificate of stock shall
be issued to a subscriber until the full amount of his subscription
together with interest and expenses (in case of delinquent shares), if
any is due, has been paid.
Baltazar vs Lingayen Gulf 14 scra 522
1. Corporations; Stockholder’s right to vote issued stocks although
balance of subscription unpaid.-
77
If a stockholder, in a stock corporation subscribes to a certain number
of shares of stock, and makes partial payments for which he is issued
certificates of stock, he is entitled to vote the latter, notwithstanding
the fact that he has not paid the balance of his subscription which has
been called for payment or declared delinquent.
2. Corporations; Previous payments applied to capital may not later be
applied to interest on unpaid balance of subscription.-
If a stockholder subscribes to a certain number of shares of stock and
makes partial payment only, which is applied to corresponding stocks
issued to him, but is declared delinquent as to the rest, with interest, it
is held that previous payments on account of the capital, may not be
first applied to interest, thus diminishing the voting power of the
snares of stock already paid. In other words, if the entire subscribed
shares of stock are not paid, the paid shares of stock may not be
deprived of the right to vote, until the entire subscribed shares of stock
are fully paid, including interest.
3. Estoppel; Cannot be based on acts prohibited by law.-
Estoppel cannot be predicated on acts which are prohibited by law or
are against public policy.
Joint Ownership Sec 56
Section 56. Voting in case of joint ownership of stock. - In case of
shares of stock owned jointly by two or more persons, in order to vote
the same, the consent of all the co-owners shall be necessary, unless
there is a written proxy, signed by all the co-owners, authorizing one
or some of them or any other person to vote such share or shares:
Provided, That when the shares are owned in an "and/or" capacity by
the holders thereof, any one of the joint owners can vote said shares
or appoint a proxy therefor. (
Pledgor, Mortgagor and Administrators Sec 55
Section 55. Right to vote of pledgors, mortgagors, and administrators.
- In case of pledged or mortgaged shares in stock corporations, the
pledgor or mortgagor shall have the right to attend and vote at
meetings of stockholders, unless the pledgee or mortgagee is expressly
given by the pledgor or mortgagor such right in writing which is
recorded on the appropriate corporate books. (n)
Executors, administrators, receivers, and other legal representatives
duly appointed by the court may attend and vote in behalf of the
stockholders or members without need of any written proxy.
Pooling Agreements
Control and Board Discretion sec 100
Section 100. Agreements by stockholders. -
1. Agreements by and among stockholders executed before the
formation and organization of a close corporation, signed by all
stockholders, shall survive the incorporation of such corporation and
shall continue to be valid and binding between and among such
stockholders, if such be their intent, to the extent that such agreements
are not inconsistent with the articles of incorporation, irrespective of
where the provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of incorporation.
2. An agreement between two or more stockholders, if in writing and
signed by the parties thereto, may provide that in exercising any voting
rights, the shares held by them shall be voted as therein provided, or
as they may agree, or as determined in accordance with a procedure
agreed upon by them.
3. No provision in any written agreement signed by the stockholders,
relating to any phase of the corporate affairs, shall be invalidated as
between the parties on the ground that its effect is to make them
partners among themselves.
4. A written agreement among some or all of the stockholders in a
close corporation shall not be invalidated on the ground that it so
relates to the conduct of the business and affairs of the corporation as
to restrict or interfere with the discretion or powers of the board of
directors: Provided, That such agreement shall impose on the
stockholders who are parties thereto the liabilities for managerial acts
imposed by this Code on directors.
5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be
personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
Stock and Transfer Book sec 74
Section 74. Books to be kept; stock transfer agent. - Every corporation
shall keep and carefully preserve at its principal office a record of all
business transactions and minutes of all meetings of stockholders or
members, or of the board of directors or trustees, in which shall be set
forth in detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting was regular or
special, if special its object, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of any director,
trustee, stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted in
the minutes; and on a similar demand, the yeas and nays must be taken
on any motion or proposition, and a record thereof carefully made.
The protest of any director, trustee, stockholder or member on any
action or proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and the
minutes of any meetings shall 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, trustees, 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.
Stock corporations must also keep a book to be known as the "stock
and transfer book", in which must be kept a record of all stocks in the
names of the stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription has been made,
and the date of payment of any installment; a statement of every
alienation, sale or transfer of stock made, the date thereof, and by and
to whom made; and such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be open
for inspection by any director or stockholder of the corporation at
reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of
registering transfers of stocks in behalf of a stock corporation shall be
78
allowed to operate in the Philippines unless he secures a license from
the Securities and Exchange Commission and pays a fee as may be
fixed by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from performing
or making transfer of its own stocks, in which case all the rules and
regulations imposed on stock transfer agents, except the payment of a
license fee herein provided, shall be applicable. (51a and 32a; P.B. No.
268.)
Chua Guan vs Samahang magsasaka 62 Phil 472
1. CORPORATIONS; MORTGAGE OF SHARES OF STOCK.-
The registration of the chattel mortgage in the office of the corporation
was not necessary and had no legal effect. (Monserrat vs. Ceron, 58
Phil., 469.) The long mooted question as to whether or not shares of a
corporation could be hypothecated by placing a chattel mortgage on
the certificate representing such shares we now regard as settled by
the case above cited of Monserrat vs. Ceron.
2. CORPORATIONS; ID; SITUS OF SHARES.-
It is a common but not accurate generalization that the situs of shares
of stock is at the domicile of the owner. The term situs is not one of
fixed or invariable meaning or usage. The situs of shares of stock for
some purposes may be at the domicile of the owner and for others at
the domicile of the corporation; and even elsewhere. (Cf. Vidal vs.
South American Securities Co., 276 Fed., 855; Black Eagle Min. Co.
vs. Conroy, 94 Okla., 199; 221 Pac., 425; Norrie vs. Kansas City
Southern Ry. Co., 7 Fed. [2d], 158.)
3. ID; ID; ID; DOMICILE.-
It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but the
domicile of the corporation which is decisive. (Fletcher, Cyclopedia
of the Law of Private Corporations, vol. 11, paragraph 5106; Cf.
sections 430 and 450, Code of Civil Procedure.)
4. ID; ID; ID; ACT No. 1508, SECTION 4, CONSTRUED.-
By analogy with the foregoing and considering the ownership of
shares in a corporation as property distinct from the certificates which
are merely the evidence of such ownership, it is a reasonable
construction of section 4 of Act No. 1508 to hold that the property in
the shares may be deemed to be situated in the province in which the
corporation has its principal office or place of business. If this
province is also the province of the owner's domicile, a single
registration is sufficient. If not, the chattel mortgage should be
registered both at the owner's domicile and in the province where the
corporation has itsprincipal office or place of business. In these sense
the property mortgaged is not the certificate but the participation and
share of the owner in the assets of the corporation.
5. ID; ID; ASSIGNMENT AND DELIVERY OF CERTIFICATE.-
The only safe way to accomplish the hypothecation of shares of stock
of a Philippine corporation is for the creditor to insist on the
assignment and delivery of the certificate and to obtain the transfer of
the legal title to him on the books of the corporation by the
cancellation of the certificate and the issuance of a new one to him.
6. ID; ID; ACT No. 1459, SECTION 35, CONSTRUED.-
Section 35 of the Corporation Law (Act No. 1459) enacts that shares
of stock "may be transferred by delivery of the certificate endorsed by
the owner or his attorney in fact or other person legally authorized to
make the transfer." The use of the verb "may" does not exclude the
possibility that a transfer may be made in a different manner, thus
leaving the creditor in an insecure position even though he has the
certificate in his possession. The shares still standing in the name of
the debtor on the books of the corporation will be liable to seizure by
attachment or levy on execution at the instance of other creditors. (Cf.
Uy Piaoco vs. McMicking, 10 Phil., 286, and Uson vs. Diosomito, 61
Phil., 535.) This unsatisfactory state of our law is well known to the
bench and bar. (Cf. Fisher, The Philippine Law of Stock Corporations,
pages 163-168.)
Monserat vs Ceran 58 Phil 469

1. CORPORATIONS; TRANSFER OF POSSESSION AND
OWNERSHIP OF SHARES OF STOCK; NOTATION OF
MORTGAGE ON SHARES OF STOCK.-
Inasmuch as section 35 of the Corporation Law does not require the
notation upon the books of a corporation of transactions relating to its
shares, except the transfer of the possession and ownership thereof, as
a necessary requisite to the validity of such transfer, the .notation upon
the said books of the corporation of a chattel mortgage constituted on
such shares is not necessary to its validity.
Lost or Destroyed Certificates sec 73
Section 73. Lost or destroyed certificates. - The following procedure
shall be followed for the issuance by a corporation of new certificates
of stock in lieu of those which have been lost, stolen or destroyed:
1. The registered owner of a certificate of stock in a corporation or his
legal representative shall file with the corporation an affidavit in
triplicate setting forth, if possible, the circumstances as to how the
certificate was lost, stolen or destroyed, the number of shares
represented by such certificate, the serial number of the certificate and
the name of the corporation which issued the same. He shall also
submit such other information and evidence which he may deem
necessary;
2. After verifying the affidavit and other information and evidence
with the books of the corporation, said corporation shall publish a
notice in a newspaper of general circulation published in the place
where the corporation has its principal office, once a week for three
(3) consecutive weeks at the expense of the registered owner of the
certificate of stock which has been lost, stolen or destroyed. The notice
shall state the name of said corporation, the name of the registered
owner and the serial number of said certificate, and the number of
shares represented by such certificate, and that after the expiration of
one (1) year from the date of the last publication, if no contest has been
presented to said corporation regarding said certificate of stock, the
right to make such contest shall be barred and said corporation shall
cancel in its books the certificate of stock which has been lost, stolen
or destroyed and issue in lieu thereof new certificate of stock, unless
the registered owner files a bond or other security in lieu thereof as
may be required, effective for a period of one (1) year, for such amount
and in such form and with such sureties as may be satisfactory to the
board of directors, in which case a new certificate may be issued even
before the expiration of the one (1) year period provided herein:
Provided, That if a contest has been presented to said corporation or if
an action is pending in court regarding the ownership of said
certificate of stock which has been lost, stolen or destroyed, the
issuance of the new certificate of stock in lieu thereof shall be
suspended until the final decision by the court regarding the ownership
of said certificate of stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of the
corporation and its officers, no action may be brought against any
corporation which shall have issued certificate of stock in lieu of those
lost, stolen or destroyed pursuant to the procedure above-described.
(R.A. 201a)
Transfer of Securities
Transfer of Shareholding sec 63
Section 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
79
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. (35)
RESTRICTIONS AND PREFERENCES ON TRANSFER OF
SHARES
General rule: Corporations may or may not provide for restrictions and
preferences regarding the transfer, sale or assignment of shares in the
articles of incorporation. It is discretionary.
Exception: Close corporations are required to subject their shares to
specified restrictions as required in Sec. 96.
General rule: Restrictions or preferences must be contained in the
articles of incorporation and in all stock certificates to be issued by the
corporation.
Exception: In close corporations, such restrictions and preferences
must also be embodied in the by-laws.
NO TRANSFER CLAUSE
No transfer of stock or interest which will reduce the ownership of
Filipino citizens to less than the required percentage of the capital
stock as provided by existing laws shall be allowed or permitted to be
recorded in the books of the corporation and this restriction shall be
indicated in all of the stock certificates to be issued by the corporation.
GROUNDS FOR DISAPPROVAL
Only substantial and not strict compliance is required.
Grounds for disapproval:
1. The articles of incorporation or any amendment thereto is not
substantially in accordance with the form prescribed;
2. The purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government rules and
regulations;
3. The Treasurer‟s Affidavit concerning the amount of capital stock
subscribed and/or paid is false;
4. The percentage of ownership of the capital stock to be owned by
citizens of the Philippines has not been complied with as required by
existing laws or the Constitution,
5. The articles of incorporation of corporations subject to government
supervision are not accompanied by a favorable recommendation from
the appropriate government agency.
The grounds are not exclusive.
Uson vs Diosomito 61 Phil 535
1. CORPORATIONS; UNREGISTERED TRANSFER OF SHARES
OF STOCK-
The right of the owner of the shares of stock of a Philippine
corporation to transfer the same by delivery of the certificate, whether
it be regarded as statutory or common law right, is limited and
restricted by the express provision that "no transfer, however, shall be
valid, except as between the parties, until the transfer is entered and
noted upon the books of the corporation." Therefore, an attachment
lien prevails over a prior unregistered bona, fide stock transfer.
Escano vs Filipinas Mining 74 Phil 711

1. Corporations; Recording of Transfer of Unissued Shares Heldi in
Escrow; Section 35 of Corporation Law.-
—Held: Section 35 of the Corporation Law, which requires the
registration of transfers of shares of stock upon the books of the
corporation as a condition precedent to their validity against the
corporation and third parties, is also applicable to unissued shares held
by the corporation in escrow.
2. Id.; Id.; Laches in Enforcement of Levy.-
—We find no factual basis for the alleged laches and abandonment.
The trial court found that the secretary of the defendant Filipinas
Mining Corporation had repeatedly promised the plaintiff that he
would notify the latter as soon as the escrow shares pertaining to
Silverio Salvosa were released so that he (plaintiff) might take the
proper action for the execution of his judgment. The Filipinas Mining
Corporation having advised the sheriff that it was holding the escrow
shares of the judgment debtor Silverio Salvosa, the plaintiff as
execution creditor had the right to wait for the release or issuance of
said shares before having the same sold at public auction, so long as
the period of five years within which to execute his judgment had not
yet lapsed. Moreover, the judgment itself provided "that the escrow
shares shall be transferred and delivered to the plaintiff only after they
have been released by the company," it is stated in the stipulation of
facts that it was only after the Filipinas Mining Corporation had issued
the escrow shares in favor of the Standard Investment of the
Philippines that the plaintiff Antonio Escano came to know that Jose
P. Bengzon and the Standard Investment of the Philippines had
acquired Silverio Salvosa's rights to the shares in question.
3. Id.; Attachment of Shares of Stock.-
—Under section 432 of the Code of Civil Procedure (now section 8 of
Rule 59), the Filipinas Mining Corporation became liable to the
plaintiff for the shares of stock mentioned in its return to the sheriff of
July 29, 1937, wherein it informed the latter in response to the notice
of garnishment "that according to its books said Silverio Salvosa was
the registered owner of 1,000 active shares evidenced by certificate of
stock No. 235 and about 21,338 unissued shares held in escrow by the
defendant Filipinas Mining Corporation."
Ponce vs Alsons Cement GR 139802 2002
1. Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Registration; 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.-
The Corporation Code states that: SEC. 63. Certificate of stock and
transfer of shares.—The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or
vice-president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are personal
property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation so as to show the names of
the parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred. No
shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation. Pursuant to the
foregoing provision, 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
80
obligation on the part of the corporation to recognize such rights as it
is mandated by law to recognize arises.
2. Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Registration;Mandamus; A corporate secretary may not be
compelled to issue stock certificates without such registration.-
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that
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. That Hager and Rivera involved
petitions for mandamus to compel the registration of the transfer,
while this case is one for issuance of stock, is of no moment. It has
been made clear, thus far, that 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. With more reason, in our view, a corporate secretary
may not be compelled to issue stock certificates without such
registration.
3. Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Registration;Mandamus; Where the corporate secretary is
under no clear legal duty to issue stock certificates because of the
petitioner’s failure to record earlier the transfer of shares, one of the
elements of the cause of action for mandamus is clearly missing.-
The test of sufficiency of the facts alleged in a petition is whether or
not, admitting the facts alleged, the court could render a valid
judgment thereon in accordance with the prayer of the petition. This
test would not be satisfied if, as in this case, not all the elements of a
cause of action are alleged in the complaint. Where the corporate
secretary is under no clear legal duty to issue stock certificates because
of the petitioner’s failure to record earlier the transfer of shares, one
of the elements of the cause of action for mandamus is clearly missing.
4. Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Issuance of Stock Certificate; One may own shares of
corporate stock without possessing a stock certificate.-
That petitioner was under no obligation to request for the registration
of the transfer is not in issue. It has no pertinence in this controversy.
One may own shares of corporate stock without possessing a stock
certificate. In Tan vs. SEC, 206 SCRA 740 (1992), we had occasion
to declare that 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’ interest and status in the
corporation, his ownership of the share represented thereby. The
certificate is in law, so to speak, 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.
5. Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Issuance of Stock Certificate; The law does not prescribe a
period within which the registration should be effected.-
In Won vs. Wack Wack Golf and Country Club, Inc., 104 Phil. 466
(1958), we held that considering that 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.
Tan vs SEC GR 95696 1992
Statutory construction; Remedial law statutes construed liberally; Use
of word “may”.—Contrary to the understanding of the petitioner with
respect to the use of the word “may”, in the case of Shauf v. Court of
Appeals, (191 SCRA 713, 27 November 1990), this Court held, that
“Remedial law statutes are to be construed liberally.” The term ‘may’
as used in adjective rules, is only permissive and not mandatory.
Corporations; Transfer of shares of stock; Delivery not mandatory but
there was delivery in case at bar.—Moreover, it is safe to infer from
the facts deduced in the instant case that, there was already delivery of
the unendorsed Stock Certificate No. 2, which is essential to the
issuance of Stock Certificate Nos. 6 and 8 to Angel S. Tan and
petitioner Alfonso S. Tan, respectively. What led to the problem was
the return of the cancelled certificate (No. 2) to Alfonso S. Tan for his
endorsement and his deliberate non-endorsement. For all intents and
purposes, however, since this was already cancelled which
cancellation was also reported to the respondent Commission, there
was no necessity for the same certificate to be endorsed by the
petitioner. All the acts required for the transferee to exercise its rights
over the acquired stocks were attendant and even the corporation was
protected from other parties, considering that said transfer was earlier
recorded or registered in the corporate stock and transfer book.
Same; Nature and function of certificate of stock.—A certificate of
stock is not necessary to render one a stockholder in a corporation.
Nevertheless, a certificate of stock is the paper representative or
tangible evidence of the stock itself and of the various interests therein.
The certificate is not stock in the corporation but is merely evidence
of the holder’s interest and status in the corporation, his ownership of
the share represented thereby, but is not in law the 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. (13
Am. Jur. 2d, 769)
Same; Same.—In Philippine jurisprudence, a certificate of stock is not
a negotiable instrument. “Although it is sometime regarded as quasi-
negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable,
because the holder thereof takes it without prejudice to such rights or
defenses as the registered owner/s or transferor’s creditor may have
under the law, except insofar as such rights or defenses are subject to
the limitations imposed by the principles governing estoppel.” (De los
Santos vs. McGrath, 96 Phil. 577)
Same; Transfer of shares of stock.—To follow the argument put up by
petitioner which was upheld by the Cebu SEC Extension Office
Hearing Officer, Felix Chan, that the cancellation of Stock Certificate
Nos. 2 and 8 was null and void for lack of delivery of the cancelled
“mother” Certificate No. 2 whose endorsement was deliberately
withheld by petitioner, is to prescribe certain restrictions on the
transfer of stock in violation of the corporation law itself as the only
law governing transfer of stocks. While Section 47(a) grants to stock
corporations the authority to determine in the by-laws “the manner of
issuing certificates” of shares of stock, however, the power to regulate
is not the power to prohibit, or to impose unreasonable restrictions of
the right of stockholders to transfer their shares.
Remedy if Transfer is Refused
Hager vs Bryan 19 Phil 138
1. CORPORATION; TRANSFER OF SHARES OF
STOCK; MANDAMUS.-
Upon the application of the registered owner of shares of stock in a
corporation organized under the provisions of Act No. 1459,
mandamus will lie to compel the secretary of the corporation to
transfer them upon the books of the corporation, where it appears:
2. CORPORATION; TRANSFER OF SHARES OF STOCK; DUTY
TO PROVIDE FOR TRANSFERS.-
Impliedly, if not expressly, section 52 of Act No. 1459 imposes the
duty upon a corporation organized under that Act, and upon the officer
in charge of the books of the corporation, to provide for the entryand
noting upon the books of the corporation of lawful transfers of stock,
where the entry of such transfers is lawfully demanded.
3. CORPORATION; TRANSFER OF SHARES OF
STOCK; RIGHTS OF INDORSEE OF SHARES OF STOCK.-
As a general rule, and especially under the above-cited statute, as
between the corporation on the one hand and its shareholders on the
81
other, the corporation looks only to its books for the purpose of
determining who its shareholders are, so that a mere indorsee of a
certificate of stock, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the absence
of express instructions of the registered owner to make such transfer
to the indorsee, or a power of attorney authorizing such transfer.
Batong Buhay vs CA 147 scra 4
1. Mercantile Law; Corporations; Shares of
stocks; Damages; Unrealizedprofits that may accrue from sale of the
shares of stocks had petitioner transferred legal title to the respondent,
merely speculative; Speculative damages cannot be recovered-
The stipulation of facts of the parties does not at all show that private
respondent intended to sell, or would sell or would have sold the
stocks in question on specified dates. While it is true that shares of
stock may go up or down in value (as in fact the concerned shares here
really rose from fifteen (15) centavos to twenty three or twenty four
(23/24) centavos per share and then fell to about two (2) centavos per
share, still whatever profits could have been made are purely
SPECULATIVE, for it was difficult to predict with any decree of
certainty the rise and fall in the value of the shares. Thus this Court
has ruled that speculative damages cannot be recovered. It is easy to
say now that had private respondent gained legal title to the shares, it
could have sold the same and reaped a profit of P5.624.95 but it could
not do so because of petitioner’s refusal to transfer the stocks in the
former’s name at the time demand was made, but then it is also true
that human nature, being what it is, private respondent’s officials
could also have refused to sell and instead wait for expected further
increases in value.
Won vs Wack Wack Golf Club 104 Phil 466
1. Interpleader; Interpleader under section 120 of the Code of Civil
Procedure; Purpose of.-
The action of interpleader, under section 120 of the Code of Civil
Procedure, is a remedy whereby a person who has personal property
in his possession, or an obligation to render wholly or partially,
without claiming any right to either, comes to court and asks that the
persons who claim the said personal property or who consider
themselves entitled to demand compliance with the obligation, be
required to litigate among themselves in order to determine finally
who is entitled to one or the other thing. The remedy is afforded to
protect a person not against double liability but against double
vexation in respect of one liability.
2. Interpleader; Interpleader under section 120 of the Code of Civil
Procedure; Difference between interpleader under the Code of Civil
Procedure and under the Rules of Court.-
The procedure under the Rules of Court is the same as that under the
Code of Civil Procedure except that under the former the remedy of
interpleader is available regardless of the nature of the subject-matter
of the controversy, whereas under the latter an interpleader suit is
proper only if the subject-matter of the controversy is personal
property or relates to the performance of an obligation.
3. Interpleader; Stakeholder should file action of interpleader within
reasonable time after dispute has arisen without waiting to be sued by
claimants; Reason.-
A stakeholder should use reasonable diligence to hale the contending
claimants to court. He need not await actual institution of independent
suits against him before filing a bill of interpleader. He should file an
action of interpleader within a reasonable time after a dispute has
arisen without waiting to be sued by either of the contending
claimants. Otherwise, he may be barred by laches or undue delay. But
where he acts with reasonable diligence in view of the environmental
circumstances, the remedy is not barred.
4. Interpleader; Where stakeholder files action of interpleader after
judgment has been rendered against him in favor of one of claimants,
action deemed too late; Reason.-
A stakeholder’s action of interpleader is too late when filed after
judgment has been rendered against him in favor of one of the
contending claimants, especially where he had notice of the
conflicting claims prior to the rendition of the judgment and neglected
the opportunity to implead the adverse claimants in the suit where
judgment was entered. This must be so, because once judgment is
obtained against him by one claimant he becomes liable to the latter.
5. Interpleader; Party who files action of interpleader should show that
he has not been made independently liable to any of the claimants.-
Before a person will be deemed to be in a position to ask for an order
of interpleader, he must be prepared to show, among other
prerequisites, that he has not become independently liable to any of
the claimants.
6. Interpleader; Where stakeholder defends a suit by one claimant and
allows it to proceed to judgment against him, action of interpleader
deemed too late.-
If a stakeholder defends a suit filed by one of the adverse claimants
and allows said suit to proceed to final judgment against him, he
cannot later on have that part of the litigation repeated in an
interpleader suit.
7. Interpleader; A successful litigant cannot later be impleaded by his
defeated adversary in action of interpleader and compelled to prove
his claim anew against other adverse claimants.-
A successful litigant cannot later be impleaded by his defeated
adversary in an interpleader suit and compelled to prove his claim
anew against other adverse claimants, as that would in effect be a
collateral attack upon the judgment.
Validity of Restrictions
Lambert vs Fox 26 Phil 588
CONTRACTS; CONSTRUCTION AND ENFORCEMENT.—
Contracts should be enforced as they read. The first duty of courts in
enforcing contracts is to give attention to the words thereof. If from
the words the meaning is plain, the contract should be enforced
according to its words.
ID.; ID.—It is to be presumed that persons mean what they say; and
interpretation and construction should not be resorted to when the
English used is plain. Plain words should not be discarded or twisted
or given fanciful or unusual signification, even though such strained
signification seems to be in the interests of justice or to be necessary
to prevent hardship.
ID.; ID.; ENFORCEMENT OF PENALTY.—In this jurisdiction
contracts are enforced as they read; and parties who are competent to
contract may make such agreements within the limitations of the law
and public policy as they desire, and the courts will enforce them
according to their terms. A penalty imposed for the breach of a
contract not to sell shares of stock for one year will be enforced if the
agreement is broken, no matter whether the person seeking to enforce
the penalty has suffered damages or not.
ID.; ID.; ID.—The only case in which the courts are authorized to
intervene for the reduction of a penalty stipulated in a contract is when
the principal obligation has been partly or irregularly fulfilled and the
court can see that the party demanding the penalty has received the
benefits of such part or irregular performance. In such case the court
is authorized to reduce the penalty to the extent of the benefits received
by the party seeking to enforce the penalty.
ID.; ID.; ID.—In enforcing a contract which provides a penalty in case
of breach, the party enforcing the penalty is entitled to recover the sum
stipulated without proving damages.
ID.; SUSPENSION OF RIGHT TO SELL, CORPORATE STOCK.—
Where the suspension of the right to sell stock in a corporation has a
beneficial purpose and results in the protection of the corporation as
82
well as of the individual parties to the contract and is reasonable as to
time, the suspension is legal.
Fleishcher vs Botica Nolasco 47 Phil 583
1. CORPORATIONS; CORPORATE STOCK; RlGHT OF
CORPORATIONS TO IMPOSE A LIMITATION ON TRANSFERS
OF STOCK.-
A stock corporation in adopting by-laws governing the transfer of
shares of stock should take into consideration the specific provisions
of the Corporation Law. The by-laws of corporations should be made
to harmonize with the provisions of the Corporation Law. By-laws
must not be inconsistent with the provisions of the Corporation Law.
By-laws of a corporation are valid if they are reasonable and
calculated to carry into effect the objects of the corporation provided
they are not contradictory to the general policy of the laws of the land.
Under a statute authorizing by-laws for the transfer of stock of a
corporation, it can do no more than prescribe a general mode of
transfer on the corporate books and cannot justify an unreasonable
restriction upon the right to sell. The shares of stock of a corporation
are personal property and the holder thereof may transfer the same
without unreasonable restrictions.
2. CORPORATIONS; TRANSFER OF SHARES OF STOCK.-
The power to enact by-laws restraining the sale and transfer of stock
must be found in the governing statute or charter. Restrictions upon
the traffic in stock must have their source in legislative enactments, as
the corporation itself cannot create such impediments. By-laws of a
corporation are intended merely for the protection of the corporation,
and prescribe regulations and not restrictions; they are always subject
to the charter of the corporation. The corporation, in the absence of
such a power, cannot ordinarily inquire into or pass upon the legality
of the transaction by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is
based. A by-law of a corporation cannot take away or abridge the
substantial rights of stockholders. Courts will carefully scrutinize any
attempt on the part of a corporation to impose restrictions or
limitations upon the right of stockholders to sell and assign their stock.
Restrictions cannot be imposed upon a stockholder by a by-law
without statutory or charter authority. The owner of corporate stock
has the same uncontrollable right to sell or alienate, which attaches to
the ownership of any other species of property.
Padgett vs Babcock and Templeton 59 Phil 232
1. SHARES OF CAPITAL STOCK; ILLEGAL RESTRICTION
IMPOSED THEREON.-
The restriction consisting in the word "nontransferable" appearing on
the twelve (12) certificates, Exhibits F to F-11, is illegal on the ground
that it constitutes an undue limitation of the right of ownership and is
in restraint of trade. It should, therefore, be eliminated.
2. SHARES OF CAPITAL STOCK; OBLIGATION TO
PURCHASE.-
There is no existing law nor authority in support of the plaintiff's claim
to the effect that the defendants are obliged to purchase his shares at
par value plus the interest demanded thereon. In this respect it is
hereby held that there has been no such contract, either express or
implied, between the plaintiff and the defendants.
3. SHARES OF CAPITAL STOCK; NON-EXISTENT OR
IMAGINARY OBLIGATION.-
In the absence of a similar contractual obligation and a legal provision
applicable thereto, it is logical -to conclude that it would be unjust and
unreasonable to compel the said defendants to comply with a non-
existent or imaginary obligation. Whereupon, the judgment originally
rendered to that effect is untenable and should be set aside.
Forged Transfers
Sta Maria vs Hongkong and Shanghai 89 Phil 780
1. CORPORATIONS; STOCK CERTIFICATES; J
INDORSEMENT IN BLANK; STREET CERTIFICATE.-
The certificate of stock in question was made out in the name of W, a
broker, duly indorsed in blank by him and delivered to S for valuable
consideration paid by the latter. Then S delivered it, as it was, to C,
another broker, to comply with the latter's requirement that S deposit
something on account if she wanted to buy shares of another mining
corporation. C thereafter delivered to a bank the said certificate duly
indorsed to said bank pursuant to a letter of hypothecationexecuted by
C in favor of said bank. The said certificate was delivered to the bank
in the ordinary course of business, together with many other securities,
and at the time it was delivered the bank had no knowledge that the
shares represented by the certificate belonged to S for it was in the
form of a street certificate transferable by mere delivery. Held: S could
have asked the corporation that had issued said certificate to cancel it
and issue another in lieu thereof in her name to apprise the holder that
she was the owner of said certificate. This she failed to do, and instead
she delivered said certificate to C indorsed in blank, thereby clothing
the latter with apparent title to the shares represented by said
certificate including apparent authority to negotiate it. This was the
proximate cause of the damage suffered by her. She is, therefore,
estopped from claiming further title to or interest therein as against a
bona fide pledgee or transferee thereof. A bona fide pledgee or
transferee of a stock from the apparent owner is not chargeable with
knowledge of the limitations placed on it by the real owner, or of any
secret agreement relating to the use which might be made -of the stock
by the holder (12 Fletcher, Corporations, section 5562, p. 521).
"Where one of two innocent parties must suffer by reason of a
wrongful or unauthorized act, the loss must fall on the one who first
trusted the wrongdoer and put in his hands the means of inflicting such
loss". (Id.)
2. CORPORATIONS; STOCK CERTIFICATES; J
INDORSEMENT IN BLANK; STREET CERTIFICATE.-
The certificate of stock in question was issued in the name of W, a
broker, who indorsed it in blank, the bank would still have been
justified in believing the previous indorsement being therefore
guaranteed by the last indorser, Held: This certificate is what is known
as street certificate. Upon its face, the holder was entitled to demand
its transfer to his name from the issuing corporation. The bank is not
obligated to look beyond the certificate to ascertain the ownership of
the stock at the time he received it from C, it having been given
pursuant to a letter of hypothecation. Even if said certificate had been
in the name of S but indorsed in blank, the bank would still have been
justified in believing that C had title thereto. It is a well-known
practice that a certificate of stock, indorsed in blank, is deemed quasi
negotiable, and as such the transferee thereof is justified in believing
that it belongs to the holder and transferer (Reyman vs. Hamilton
National Bank, 266 SW 1043; 12 Fletcher, Corporations, pp. 521-524;
525-527; McNeil vs. Tenth National Bank, 7 Am. Rep., 341).
3. CORPORATIONS; STOCK CERTIFICATES; NOTATIONS IN
HANDWRITING ON CERTIFICATE.-
The fact that, on the right margin of the said certificate, the name of S
appeared written, granting it to be true, cannot be considered sufficient
reason to indicate that its owner was S, considering that said certificate
was indorsed in blank by W, in whose name it had been issued,
indorsement which was guaranteed by C's indorsement in blank and
was transferred in due course by the latter to the Bank under a letter
of hypothecation. Said indicium could at best give the impression that
S was the original holder of the certificate.
4. CORPORATIONS; STOCK CERTIFICATES; CLAIMS OF
OWNERSHIP ADVERSE TO WHAT APPEARS ON
CERTIFICATE.-
Even assuming that S had really approached the proper official of the
Bank demanding the return of the certificate or its value, such an
incident would merely show that S has an adverse claim to the
ownership of said certificate of stock, but that would not necessarily
place the bank in a position to inquire as to the real basis of her claim,
nor would it place the bank in the obligation to recognize her claim
83
and return to her the certificate outright. A mere claim of ownership
does not establish the fact of ownership.
5. CORPORATIONS; STOCK CERTIFICATES; POSSESSION OF
CERTIFICATE is THE MOST THAT STOCKHOLDER CAN
CLAIM.-
The most that S could claim is the return to her of the said certificate
of stock (Howison vs. Mechanics Sav. Bank, 183 Atl., p. 697). The
defendant bank having expressed its willingness from the very
beginning to compromise the case by delivering to S the new
certificate of stock issued to the bank by the issuing corporation in lieu
of the original, the defendant bank should be ordered to deliver to S
the said new certificate of stock.
De los Santos vs Republic 96 Phil 577
1. CORPORATION LAW; SHARES OF STOCK; NATURE AND
TRANSFER OF; EFFECT OF UNREGISTERED TRANSFER.-
Shares of stock are personal property and may be transferred by
endorsement of the corresponding stock certificate, coupled with its
delivery. How
2. CORPORATION LAW; SHARES OF STOCK; QUASI-
NEGOTIABILITY AND NON-NEGOTIABILITY OF SHARES OF
STOCK.-
Although shares of stock are sometimes regarded as quasi-negotiable,
in the sense that they may be transferred endorsement, coupled with
delivery, they are non-negotiable, because the holder thereof takes
them without prejudice to such rights or defenses as the registered
owner or creditor may have under the law, except insofar as such
rights or defenses are subject to the limitations imposed by the
principles governing estoppel.
3. CORPORATION LAW; SHARES OF
STOCK; STOCKHOLDERS; RIGHTS OF REGISTERED
STOCKHOLDERS SUPERIOR TO THAT OF PURCHASER ON
NOTICE OF FACTS INDICATING NEED OF INQUIRING INTO
REGULARLY OF SALES.-
Where the plaintiffs were, at the time of the alleged sales in their favor
of the shares stock in question, aware of sufficient facts to put them
on notice of the need of inquiring into the regularity of the transactions
and the title of the opposed vendors, they can not validly claim, against
the registered stockholder, the status of purchasers in good faith.
4. CORPORATION LAW; ID; STOCKHOLDERS; PRINCIPAL OF
REGISTERED OWNER ENJOYS SAME RIGHTS OF
REGISTERED STOCKHOLDER.-
The principal or beneficiary of the registered owner of shares of stock
is entitled to invoke such rights as the registered stockholders may
have under the law.
Non-transferability of Membership in a Non-Stock Corporation
sec 90
Section 90. Non-transferability of membership. - Membership in a
non-stock corporation and all rights arising therefrom are personal and
nontransferable, unless the articles of incorporation or the by-laws
otherwise provide.
General rule: Membership in a non-stock corporation and all rights
arising therefrom are personal and non-transferable.
Exception: The articles of incorporation or the by-laws provide
otherwise.
III. MANAGEMENT STRUCTURE
A. Corporate Governance
Powers of the Board or Trustees sec 23
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 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 until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the capital stock of
the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be
the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations must be members thereof.
A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
Gamboa vs Victoriano 90 Scra 40 1979
1. Corporation Law; Remedial Law; Civil Procedure; Order denying
motion to dismiss complaint is an interlocutory order not subject of
petition for certiorari.-
The questioned order denying the petitioners’ motion to dismiss the
complaint is merely interlocutory and cannot be the subject of a
petition for certiorari. The proper procedure to be followed in such a
case is to continue with the trial of the case on the merits and, if the
decision is adverse, to reiterate the issue on appeal It would be a breach
of orderly procedure to allow a party to come before this Court every
time an order is issued with which he does not agree.
2. Compromise Agreement; No waiver of cause of action by parties
by entering into compromise agreement where there is express provi-
sion to the contrary.-
As found by the respondent judge, the petitioners have not waived
their cause of action against the petitioners by entering into a
compromise agreement with the other defendants in view of the
express provision of the compromise agreement that the same “shall
not in any way constitute or be considered a waiver or abandonment
of any claim or cause of action against the other defendants.” There is
also no estoppel because there is nothing in the agreement which could
be construed as an affirmative admission by the plaintiff of the validity
of the resolution of the defendants which is now sought to be judicially
declared null and void. The foregoing circumstances and the fact that
no consideration was mentioned in the agreement for the transfer of
rights to the said shares of stock to the plaintiffs are sufficient to show
that the agreement was merely an admission by the defendants Ramon
de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi of the
validity of the claim of the plaintiffs.
3. Corporation Law; Board of Directors; Contracts; Courts cannot
control discretion of board of directors about administrative matters;
Contracts intra vires entered into by board of directors binding upon
the corporation and courts will not interfere; Exception.-
The wellknown rule is that courts cannot undertake to control the
discretion of the board of directors about administrative matters as to
which they have legitimate power of action, and contracts intra vires
entered into by the board of directors are binding upon the corporation
and courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to a wanton destruction
of the rights of the minority.
4. Corporation Law; Derivative Suit; When derivative suit should be
instituted.-
An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest. In the
case at bar, however, the plaintiffs are alleging and vindicating their
own individual interests or prejudice, and not that of the corporation.
84
5. Corporation Law; Remedial Law; Civil Procedure; Joinder of
Parties; Misjoinder of parties not a ground for dismissal of action.-
At any rate, it is yet too early in the proceedings since the issues have
not been joined. Besides, misjoinder of parties is not a ground to
dismiss an action.
Gokongwei vs SEC 89 Scra 336 1979
1. Supreme Court; Judgments; Securities and Exchange
Commission; Corporation Law; Supreme Court always strives to
settle a legal controversy in a single proceeding.-
xxx In the case at bar, there are facts which cannot be denied, viz.: that
the amended by-laws were adopted by the Board of Directors of the
San Miguel Corporation in the exercise of the power delegated by the
stockholders ostensibly pursuant to section 22 of the Corporation Law;
that in a special meeting on February 10, 1977 held specially for that
purpose, the amended by-laws were ratified by more than 80% of the
stockholders of record; that the foreign investment in the Hongkong
Brewery and Distillery, a beer manufacturing company in Hongkong,
was made by the San Miguel Corporation in 1948; and that in the
stockholders’ annual meeting held in 1972 and 1977, all foreign
investments and operations of San Miguel Corporation were ratified
by the stockholders.
2. Corporation Law; While reasonableness of a by-law is a legal
question, where reasonableness of a by-law provision is one in which
reasonable minds may differ a court will not be justified in subsisting
its judgment for those authorized to make the by-laws.-
The validity or reasonableness of a by-law of a corporation is purely a
question of law. Whether the by-law is in conflict with the law of the
land, or with the charter of the corporation, or is in a legal sense
unreasonable and therefore unlawful is a question of law. This rule is
subject, however, to the limitation that where the reasonableness of a
by-law is a mere matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have exercised their authority.
3. Corporation Law; Under the Corporation Law a corporation is
authorized to prescribe the qualification of its directors.-
In this jurisdiction, under Section 21 of the Corporation Law, a
corporation may prescribed in its by-laws “the qualifications, duties
and compensation of directors, officers and employees ***.” This
must necessarily refer to a qualification in addition to that specified by
section 30 of the Corporation Law, which provides that “every director
must own in his right at least one share of the capital stock of the stock
corporation of which he is a director * * *.”
4. Corporation Law; Stockholder has no vested right to be elected as
stockholder.-
Any person “who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the
stockholders and that he implied contracts that the will of the majority
shall govern in all matters within the limits of the act of incorporation
and lawfully enacted by-laws and not forbidden by law.” To this
extent, therefore, the stockholder may be considered to have “parted
with his personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the corporation
and surrendered it to the will of the majority or his fellow
incorporators. **** It can not therefore be justly said that the contract,
express or implied, between the corporation and the stockholders is
infringed *** by any act of the former which is authorized by a
majority, ***.”
5. Corporation Law; A director stands in a fiduciary relation to the
competition and its stockholders. The disqualification of a competition
from being elected to the board of directors is a reasonable exercise of
corporate authority.-
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any doubt that
their character is that of a fiduciary insofar as the corporation for the
collective benefit of the stockholders, “they occupy a fiduciary
relation, and in these sense the relation is one of trust.”
6. Corporation Law; Same.-
It is obviously to prevent the creation of an opportunity for an officer
or director of San Miguel Corporation, who is also the officer or owner
of competing corporation, from taking advantage of the information
which he acquires as director to promote his individual or corporate
interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was
made. Certainly, where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his corporate
duties above his personal concerns.
7. Corporation Law; Same.-
Sound principles of corporate management counsel against sharing
sensitive information with a director whose fiduciary duty to loyalty
may well require that he disclose this information to a competitive
rival. These dangers are enhanced considerably where the common
director such as the petitioner is a controlling stockholder of two of
the competing corporations. It would seem manifest that in such
situations, the director has an economic incentive to appropriate for
the benefit of his own corporation the corporate plans and policies of
the corporation where he sits as director.
8. Corporation Law; Another reason for upholding a by-law provision
that forbids a competitor to be elected as corporate director are the
laws prohibiting cartels.-
There is another important consideration in determining whether or
not the amended by-laws are reasonable. The Constitution and the law
prohibit combinations in restraint of trade or unfair competition. Thus,
Section 2 of Article XIV of the Constitution provides: “That State
shall regulate or prohibit private monopolies when the public interest
so requires. No combinations in restraint of trade or unfair competition
shall be allowed.”
9. Corporation Law; Same.-
Basically, these anti-trust laws or laws against monopolies or
combinations in restraint of trade are aimed at raising levels of
competition by improving the consumers’ effectiveness as the final
arbiter in free markets. These laws are designed to preserve free and
unfettered competition as the rule of trade. “It rests on the premise that
the unrestrained interaction of competitive forces will yield the best
allocation of our economic resources, the lowest prices and the highest
quality ***.” They operate to forestall concentration of economic
power. The law against monopolies and combinations in restraint of
trade is aimed at contracts and combinations that, by reason of the
inherent nature of the contemplated acts, prejudice the public interest
by unduly restraining competition or unduly obstructing the course of
trade.
10. Corporation Law; Election of petitioner as San Miguel
Corporation Director may run counter to the prohibition contained in
Section 13(5) of Corporation Law on investments in corporations
engaged in agriculture.-
Finally, considering that both Robina and SMC are, to a certain extent,
engaged in agriculture, then the election of petitioner to the Board of
SMC may constitute a violation of the prohibition contained in Section
13(5) of the Corporation Law. Said section provides in part that “any
stockholder of more than one corporation organized for the purpose of
engaging in agriculture may hold his stock in such corporations solely
for investment and not for the purpose of bringing about or attempting
to bring about a combination to exercise control of such corporations.
***.”
11. Corporation Law; The by-law amendment of SMC applies equally
to all and does not discriminate against petitioner only.-
However, the by-law, by its terms, applies to all stockholders. The
equal protection clause of the Constitution requires only that the by-
laws operate equally upon all persons of a class. Besides, before
petitioner can be declared ineligible to run for director, there must be
hearing and evidence must be submitted to bring his case within the
85
ambit of the disqualification. Sound principles of public policy and
management, therefore, support the view that a by-law which
disqualifies a competitor from election to the Board of Directors of
another corporation is valid and reasonable.
12. Corporation Law; Petitioner is not ipso facto disqualified to run on
SMC director. He must be given full opportunity by the SEC to show
that he is not covered by the disqualification.-
While We here sustain the validity of the amended by-laws, it does
not follow as a necessary consequence that petitioner is ipso facto
disqualified. Consonant with the requirement of due process, there
must be due hearing at which the petitioner must be given the fullest
opportunity to show that he is not covered by the disqualification. As
trustees of the corporation and of the stockholders, it is the
responsibility of directors to act with fairness to the stockholders.
Pursuant to this obligation and to remove any suspicion that this power
may be utilized by the incumbent members of the Board to perpetuate
themselves in power, any decision of the Board to disqualify a
candidate for the Board of Directors should be reviewed by the
Securities and Exchange Commission en banc and its decision shall
be final unless reversed by this Court on certiorari.
13. Corporation Law; Every stockholder has the right to inspect
corporate books and records.-
The stockholder’s right of inspection of the corporation’s books and
records is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of selfprotection. It is generally held by
majority of the courts that where the right is granted by statute to the
stockholder, it is given to him as such and must be exercised by him
with respect to his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation. In other words,
the inspection has to germane to the petitioner’s interest as a
stockholder, and has to be proper and lawful in character and not
inimical to the interest of the corporation.
14. Corporation Law; The right of stockholder to inspect corporate
books extends to a wholly-owned subsidiary.-
In the case at bar, considering that the foreign subsidiary is wholly
owned by respondent San Miguel Corporation and, therefore, under
its control, it would be more in accord with equity, good faith and fair
dealing to construe the statutory right of petitioner as stockholder to
inspect the books and records of the corporation as extending to books
and records of such wholly owned subsidiary which are in respondent
corporation’s possession and control.
15. Corporation Law; Purely ultra vires corporate acts of corporate
officers to invest corporate funds in another business or corporation,
i.e., acts not contrary to law, morals, public order as public policy, may
be ratified by the stockholders holding 2/3 of the voting power.-
Assuming arguendo that the Board of Directors of San Miguel
Corporation had no authority to make the assailed investment, there is
no question that a corporation, like an individual, may ratify and
thereby render binding upon it the originally unauthorized acts of its
officers or other agents. This is true because the questioned investment
is neither contrary to law, morals, public order or public policy. It is a
corporate transaction or contract which is within the corporate powers,
but which is defective from a purported failure to observe in its
execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding
twothirds of the voting power. This requirement is for the benefit of
the stockholders. The stockholders for whose benefit the requirement
was enacted may, therefore, ratify the investment and its ratification
by said stockholders obliterates any defect which it may have had at
the outset. “Mere ultra vires acts”, said this Court in Pirovano, “or
those which are not illegal and void ab initio, but are not merely within
the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders.”
16. Corporation Law; Judgment; The doctrine of the law of the case.-
We hold on our part that the doctrine of the law of the case invoked
by Mr. Justice Barredo has no applicability for the following reasons:
a) Our jurisprudence is quite clear that this doctrine may be invoked
only where there has been a final and conclusive determination of an
issue in the first case later invoked as the law of the case.
17. Corporation Law; Judgment; When doctrine of the law of the case
not applicable.-
The doctrine of the law of the case, therefore, has no applicability
whatsoever herein insofar as the question of the validity or invalidity
of the amended by-laws is concerned. The Court’s judgment of April
11, 1979 clearly shows that the voting on this question inconclusive
with six against four Justices and two other Justices (the Chief Justice
and Mr. Justice Fernando) expressly reserving their votes thereon, and
Mr. Justice Aquino while taking no part in effect likewise expressly
reserved his vote thereon. No final aad conclusive determination could
be reached on the issue and pursuant to the provisions of Rule 56,
section 11, since this special civil action originally commenced in this
Court, the action was simply dismissed with the result that no law of
the case was laid down insofar as the issue of the validity or invalidity
of the questioned by-laws is con- cerned, and the relief sought herein
by petitioner that this Court bypass the SEC which has yet to hear and
determine the same issue pending before it below and that this Court
itself directly resolve the said issue stands denied.
18. Corporation Law; Judgment; Constitutional Law; Due
Process; When procedural due process was not observed.-
The entire Court, therefore, recognized that petitioner had not been
given procedural due process by the SMC board on the matter of his
disqualification and that he was entitled to a “new and proper hearing”.
It stands to reason that in such hearing, petitioner could raise not only
questions of fact but questions of law, particularly questions of law
affecting the investing public and their right to representation on the
board as provided by law—not to mention that as borne out by the fact
that no restriction whatsoever appears in the Court’s decision, it was
never contemplated that petitioner was to be limited questions of fact
and could not raise the fundamental question of law bearing on the
invalidity of the questioned amended by-laws at such hearing before
the SMC board. Furthermore, it was expressly provided unanimously
in the Court’s decision that the SMC board’s decision on the
disqualification of petitioner (“assuming the board of directors of San
Miguel Corporation should, after the proper hearing, disqualify him”
as qualified in Mr. Justice Barredo’s own separate opinion, at page 2)
shall be appealable to respondent Securities and Exchange
Commission “deliberating and acting en banc” and “ultimately to this
Court.”
19. Corporation Law; Judgment; Reservation of the vote of the Chief
Justice.-
As expressly stated in the Chief Justice’s reservation of his vote, the
matter of the question of the applicability of the said section 13(5) to
petitioner would be heard by this Court at the appropriate time after
the proceedings below (and necessarily the question of the validity of
the amended by-laws would be taken up anew and the Court would at
that time be able to reach a final and conclusive vote).
20. Corporation Law; Judgment; Validity of the amended by-laws.-
The six votes cast by Justices Makasiar, Antonio, Santos, Abad
Santos, De Castro and this writer in favor of validity of the amended
by-laws in question, with only four members of this Court, namely,
Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining
otherwise, and with Chief Justice Castro and Justice Fernando
reserving their votes thereon and Justice Aquino and Melencio Herrera
not voting, thereby resulting in the dismissal of the petition “insofar
as it assails the validity of the amended by-laws . . . . for lack of
necessary votes”, has no other legal consequence than that it is the law
of the case far as the parties herein are concerned, albeit the majority
opinion of six against four Justices is not doctrinal in the sense that it
cannot be cited as necessarily a precedent for subsequent cases. This
means that petitioner Gokongwei and the respondents, including the
Securities and Exchange Commission, are bound by the foregoing
result, namely, that the Court en banc has not found merit in the claim
86
that the amended by-laws in question are invalid. Indeed, it is one
thing to say that dismissal of the case is not doctrinal and entirely
another thing to maintain that such dismissal leaves the issue
unsettled.
21. Corporation Law; Judgment; Where petitioner can no longer
revive the issue validity of the amended by-laws.-
I reiterate, therefore, that as between the parties herein, the issue of
validity of the challenged bylaws is already settled. From which it
follows that the same are already enforceable insofar as they are
concerned. Petitioner Gokongwei may not hereafter act on the
assumption that he can revive the issue of validity whether in the
Securities Exchange Commission, in this Court or in any other forum,
unless he proceeds on the basis of a factual milieu different from the
setting of this case. Not even the Securities and Exchange Commission
may pass on such question anymore at the instance of herein petitioner
or anyone acting in his stead or on his behalf. The vote of four justices
to remand the case thereto cannot alter the situation.
22. Corporation Law; Judgment; Where Court has not found merit in
the claim that the amended by-laws in question are valid.-
I concur in Justice Barredo’s statement that the dismissal (for lack of
necessary votes) of the petition to the extent that “it assails the validity
of the amended by-laws,” is the law of the case at bar, which means in
effect that as far and only in so far as the parties and the Securities and
Exchange Commission are concerned, the Court has not found merit
in the claim that the amended by-laws in question are valid.
23. Corporation Law; Judgment; Term and meaning of “farming.”-
This is my view, even as I am for a restrictive interpretation of Section
13(5) of the Philippine Corporation Law, under which I would limit
the scope of the provision to corporations engaged in agriculture, but
only as the word “agriculture” refers to its more limited meaning as
distinguish- ed from its general and broad connotation. The term
would then mean “farming” or raising the natural products of the soil,
such as by cultivation, in the acquisition of agricultural land such as
by homestead, before the patent may be issued.
24. Corporation Law; Judgment; Poultry raising or piggery is
included in the term “agriculture.”-
It is my opinion that under the public land statute, the development of
a certain portion of the land applied for a specified in the law as a
condition precedent before the applicant may obtain a patent, is
cultivation, not let us say, poultry raising or piggery, which may be
included in the term “Agriculture” in its broad sense. For under
Section 13(5) of the Philippine Corporation Law, construed not in the
strict way as I believe it should because the provision is in derogation
of property rights, the petitioner in this case would be disqualified
from becoming an officer of either the San Miguel Corporation or his
own supposedly agricultural corporations.
Must act as a body sec 25
Section 25. Corporate officers, quorum. - Immediately after their
election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen
of the Philippines, and such other officers as may be provided for in
the by-laws. Any two (2) or more positions may be held concurrently
by the same person, except that no one shall act as president and
secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in
the articles of incorporation shall constitute a quorum for the
transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there
is a quorum shall be valid as a corporate act, except for the election of
officers which shall require the vote of a majority of all the members
of the board.

Directors or trustees cannot attend or vote by proxy at board
meetings.
General rule: the quorum requirement for a valid board meeting is the
majority of the number of the directors or trustees as fixed in the
articles of incorporation.
Exception: The articles of incorporation or the by-laws may provide
for a greater majority.
General rule: To have a valid corporate act, the decision of at least a
majority of the directors or trustees present at a meeting at which there
is a quorum is required.
Exception: The election of corporate officers requires the vote of a
majority of all the members.
General rule: Individual directors cannot bind the corporation by their
individual acts.
Exceptions:
1. By delegation of authority;
2. Where expressly conferred; or
3. Where the officer or agent is clothed with actual or apparent
authority.
Although an officer or agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or
permitting him to appear as having such authority, the corporation is
bound thereby in favor of a person who deals with him in good faith
in reliance on such apparent authority, as where an officer is allowed
to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable
time. Also, if a private corporation intentionally or negligently clothes
its officers or agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such apparent authority is
real, as to innocent third persons dealing in good faith with such
officers or agents. This apparent authority may result from (1) the
general manner by which the corporation holds out an officer or agent
as having power to act or, in other words, the apparent authority with
which it clothes him to act in general, or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge
thereof, whether within or without the scope of his ordinary powers.
(Yao Ka Sin Trading vs. CA)
Any action of the board without a meeting and without the required
voting and quorum requirement will not bind the corporation unless
subsequently ratified, expressly or impliedly. (Lopez vs. Fontecha)
Where a general business manager of a corporation is clothed with
apparent authority to borrow money and the amount borrowed does
not exceed the ordinary requirements of the business, the authority is
implied and that the corporation is bound. (Pua Casim & Co. vs.
Neumark and Co.)
An invalid contract may be validated by the ratification only of the
board of directors; the president has no authority to ratify such
contract. (Yu Chuck vs. Kong Li Po)
Silence coupled with acceptance of benefits constitutes a binding
ratification. (Francisco vs. GSIS)
A corporate officer entrusted with the general management and
control of its business, has implied authority to make any contract or
do any other act which is necessary or appropriate to the conduct of
the ordinary business of the corporation. As such officer, he may,
without any special authority from the Board of Directors, perform all
acts of an ordinary nature, which by usage or necessity are incident to
his office, and may bind the corporation by contracts in matters arising
87
in the usual course of business. Where similar acts have been approved
by the directors as a matter of general practice, custom, and policy, the
general manager may bind the company without formal authorization
of the board of directors. (Board of liquidators vs. Kalaw)
Lack of repudiation, acquiescence and acceptance of benefits are
equivalent to an implied ratification by the Board of Directors and
binds the corporation even without formal resolution passed and
recorded. (Buenaseda vs. Bowen & Co., Inc.)
Express ratification: through formal board action.
Implied ratification:
1. Silence or acquiescence;
2. Acceptance and/or retention of benefits; or
3. By recognition or adoption.
Islamic directorate vs CA GR 117897 14 May 1997
1. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; Words and Phrases; Section
49, Rule 39 of the Revised Rules of Court lays down the dual aspects
of res judicata in actions in personam.-
Section 49, Rule 39 of the Revised Rules of Court lays down the dual
aspects of res judicata in actions in personam, to wit: “Effect of
judgment.—The effect of a judgment or final order rendered by a court
or judge of the Philippines, having jurisdiction to pronounce the
judgment or order, may be as follows: xxx xxx xxx (b) In other cases
the judgment or order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and in the same
capacity; (c) In any other litigation between the same parties or their
succes sors in interest, that only is deemed to have been adjudged in a
former judgment which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or
necessary thereto.” Section 49(b) enunciates the first concept of res
judicata known as “bar by prior judgment,” whereas , Section 49(c) is
referred to as “conclusiveness of judgment.”
2. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; Words and Phrases; There is
“bar by former judgment” when, between the first case where the
judgment was rendered, and the second case where the judgment is
invoked, there is identity of parties, subject matter and cause of action
while there is “conclusiveness of judgment” where there is only
identity of parties but there is no identity of cause of action, the
judgment being conclusive in the second case only as to those matters
actually and directly controverted and determined, and not as to
matters merely involved therein.-
There is “bar by former judgment” when, between the first case where
the judgment was rendered, and the s econd case where such judgment
is invoked, there is identity of parties, subject matter and cause of
action. When the three identities are present, the judgment on the
merits rendered in the first constitutes an absolute bar to the
subsequent action. But where between the first case wherein judgment
is rendered and the second case wherein such judgment is invoked,
there is only identity of parties but there is no identity of cause of
action, the judgment is conclusive in the s econd case, only as to those
matters actually and directly controverted and determined, and not as
to matters merely involved therein. This is what is termed
“conclusiveness of judgment.”
3. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment;Intervention; A party-in-
intervention cannot be considered a principal in a prior case for
purposes of applying the principle of res judicata since the contrary
goes against the true import of the action of intervention as a m ere
subsidiary proceeding without an independent life apart from the
principal action as well as the intrinsic character of the intervenor as a
mere subordinate party in the main case whose right may be said to be
only in aid of the right of the original party.-
Neither of these concepts of res judicata find relevant application in
the case at bench. While there may be identity of subject matter (IDP
property) in both cases, there is no identity of parties. The principal
parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as
petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP,
as represented by the 1971 Board of Trustees or the Tamano Group,
was only made an ancillary party in G.R. No. 107751 as intervenor. It
was never originally a principal party thereto. it must be noted that
intervention is not an independent action, but is merely collateral,
accessory, or ancillary to the principal action. It is just an interlocutory
proceeding dependent on or subsidiary to the case between the original
parties. Indeed, The IDP-Tamano Group cannot be considered a
principal party in G.R. No. 107751 for purposes of applying the
principle of res judicata since the contrary goes against the true import
of the action of intervention as a mere subsidiary proceeding without
an independent life apart from the principal action as well as the
intrinsic character of the intervenor as a mere subordinate party in the
main case whose right may be said to be only in aid of the right of the
original party. It is only in the present case, actually, where the IDP-
Tamano Group became a principal party, as petitioner, with the Iglesia
Ni Cristo, as private res pondent. Clearly, there is no identity of parties
in both cases.
4. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment;Corporation Law; A juridical
person can not be considered essentially a formal party to a case where
it was not duly represented by its legitimate governing board.-
In this connection, although it is true that Civil Case No. Q-90-6937,
which gave rise to G.R. No. 107751, was entitled, “Iglesia Ni Kristo,
Plaintiff v. Islamic Directorate of the Philippines, Defendant,” the IDP
can not be considered essentially a formal party thereto for the simple
reason that it was not duly represented by a legitimate Board of
Trustees in that case. As a necessary consequence, Civil Case No. Q-
90-6937, a case for Specific Performance with Damages, a mere action
in personam , did not become final and executory insofar as the true
IDP is concerned since petitioner corporation, for want of legitimate
representation, was effectively deprived of its day in court in said case.
Res inter alios judicatae nullum aliis praejudicium faciunt. Matters
adjudged in a cause do not prejudice those who were not parties to it.
Elsewise put, no person (natural or juridical) shall be affected by a
proceeding to which he is a stranger.
5. Actions; Judgments; Res Judicata; Bar by Prior
Judgment; Conclusiveness of Judgment; While it is true that the
principle of res judicata is a fundamental component of our judicial
system, it should be disregarded if its rigid application would involve
the sacrifice of justice to technicality.-
In any case, while it is true that the principle of res judicata is a
fundamental component of our judicial system, it should be
disregarded if its rigid application would involve the sacrifice of
justice to technicality.
6. Corporation Law; Jurisdiction; Securities and Exchange
Commission; The SEC has the unquestionable authority to pass upon
the issue as to who among the different contending groups is the
legitimate governing board of a corporate body.-
There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the
legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by
virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A:
“Section 3. The Commission shall have absolute jurisdiction,
supervision and control over all corporations, partnerships or
associations , who are the grantees of primary franchises and/or a
license or permit issued by the government to operate in the
Philippines x x x x x x.” x x x x x x x x x Section 5. In addition to the
regulatory and adjudicative functions of the Securities and Exchange
Commission over corpora ti ons , partnerships and other forms of
associations registered with it as expressly granted under existing laws
88
and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving: x x x x x x x x x c) Controversies in the
selection or appointment of directors, trustees, officers, or managers
of such corporations, partnerships or associations. x x x.”
7. Corporation Law; Contracts; Sales; Where a corporate body never
gave its consent, thru a legitimate governing board, to a deed of
absolute sale, the subject sale is void and produces no effect
whatsoever.-
Premises considered, all acts carried out by the Carpizo Board,
particularly the sale of the Tandang Sora property, allegedly in the
name of the IDP, have to be struck down for having been done without
the consent of the IDP thru a legitimate Board of Trustees. Article
1318 of the New Civil Code lays down the essential requisites of
contracts: “There is no contract unless the following requisites concur:
(1) Consent of the contracting parties; (2) Object certain which is the
subject matter of the contract; (3) Cause of the obligation which is
established.” All these elements must be present to constitute a valid
contract. For, where even one is absent, the contract is void. As
succinctly put by Tolentino, consent is essential for the existence of a
contract, and where it is wanting, the contract is non-existent. In this
case, the IDP, owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the disputed Deed of
Absolute Sale executed in favor of INC. This is, therefore, a case not
only of vitiated consent, but one where consent on the part of one of
the supposed contracting parties is totally wanting. Ineluctably, the
subject sale is void and produces no effect whatsoever.
8. Corporation Law; Contracts; Sales; For the sale of the only
property of a corporation to be valid, the majority vote of the
legitimate board, concurred in by the vote of at least 2/3 of the bona
fide m embers of the corporation, should be obtained.-
The Tandang Sora property, it appears from the records, constitutes
the only property of the IDP. Hence, its sale to a third-party is a sale
or disposition of all the corporate property and assets of I DP falling
squarely within the contemplation of the foregoing section. For the
sale to be valid, the m a jorit y vot e of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide
members of the corporation should have been obtained. These twin
requirements were not met as the Carpizo Group which voted to sell
the Tandang Sora property was a fake Board of Trustees , and those
whose names and s ignatures were affixed by the Carpizo Group
together with the sham Board Resolution authorizing the negotiation
for the sale were, from all indications, not bona fide members of the
IDP as they were ma de to appear to be. Apparently, there are only
fifteen (15) official members of the petitioner corporation including
the eight (8) members of the Board of Trustees.
9. Corporation Law; Contracts; Sales; Securities and Exchange
Commission; Remand of Cases; No end of substantial justice will be
served if the Supreme Court reverses the SEC’s conclusion and
remand the case to the regular courts for further litigation over an issue
which is already determinable based on what is in the records.-
The resolution of the question as to whether or not the SEC had
jurisdiction to declare the subject sale null and void is rendered moot
and academic by the inherent nullity of the highly dubious sale due to
lack of consent of the I DP, owner of the subject property. No end of
substantial justice will be served if we revers e the SEC’s conclusion
on the matter, and remand the case to the regular courts for further
litigation over an issue which is already determinable based on what
we have in the records.
10. Land Titles; Under the Torrens System of Registration, the
minimum requirement for one to be a good faith buyer for value is that
the vendee at least sees the owner’s duplicate copy of the title and
relies upon the same.-
Furthermore, the Court observes that the INC bought the questioned
property from the Carpizo Group without even seeing the owner’s
duplicate copy of the titles covering the property. This is very strange
considering that the subject lot is a large piece of real property in
Quezon City worth millions , and that under the Torrens System of
Registration, the minimum requirement for one to be a good faith
buyer for value is that the vendee at least sees the owner’s duplicate
copy of the title and relies upon the same. The private respondent,
presumably knowledgeable on the aforesaid workings of the Torrens
System, did not take heed of this and nevertheless went through with
the sale with undue haste. The unexplained eagerness of INC to buy
this valuable piece of land in Quezon City without even being
presented with the owner’s copy of the titles casts very serious doubt
on the rightfulness of its position as vendee in the transaction.
Ramirez vs Orientalist 38 Phil 634 1918
1. PLEADING; DUE EXECUTION OF
CONTRACT; AUTHORITY OF OFFICER TO BIND
CORPORATION.-
Where the name of a corporation is signed to the document which is
the basis of an action, the failure
2. PLEADING; CORPORATIONS; WANT OF AUTHORITY IN
AGENT AS SPECIAL DEFENSE.-
Where a corporation seeks to evade liability on a contract on the
ground of lack of authority on the part of the person who assumed to
act for it, such defense should be specially pleaded.
3. PLEADING; AMENDMENTS.-
While immaterial variances between allegations in the pleadings and
the proof adduced at the hearing may be disregarded, it is,
nevertheless, still true that relief can be granted only upon matter
which is put in issue by the pleadings; and if the proof varies
materially from the allegations, the pleadings may, upon the
application of the party interested, be amended in order to bring them
into conformity with the facts proved.
4. PLEADING; SPECIAL DEFENSE.-
The rule above stated applies equally to a special defense stated in the
answer as to the plaintiff's cause of action.
5. CORPORATIONS; CONTRACTS; POWER OF
BOARD; RATIFICATION.-
The power to make corporate contracts resides primarily in the
company's board of directors; but the board may ratify an
unauthorized contract made by an officer of the corporation.
Ratification in this case is held to have occurred when the board, with
knowledge that the contract had been made, adopted a resolution
recognizing the existence of the contract and directing that steps be
taken to enable the corporation to utilize its benefits.
6. CORPORATIONS; CONTRACTS; ACTION OF
STOCKHOLDERS.-
Where a corporate contract has been effected with the approval of the
board of directors, a resolution adopted at a meeting of stockholders
refusing to recognize the contract or repudiating it is without effect.
7. CONTRACTS; SURETY; PAROL EVIDENCE TO SHOW
CHARACTER IN WHIGH PARTY IS BOUND.-
The written contract which was the subject of this action contained the
corporate name signed at the lower right-hand corner of the contract,
in the manner usual with a party signing in the character of principal
obligor. The name of another individual was signed somewhat below
and to the left of the corporate signature, after the customary manner
of those who sign in a subsidiary capacity; but no words were written
to indicate clearly whether this individual signed as a principal obligor
or as surety
Board of Liquidators vs Kalaw 20 Scra 987 1967
1. Courts; Judgment; Appeals.-
An appellate court may base its decision of affirmance of the judgment
below on a point or points ignored by the trial court on which said
court was in error.
2. Corporations; Three methods of winding up corporate affairs.-
Accepted in this jurisdiction are three methods by which a corporation
may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of
Court (which superseded Section 66 of the Corporation Law),
whereby, upon voluntary dissolution of a corporation, the court may
89
direct "such disposi- tion of its assets as justice requires, and may
appoint a receiver to collect such assets and pay the debts of the
corporation"; (2) under Section 77 of the Corporation Law, whereby a
corporation whose corporate existence is terminated, "shall
nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it
gradually to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established"; and (3) under
Section 78 of the Corporation Law, by virtue of which the corporation,
within the three-year period just mentioned, "is authorized and
empowered to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested,"
3. Board of Liquidators; Trustee for government.-
By Executive Order No. 372, the government, the sole stockholder,
abolished the National Coconut Corporation (NACOCO) and placed
its assets in the hands of the Board of Liquidators. The Board thus
became the trustee on behalf of the government. It was an express
trust. The legal interest became vested in the trustee, the Board of
Liquidators. The beneficial interest remained with the sole
stockholder, the government. The Board took the place of the
dissolved government corporations after the expiration of the statutory
three-year period for the liquidation of their affairs.
4. Board of Liquidators; No term for life of Board.-
No time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of various
government corporations. Its term of life is not fixed.
5. Board of Liquidators; Right of Board of Liquidators to proceed as
partyplaintiff; Case at bar.-
At no time had the government withdrawn the property. or the
authority to continue the present suit, from the Board of Liquidators.
Hence, the Board can prosecute this case to its final conclusion. The
provisions of Section 78 of the Corporation Law, the third method of
winding up corporate affairs, find application. The Board has
personality to proceed as party-plaintiff in this case.
6. Settlement of decedent's estate; Actions; Actions that
survive; Executors and administrators.-
The actions that survive against a decedent's executors or
administrators are: (1) actions to recover real and personal property
from the estate; (2) actions to enforce a lien thereon; and (3) actions
to recover damages for an injury to person or property. A suit to
recover damages, based on the alleged tortious acts of the manager of
a government corporation, survives. It is not a mere money claim that
is extinguished upon the death of a party.
7. Corporations; Implied authority of corporate officer to enter into
contracts.-
A corporate officer, entrusted with the general management and
control of its business, has implied authority to make any contract or
do any other act which is necessary or appropriate to the conduct of
the ordinary business of the corporation. As such officer, he may,
without any special authority from the Board of Directors, perform all
acts of an ordinary nature, which by usage or necessity are incident to
his office, and may bind the corporation by contracts in matters arising
in the usual course of business.
8. Corporations; Where similar acts of manager were approved by
directors.-
Where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind
the company without formal authorization of the board of directors. In
varying language, existence of such authority is established by proof
of the course of business, the usages and practices of the company and
by the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and about
the affairs of the corporation. Where the practice of the corporation
has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in Nacoco's behalf
without prior board approval, and the board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of
prior approval, the contracts of the general manager, under the given
circumstances, are valid corporate acts.
9. Corporations; Ratification by corporation of unauthorized contract
of its officers.-
Ratification by a corporation of an unauthorized act or contract by its
officers or others relates back to the time of the act or contract ratified
and is equivalent to original authority. The corporation and the other
party to the transaction are in precisely the same position as if the act
or contract had been authorized at the time. The adoption or ratif
ication of a contract by a corporation is nothing more nor less than the
making of an original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any ratification
or adoption is equivalent to a grant of prior authority.
10. Contracts; Bad faith.-
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive
or interest or ill-will; it partakes of the nature of fraud.
11. Damages; Damnum absque injuria.-
The present case is one of damnum absque injuria. Conjunction of
damage and wrong is here absent. There cannot be an actionable
wrong if either one or the other is wanting.
Acuna vs Batac Producers 20 Scra 562 1967
1. Attachment; Dissolution of writ of attachment for lack of cause of
action.-
A court has the authority to dissolve a writ of preliminary attachment,
either upon a counterbond or on the ground that it was improperly or
irregularly issued. Where the dissolution of the writ of preliminary
attachment was based on the court's finding of lack of action, the fact
that the dismissal of the complaint was set aside by the Supreme Court
on appeal does not imply that the dissolution of the writ was done
without or in excess of the respondent court's jurisdiction or with grave
abuse of discretion.
2. Attachment; Effect of lifting of attachment.-
The legal effect of the discharge of the writ of preliminary attachment
is the extinguishment of the lien on the attached properties, rendering
them free of such encumbrance. The subsequent order directing the
release of the attached properties to the defendants was practically a
ministerial auto, intended to carry out the preexisting order
discharging the attachment. Trial courts have jurisdiction to issue
orders of this nature. Hence, even if the order directing the release of
the attached properties to the defendants was issued after the approval
of the record on appeal, its validity cannot be assailed on the ground
that it was issued outside or in excess of the court's jurisdiction.
Harden vs Benguet Consolidated 58 phil 1140 1948
1. CORPORATIONS; MlNING CORPORATION; PROHIBITION
AGAINST OWNING INTEREST IN OTHER MINING
CORPORATION; RIGHT OF ACTION.-
Inasmuch as the Corporation Law contains, in section 190 (A),
provisions fully penalizing the violation of subsection 5 of sec- tion
13 of Act No. 1459,—which prohibits the acquisition by one mining
corporation of any interest in another,—and inasmuch as these
provisions have been enacted in the exercise of the general police
powers of the Government, it results that, where one mining
corporation acquires a prohibited interest in another such corporation,
the shareholders of the latter cannot maintain an action to annul the
contract by which such interest was acquired. The remedy must be
sought in a criminal proceeding or quo warranto action, under section
190 (A), instituted by the Government. Until thus assailed in a direct
proceeding the contract by which the interest was acquired will be
treated as valid, as between the parties
Executive Committee Sec 35
90
Section 35. Executive committee. - The by-laws of a corporation may
create an executive committee, composed of not less than three
members of the board, to be appointed by the board. Said committee
may act, by majority vote of all its members, on such specific matters
within the competence of the board, as may be delegated to it in the
by-laws or on a majority vote of the board, except with respect to: (1)
approval of any action for which shareholders' approval is also
required; (2) the filing of vacancies in the board; (3) the amendment
or repeal of by-laws or the adoption of new by-laws; (4) the
amendment or repeal of any resolution of the board which by its
express terms is not so amendable or repealable; and (5) a distribution
of cash dividends to the shareholders.
An executive committee may be created when authorized by the by-
laws.
General rule: The executive committee may act, by majority vote of
all its members, on such specific matters within the competence of the
board, as may be delegated to it in the by-laws or on a majority vote
of the board.
Exceptions:
1. Approval of any action for which shareholders' approval is also
required;
2. The filling of vacancies in the board;
3. The amendment or repeal of by-laws or the adoption of new by-
laws;
4. The amendment or repeal of any resolution of the board which by
its express terms is not so amendable or repealable; and
5. A distribution of cash dividends to the shareholders.
ROLE OF SHAREHOLDERS
Right to Vote and Attend Meetings sec 89
Section 89. Right to vote. - The right of the members of any class or
classes to vote may be limited, broadened or denied to the extent
specified in the articles of incorporation or the by-laws. Unless so
limited, broadened or denied, each member, regardless of class, shall
be entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-
laws, a member may vote by proxy in accordance with the provisions
of this Code. (n)
Voting by mail or other similar means by members of non-stock
corporations may be authorized by the by-laws of non-stock
corporations with the approval of, and under such conditions which
may be prescribed by, the Securities and Exchange Commission.
Price vs Martin 58 Phil 707
1. SHARES OF STOCK; PARTICIPATION IN STOCKHOLDERS'
MEETING; TRANSFER OF SHARES.-
Plaintiffs contend that the transference on the books of the S. D. Co.
of 97 shares of stock in the name of Mrs, W. was fraudulent and
illegal. The evidence of record, however, under all the circumstances
of the case, fails to demonstrate the allegation of fraud, and the court
believes that she acted in good faith and in the honest belief that she
had not only a legal right but a duty to participate in the stockholders'
meeting.
2. SHARES OF STOCK; PARTICIPATION IN STOCKHOLDERS'
MEETING; ID.-
Until challenged in a proper proceeding, a stockholder according to
the books of the company has a right to participate in any meeting, and
in the absence of fraud the action of thestockholders' meeting cannot
be collaterally attacked on account of such participation.
3. SHARES OF STOCK; PARTICIPATION IN STOCKHOLDERS'
MEETING; ID.-
"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 upon the books. If the transfer is not
duly made upon request, he has, as his remedy, to compel it to be
made." (Morrill vs. Little Falls, Mfg. Co., 53 Minn., 371.)
4. MORTGAGE; CONSIDERATION.-
A morgtage given to cover past advancement of funds executed upon
the advice of competent attorneys and to avoid litigation is not made
without consideration.
Instances
Election of Directors and Trustees sec 24
Section 24. Election of directors or trustees. - At all elections of
directors or trustees, there must be present, either in person or by
representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock,
a majority of the members entitled to vote. The election must be by
ballot if requested by any voting stockholder or member. In stock
corporations, every stockholder entitled to vote shall have the right to
vote in person or by proxy the number of shares of stock standing, at
the time fixed in the bylaws, in his own name on the stock books of
the corporation, or where the by-laws are silent, at the time of the
election; and said stockholder may vote such number of shares for as
many persons as there are directors to be elected or he may cumulate
said shares and give one candidate as many votes as the number of
directors to be elected multiplied by the number of his shares shall
equal, or he may distribute them on the same principle among as many
candidates as he shall see fit: Provided, That the total number of votes
cast by him shall not exceed the number of shares owned by him as
shown in the books of the corporation multiplied by the whole number
of directors to be elected: Provided, however, That no delinquent stock
shall be voted. Unless otherwise provided in the articles of
incorporation or in the by-laws, members of corporations which have
no capital stock may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one candidate.
Candidates receiving the highest number of votes shall be declared
elected. Any meeting of the stockholders or members called for an
election may adjourn from day to day or from time to time but not sine
die or indefinitely if, for any reason, no election is held, or if there are
not present or represented by proxy, at the meeting, the owners of a
majority of the outstanding capital stock, or if there be no capital stock,
a majority of the member entitled to vote.
Amendment of AOI sec 16
Section 16. Amendment of Articles of Incorporation. - Unless
otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of incorporation
may be amended by a majority vote of the board of directors or
trustees and the vote or written assent of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or written
assent of at least two-thirds (2/3) of the members if it be a non-stock
corporation.
The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Such
articles, as amended shall be indicated by underscoring the change or
changes made, and a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly approved
by the required vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities
and Exchange Commission or from the date of filing with the said
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Commission if not acted upon within six (6) months from the date of
filing for a cause not attributable to the corporation.
General rule: Amendment of the articles of incorporation is a matter
of right (Note: procedure differs for special amendments)
Exception: Corporations created by special law
Any amendment to the articles of incorporation which seeks to:
1. Delete or remove any provision required by Title XV of the Code
to be contained in the articles of incorporation, or
2. Reduce a quorum or voting requirement stated in said articles of
incorporation,
must be approved by the affirmative vote of at least 2/3 of the
outstanding capital stock, whether with or without voting rights, or of
such greater proportion of shares as may be specifically provided in
the articles of incorporation for amending, deleting or removing any
of the aforesaid provisions, at a meeting duly called for the purpose.
Steps to be followed for an effective amendment of the articles of
incorporation:
1. Resolution by at least a majority of the board of directors or trustees.
2. Vote or written assent of the stockholders representing at least 2/3
of the outstanding capital stock or 2/3 of the members in case of non-
stock corporation.
3. Submission and filing of the amendments with the SEC as follows:
a. The original and amender articles together shall contain all
the provisions required by law to be set out in the articles of
incorporation. Such articles, as amended, shall be indicated by
underscoring the change or changes made.
b. A copy thereof, duly certified under oath by the corporate
secretary and a majority of the directors or trustees stating the fact that
such amendments have been duly approved by the required vote of the
stockholders or members.
c. Favorable recommendation of the appropriate government
agency concerned in the case where the corporation is under its
supervision.
Time when the amendments shall take effect:
1. Upon approval of the SEC; or
2. From the date of filing with the SEC if not acted upon with 6 months
from the date of filing for a cause not attributable to the corporation.
(Note: not applicable to special amendments)
Special amendments:
1. Extension or shortening of corporate term (Sec. 37)
2. Increase or decrease of capital stock (Sec. 38)
3. Incurring, creating or increasing bonded indebtedness (Sec. 38)
PROVISIONS SUBJECT TO AMENDMENT
Matters which are fait accompli are not subject to change.
A change in the name of the corporation does not affect the identity of
the corporation, nor in any way affect the rights, privileges, or
obligations previously acquired or incurred by it. (Philippine First
Insurance Co. vs. Hartigan)
Investment in another business sec 42
Section 42. Power to invest corporate funds in another corporation or
business or for any other purpose. - Subject to the provisions of this
Code, a private corporation may invest its funds in any other
corporation or business or for any purpose other than the primary
purpose for which it was organized when approved by a majority of
the board of directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called for
the purpose. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in
the articles of incorporation, the approval of the stockholders or
members shall not be necessary.
Dela Rama vs Ma-ao Sugar 27 scra 247
1. Corporation Law; Investment of corporate funds in another
corporation; When not violative of Section ½ of the Corporation Law.-
Plaintiffs-appellants contend that the investment of corporate funds by
defendants-appellants in another corporation constitutes a violation of
section ½ of the Corporation Law. The Supreme Court held that “such
an act, if done pursuance of the corporate purpose, does not need the
approval of the stock- holders; but when the purchase of shares of
another corporation is done solely for investment and not to
accomplish the purpose of its incorporation, the vote of approval of
the stockholders is necessary,” and further states that “when purpose
or purposes as stated in its articles of incorporation, the approval of
the stockholders is not necessary.” (Guevara, Philippine Corp. Law,
1967 ed., p. 89).
2. Counterclaims; Dismissal; When justified.-
The defendant’s counterclaim on the allegation that the complaint of
plaintiff was premature, improper, malicious and that the language is
unnecessarily vituperative, abusive and insulting cannot be sustained
in the case at bar. On the contrary, the lower court found otherwise, as
could be gleaned from the decision. With respect to the allegation that
the complaint was abusive and insulting, there is no finding that
plaintiff had been actuated by bad faith, nor is there anything in the
complaint essentially libelous especially as the rule is that allegations
in pleadings where relevant, are privileged even though they may not
be clearly proved afterwards.
3. Corporation Law; Investment of corporation for other corporations
not similar with its business; Deemed proper by Section 17½ of the
Corporation Law.-
The lower court’s order refraining the appellant corporation from
making investment in other companies whose purpose is not
connected with the sugar central business should be reversed. This is
because section 17½ of the Corporation Law allows a corporation to
“invest its funds in any other corporation or business, or for any
purpose other than the main purpose for which it was organized,”
provided that its board of directors has been so authorized by the
affirmative vote of stockholders holding shares entitling” them to
exercise at least two-thirds of the voting power.
Gokongwei vs SEC 89 Scra 336 1979 ( CIted Above )
Merger and consolidation sec 77
Section 77. Stockholder's or member's approval. - Upon approval by
majority vote of each of the board of directors or trustees of the
constituent corporations of the plan of merger or consolidation, the
same shall be submitted for approval by the stockholders or members
of each of such corporations at separate corporate meetings duly called
for the purpose. Notice of such meetings shall be given to all
stockholders or members of the respective corporations, at least two
(2) weeks prior to the date of the meeting, either personally or by
registered mail. Said notice shall state the purpose of the meeting and
shall include a copy or a summary of the plan of merger or
consolidation. The affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital stock of each
corporation in the case of stock corporations or at least two-thirds (2/3)
92
of the members in the case of non-stock corporations shall be
necessary for the approval of such plan. Any dissenting stockholder in
stock corporations may exercise his appraisal right in accordance with
the Code: Provided, That if after the approval by the stockholders of
such plan, the board of directors decides to abandon the plan, the
appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made,
provided such amendment is approved by majority vote of the
respective boards of directors or trustees of all the constituent
corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members of each of the constituent
corporations. Such plan, together with any amendment, shall be
considered as the agreement of merger or consolidation.
Increase and Decrease of Capital Stock sec 38
Section 38. Power to increase or decrease capital stock; incur, create
or increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of
directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholder's meeting at which the proposed
increase or diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors
of the corporation and countersigned by the chairman and the secretary
of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by each,
and the amount paid by each on his subscription in cash or property,
or the amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or the incurring, creating
or increasing of any bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of
the corporation and the other shall be filed with the Securities and
Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or decreased
and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the
sworn statement of the treasurer of the corporation lawfully holding
office at the time of the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that
there has been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the rights of
corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board
of trustees and of at least two-thirds (2/3) of the members in a meeting
duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities
and Exchange Commission, which shall have the authority to
determine the sufficiency of the terms thereof.
Adoption, amendment, and Repeal of By-laws sec 48
Section 48. Amendments to by-laws. - The board of directors or
trustees, by a majority vote thereof, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of the
members of a non-stock corporation, at a regular or special meeting
duly called for the purpose, may amend or repeal any by-laws or adopt
new by-laws. The owners of two-thirds (2/3) of the outstanding capital
stock or two-thirds (2/3) of the members in a non-stock corporation
may delegate to the board of directors or trustees the power to amend
or repeal any by-laws or adopt new by-laws: Provided, That any power
delegated to the board of directors or trustees to amend or repeal any
by-laws or adopt new by-laws shall be considered as revoked
whenever stockholders owning or representing a majority of the
outstanding capital stock or a majority of the members in non-stock
corporations, shall so vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be attached to the original by-laws
in the office of the corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of the directors or
trustees, shall be filed with the Securities and Exchange Commission
the same to be attached to the original articles of incorporation and
original by-laws.
The amended or new by-laws shall only be effective upon the issuance
by the Securities and Exchange Commission of a certification that the
same are not inconsistent with this Code. (22a and 23a)
Declaration of Stock Dividends sec 43
Section 43. Power to declare dividends. - The board of directors of a
stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding stock held by
them: Provided, That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called
for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in
excess of one hundred (100%) percent of their paid-in capital stock,
93
except: (1) when justified by definite corporate expansion projects or
programs approved by the board of directors; or (2) when the
corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation,
such as when there is need for special reserve for probable
contingencies. (n)
Management Contracts sec 44
Section 44. Power to enter into management contract. - No corporation
shall conclude a management contract with another corporation unless
such contract shall have been approved by the board of directors and
by stockholders owning at least the majority of the outstanding capital
stock, or by at least a majority of the members in the case of a non-
stock corporation, of both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than
one-third (1/3) of the total outstanding capital stock entitled to vote of
the managing corporation; or (2) where a majority of the members of
the board of directors of the managing corporation also constitute a
majority of the members of the board of directors of the managed
corporation, then the management contract must be approved by the
stockholders of the managed corporation owning at least two-thirds
(2/3) of the total outstanding capital stock entitled to vote, or by at
least two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a period
longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or
operating agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered into for
such periods as may be provided by the pertinent laws or regulations.
(n)
Fixing of Consideration for Par Value Shares sec 62
Section 62. Consideration for stocks. - Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration
for the issuance of stock may be any or a combination of any two or
more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the stock
issued;
3. Labor performed for or services actually rendered to the
corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated
capital; and
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion.
Where the consideration is other than actual cash, or consists of
intangible property such as patents of copyrights, the valuation thereof
shall initially be determined by the incorporators or the board of
directors, subject to approval by the Securities and Exchange
Commission.
Shares of stock shall not be issued in exchange for promissory notes
or future service.
The same considerations provided for in this section, insofar as they
may be applicable, may be used for the issuance of bonds by the
corporation.
The issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority
conferred upon it by the articles of incorporation or the by-laws, or in
the absence thereof, by the stockholders representing at least a
majority of the outstanding capital stock at a meeting duly called for
the purpose. (5 and 16)
Stocks shall not be issued for a consideration less than the par or issued
price thereof.
Consideration for the issuance of stock may be any or a combination
of any two or more of the ff:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the stock
issued;
3. Labor performed or services actually rendered to the corporation;
4. Previously incurred indebtedness by the corporation;
5. Amounts transferred from unrestricted retained earnings to stated
capital; and
6. Outstanding shares in exchange for stocks in the event of
reclassification or conversion.
Stocks shall not be issued in exchange of promissory notes or future
services. Their realization is uncertain.
Issue – the making of a share contract or contract of subscription;
transaction by which a person becomes the owner of shares and by
which new share contracts are created.
The issuance of shares is not dependent on the delivery of a certificate
of stock.
Par or issue price – indicates the amount which the original subscribers
are supposed to contribute to the corporate capital as the basis of the
privilege of profit sharing with limited liability.
Valuation of properties given as a consideration for issuance of stock:
1. Tangible properties (particularly real properties):
a. Appraisal report of an independent appraiser;
b. Zonal valuation as certified by the BIR; or
c. Market value indicated in the Real Estate Tax Declaration.
2. Intangible properties (such as patents or copyrights):
a. Initial determination by the incorporators or the board of directors
subject to the approval of the SEC; or
b. Appraisal report of an independent appraiser.
Labor performed or services actually rendered to the corporation must
be capable of valuation and in fact fairly valued.
Two theories in the valuation of property or services:
1. True value rule – the motives or intent of those making the valuation
are disregarded and the sole and decisive factor or question is whether
or not the property or services are in fact worth the value placed on
them.
2. Good faith rule – the value of the property or services is a matter
about which there can be an honest difference of opinion. Therefore,
if the parties have acted in good faith without fraud or intentional over-
valuation, the transaction cannot be overturned even if the later
94
becomes evident that the property or services were in fact worth much
less than the value fixed on them initially.
The set-off or satisfaction of a debt due from the corporation is a
lawful and valid consideration for the issuance of stock.
Amounts transferred from unrestricted retained earnings to stated
capital – refers to the declaration and distribution of stock dividends
where corporate earnings are capitalized.
Outstanding shares exchanged for stocks in the event of
reclassification or conversion – refers to stocks surrendered to the
corporation in exchange for a new or different type of shares. (Ex.
conversion of founder‟s shares to common shares.)
The prohibition against the issuance of shares by corporations except
for actual cash or property at its fair valuation secures absolute
equality among stockholders with respect to their liability upon stock
subscriptions. A stipulation is a stock subscription which obligates the
subscriber to pay nothing for the shares except as dividends may
accrue upon the stock is a discrimination in favor of the particular
subscriber, and hence, illegal. (National Exchange Co., Inc. vs.
Dexter)
A corporation has no power to receive a subscription upon such terms
as will operate as a fraud upon the other subscribers as stockholders
by subjecting the particular subscribers to lighter burden, or by giving
his greater rights and privileges, or as fraud upon creditors of the
corporation by withdrawing or decreasing capital. Therefore, an
agreement between a corporation and a particular subscriber, by which
the subscription is not to be payable, or is to be payable in part only,
is illegal and void. (National Exchange Co., Inc. vs. Dexter)
Treasury Shares sec 57
Section 57. Voting right for treasury shares. - Treasury shares shall
have no voting right as long as such shares remain in the Treasury
Conduct of SH or members’ meetings
Kinds and Requirements of Meetings sec 49 and 50
Section 49. Kinds of meetings. - Meetings of directors, trustees,
stockholders, or members may be regular or special. (n)
Section 50. Regular and special meetings of stockholders or members.
- Regular meetings of stockholders or members shall be held annually
on a date fixed in the by-laws, or if not so fixed, on any date in April
of every year as determined by the board of directors or trustees:
Provided, That written notice of regular meetings shall be sent to all
stockholders or members of record at least two (2) weeks prior to the
meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any time
deemed necessary or as provided in the by-laws: Provided, however,
That at least one (1) week written notice shall be sent to all
stockholders or members, unless otherwise provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly, by any
stockholder or member.
Whenever, for any cause, there is no person authorized to call a
meeting, the Securities and Exchange Commission, upon petition of a
stockholder or member on a showing of good cause therefor, may
issue an order to the petitioning stockholder or member directing him
to call a meeting of the corporation by giving proper notice required
by this Code or by the by-laws. The petitioning stockholder or member
shall preside thereat until at least a majority of the stockholders or
members present have chosen one of their number as presiding officer.
(24, 26)
Meetings – applies to every duly convened assembly either
stockholders, members, directors or trustees, manages, etc. for any
legal purpose, or the transaction of business of a common interest.
Classes of meetings:
1. General
2. Special
STOCKHOLDER’S MEETINGS
Requirements to have a valid stockholder’s meeting:
1. It must be held on the date fixed in the by-laws or in accordance
with law.
2. Prior notice must be given.
3. It must be held at the proper place.
4. It must be called by the proper party.
5. Quorum and voting requirements must be met
Prior notice must be given.
Regular – 2 weeks prior notice
Special – 1 week prior notice
The by-laws may provide for a different period (shorter or longer)
Failure to give notice of a meeting would render the resolution made
thereunder voidable at the option of the stockholder or member who
was not notified. (Board of Directors vs. Tan)
Notice may be waived, expressly or impliedly.
Notice must state the agenda otherwise it may become voidable.
Notice of meetings shall be in writing, and the time and place thereof
stated therein.
It must be called by the proper party.
Persons who may call the meeting:
1. The person or persons authorized under the by-laws;
2. Absent of any provision in the by-laws, the president;
3. Under Sec. 28 (removal of director), by the secretary on order of the
president or on written demand of the stockholder representing or
holding at least a majority of the outstanding capital stock or majority
of the members entitled to vote in a non-stock corporation, or the
stockholder or member making the demand if there is no secretary or
he refuses to do so; and
4. On order of the proper forum under Sec. 50.
A stockholder may only petition the SEC to issue an order directing
the petitioner to call a meeting when there is no person authorized to
call a meeting. Otherwise, the remedy is to file a petition for
mandamus.
Place and Time meeting Sec 51 and 93
It must be held at the proper place:
General Rule: Stockholders' or members' meetings, whether regular or
special, shall be held in the city or municipality where the principal
office of the corporation is located, and if practicable in the principal
office of the corporation.
Exceptions to the rule:
1. A non-stock corporation, in its by laws, may provide for any place
within the Philippines.
2. Metro Manila is considered a city or municipality.
95
It must be held on the date fixed in the by-laws or in accordance with
law:
Regular meetings shall be held annually on a date fixed in the by-laws,
or if not so fixed, on any date in April of every year as determined by
the board of directors or trustees.
Special meetings of stockholders or members shall be held at any time
deemed necessary or as provided in the by-laws.
Non-Stock:
General rule: Regular or special meetings of members of a non-stock
corporation shall be held in the city or municipality where the
principal office is located, and if practicable in the principal office of
the corporation.
Exceptions:
1. The by-laws of the corporation provide otherwise; and
2. Metro Manila is considered a city or municipality.
Requirements for meetings held outside the location of the principal
office as provided for by the by-laws:
1. Proper notice is sent to all members indicating the date, time and
place of the meeting; and
2. The place of meeting must be within the Philippines.
General rule: All proceedings and business transactions at a meeting
improperly held or called are invalid.
Exception: All of the members are present or duly represented at the
meeting.
Quorum Sec 52
Section 52. Quorum in meetings. - Unless otherwise provided for in
this Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority
of the members in the case of non-stock corporations.
Quorum and voting requirements must be met
A quorum shall consist of the stockholders representing a majority of
the outstanding capital stock.
The by-laws or the Code itself may provide for a greater quorum.
The basis of determining the presence of a quorum:
1. Stock corporation – total subscription irrespective of the amount
paid by them.
2. Non-stock corporation – total number of registered voting members.
A quorum once present is not broken by the subsequent withdrawal of
a part or fraction of the stockholders.
If the voting requirement is met, any resolution passed in the meeting,
even if improperly held or called will be valid if all the stockholders
or members are present or duly represented.
Lanuza vs CA GR 131394 2005
1. Remedial Law; Actions; Judgments; Res Judicata; Res judicata
means a matter adjudged, a thing judicially acted upon or decided; a
thing or matter settled by judgment; Elements of Res Judicata.-
Res judicata means a matter adjudged, a thing judicially acted upon or
decided; a thing or matter settled by judgment. The doctrine of res
judicata provides that a final judgment, on the merits rendered by a
court of competent jurisdiction is conclusive as to the rights of the
parties and their privies and constitutes an absolute bar to subsequent
actions involving the same claim, demand, or cause of action. The
elements of res judicata are (a) identity of parties or at least such as
representing the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same
facts; and (c) the identity in the two (2) particulars is such that any
judgment which may be rendered in the other action will, regardless
of which party is successful, amount to res judicata in the action under
consideration.
2. Remedial Law; Actions; Judgments; Res Judicata; The test often
used in determining whether causes of action are identical is to
ascertain whether the same facts or evidence would support and
establish the former and present causes of action; There is identity of
causes of action when the judgment sought will be inconsistent with
the prior judgment.-
The test often used in determining whether causes of action are
identical is to ascertain whether the same facts or evidence would
support and establish the former and present causes of action. More
significantly, there is identity of causes of action when the judgment
sought will be inconsistent with the prior judgment.
3. Remedial Law; Actions; Judgments; Res Judicata; Absolute
identity of parties is not a condition sine qua non for res judicata to
apply—a shared identity of interest is sufficient to invoke the coverage
of the principle.-
Absolute identity of parties is not a condition sine qua non for res
judicata to apply—a shared identity of interest is sufficient to invoke
the coverage of the principle. However, there is no identity of parties
between the two cases. The parties in the two petitions have their own
rights and interests in relation to the subject matter in litigation. As
stated by petitioners in their Reply to Respondents’ Memorandum,
there are no two separate actions filed, but rather, two separate
petitions for review on certiorari filed by two distinct parties with the
Court and represented by their own counsels, arising from an adverse
consolidated decision promulgated by the Court of Appeals in one
action or proceeding. As such, res judicata is not present in the instant
case.
4. Corporation Law; Articles of Incorporation; The articles of
incorporation has been described as one that defines the charter of the
corporation and the contractual relationships between the State and the
corporation, the stockholders and the State, and between the
corporation and its stockholders; A review of PMMSI’s articles of
incorporation shows that the corporation complied with the
requirements laid down by Act No. 1459.-
The articles of incorporation has been described as one that defines
the charter of the corporation and the contractual relationships
between the State and the corporation, the stockholders and the State,
and between the corporation and its stockholders. When PMMSI was
incorporated, the prevailing law was Act No. 1459, otherwise known
as “The Corporation Law.” A review of PMMSI’s articles of
incorporation shows that the corporation complied with the
requirements laid down by Act No. 1459.
5. Corporation Law; Articles of Incorporation; Stock and Transfer
Book; A stock and transfer book is the book which records the names
and addresses of all stockholders arranged alphabetically, the
installments paid and unpaid on all stock for which subscription has
been made, and the date of payment thereof, a statement of every
alienation, sale or transfer of stock made, the date thereof and by and
to whom made, and such other entries as may be prescribed by law; A
stock and transfer book, like other corporate books and records, is not
in any sense a public record, and thus is not exclusive evidence of the
matters and things which ordinarily are or should be written therein.-
A stock and transfer book is the book which records the names and
addresses of all stockholders arranged alphabetically, the installments
paid and unpaid on all stock for which subscription has been made,
and the date of payment thereof; a statement of every alienation, sale
or transfer of stock made, the date thereof and by and to whom made;
and such other entries as may be prescribed by law. A stock and
transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of
establishing the various corporate acts and transactions and of
showing the ownership of stock and like matters. However, a stock
96
and transfer book, like other corporate books and records, is not in any
sense a public record, and thus is not exclusive evidence of the matters
and things which ordinarily are or should be written therein. In fact, it
is generally held that the records and minutes of a corporation are not
conclusive even against the corporation but are prima facie evidence
only, and may be impeached or even contradicted by other competent
evidence. Thus, parol evidence may be admitted to supply omissions
in the records or explain ambiguities, or to contradict such records.
6. Corporation Law; Articles of Incorporation; Stock and Transfer
Book; The stock and transfer book of PMMSI cannot be used as the
sole basis for determining the quorum as it does not reflect the totality
of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.-
To base the computation of quorum solely on the obviously deficient,
if not inaccurate stock and transfer book, and completely disregarding
the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in
interest of the said shares. This case is one instance where resort to
documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for
determining the quorum as it does not reflect the totality of shares
which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
7. Corporation Law; Articles of Incorporation; Stock and Transfer
Book; One who is actually a stockholder cannot be denied his right to
vote by the corporation merely because the corporate officers failed to
keep its records accurately.-
One who is actually a stockholder cannot be denied his right to vote
by the cor- poration merely because the corporate officers failed to
keep its records accurately. A corporation’s records are not the only
evidence of the ownership of stock in a corporation.
Contracts and Agreements Affecting SH
Proxy sec 58
Section 58. Proxies. - Stockholders and members may vote in person
or by proxy in all meetings of stockholders or members. Proxies shall
in writing, signed by the stockholder or member and filed before the
scheduled meeting with the corporate secretary. Unless otherwise
provided in the proxy, it shall be valid only for the meeting for which
it is intended. No proxy shall be valid and effective for a period longer
than five (5) years at any one time.
VTA sec 59
Section 59. Voting trusts. - One or more stockholders of a stock
corporation may create a voting trust for the purpose of conferring
upon a trustee or trustees the right to vote and other rights pertaining
to the shares for a period not exceeding five (5) years at any time:
Provided, That in the case of a voting trust specifically required as a
condition in a loan agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically expire upon full
payment of the loan. A voting trust agreement must be in writing and
notarized, and shall specify the terms and conditions thereof. A
certified copy of such agreement shall be filed with the corporation
and with the Securities and Exchange Commission; otherwise, said
agreement is ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of the trustee or
trustees stating that they are issued pursuant to said agreement. In the
books of the corporation, it shall be noted that the transfer in the name
of the trustee or trustees is made pursuant to said voting trust
agreement.
The trustee or trustees shall execute and deliver to the transferors The beneficial owner of The owner of the shares
voting trust certificates, which shall be transferable in the same the shares is disqualified may be elected as a
manner and with the same effect as certificates of stock. to be a director director since legal title
remains with him
The voting trust agreement filed with the corporation shall be subject
to examination by any stockholder of the corporation in the same
manner as any other corporate book or record: Provided, That both the The purpose is to Generally used to secure
transferor and the trustee or trustees may exercise the right of acquire voting control of voting and quorum
inspection of all corporate books and records in accordance with the the corporation requirements or merely
provisions of this Code. for the purpose of
representing an absent
Any other stockholder may transfer his shares to the same trustee or stockholder
trustees upon the terms and conditions stated in the voting trust
agreement, and thereupon shall be bound by all the provisions of said
agreement. Irrevocable Revocable unless
coupled with an interest
A voting trust is one created by an agreement between a group of
stockholders of a corporation and a trustee, or a group of identical The trustee can act and A proxy holder can
agreements between individual stockholders and a common trustee, vote at any meeting generally act as such
whereby it is provided that for a term of years, or for a period during the duration of only at a particular
contingent upon a certain event, or until the agreement is terminated, the voting trust meeting
control over the stock owned by such stockholders, shall be lodged in agreement
the trustee, either with or without reservation to the owners or persons
designated by them the power to direct how such control shall be used. The trustee may vote in A proxy holder must
It is a device of binding stockholders to vote as a unit and thus assuring person or by proxy vote in person
a desirable stability and continuity in management in situations where The duration may The duration may not
it is needed. exceed 5 years exceed 5 years
Requirements: Must be notarized and Need not be notarized
1. It should confer upon the trustee or trustees the right to vote and filed with the SEC nor filed with the SEC
other rights pertaining to the shares;
2. It should be for a period not exceeding five (5) years at any time
unless the voting trust is specifically required as a condition in a loan
agreement, in which case, the voting trust may be for a period Lee vs CA 205 scra 752 1992
exceeding five (5) years but shall automatically expire upon full
payment of the loan; 1. Mercantile Law; Corporation Code; Every director must own at
3. It must be in writing and notarized, and shall specify the terms and least one (1) share of the capital stock of the corporation of which he
conditions thereof; is a director which share shall stand in his name on the books of the
4. A certified copy thereof must be filed with the corporation and with corporation. Any director who ceases to be the owner of at least one
the Securities and Exchange Commission, otherwise, said agreement (1) share of the capital stock of the corporation of which he is a
is ineffective and unenforceable; director shall thereby cease to be a director.-
5. The certificate or certificates of stock covered by the voting trust Under the old Corporation Code, the eligibility of a director, strictly
agreement shall be canceled and new ones shall be issued in the name speaking, cannot be adversely affected by the simple act of such
of the trustee or trustees stating that they are issued pursuant to said director being a party to a voting trust agreement inasmuch as he
agreement. In the books of the corporation, it shall be noted that the remains owner (although beneficial or equitable only) of the shares
transfer in the name of the trustee or trustees is made pursuant to said subject of the voting trust agreement pursuant to which a transfer of
voting trust agreement; the stockholder's shares in favor of the trustee is required (section 36
6. The trustee or trustees shall execute and deliver to the transferors of the old Corporation Code). No disqualification arises by virtue of
voting trust certificates, which shall be transferable in the same the phrase "in his own right" provided under the old Corporation Code.
manner and with the same effect as certificates of stock. With the omission of the phrase "in his own right" the election of
7. It should not be entered into for the purpose of circumventing the trustees and other persons who in fact are not the beneficial owners of
law against monopolies and illegal combinations in restraint of trade the shares registered in their names on the books of the corporation
or used for purposes of fraud. becomes formally legalized (see Campos and Lopez-Campos, supra,
p. 296) Hence, this is a clear indication that in order to be eligible as a
Voting trust distinguished from proxy: director, what is material is the legal title to, not beneficial ownership
of, the stock as appearing on the books of the corporation (2 Fletcher,
VOTING TRUST PROXY Cyclopedia of the Law of Private Corporations, section 300, p. 92
[1969] citing People v. Lihme, 269111. 351, 109 N.E. 1051).
The beneficial owner of Legal title remains with 2. Mercantile Law; Corporation Code; Voting Trusts; A voting trust
the shares ceases to be a the beneficial owner agreement results in the separation of the voting rights of a stockholder
stockholder of record of from his other rights such as the right to receive dividends and other
the corporation rights to which a stockholder may be entitled until the liquidation of
the corporation.-
There can be no reliance on the inference that the five-year period of
The trustee votes as The proxy holder votes the voting trust agreement in question had lapsed in 1986 so that the
owner of the shares merely as an agent
legal title to the stocks covered by the said voting trust agreement ipso
facto reverted to the petitioners as beneficial owners pursuant to the
6th paragraph of section 59 of the new Corporation Code which reads:
97
"Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed period,
and the voting trust certificates as well as the certificates of stock in
the name of the trustee or trustees shall thereby be deemed cancelled
and new certificates of stock shall be reissued in the name of the
transferors." On the contrary, it is manifestly clear from the terms of
the voting trust agreement between ALFA and the DBP that the
duration of the agreement is contingent upon the fulfillment of certain
obligations of ALFA with the DBP.
3. Remedial Law; Civil Procedure; Service of summons; If the
defendant is a corporation organized under the laws of the Philippines,
service may be made on the president, manager, secretary, cashier,
agent or any of its directors.-
It is a basic principle in Corporation Law that a corporation has a
personality separate and distinct from the officers or members who
compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347
[1976]; Osias Academy v. Department of Labor and Employment, et
al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on
service of processes on a corporation enumerates the representatives
of a corporation who can validly receive court processes on its behalf.
Not every stockholder or officer can bind the corporation considering
the existence of a corporate entity separate from those who compose
it. The rationale of the aforecited rule is that service must be made on
a representative so integrated with the corporation sued as to make it
a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him. (Far
Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey
Transit, Inc. v. Far East Motor Corp., 81 SCRA 303 [1978]).
NIDC vs Aquino 163 Scra 153
1. Remedial Law; Certiorari; Mjotion to Quash; General Rule; An
order denying a motion to quash or to dismiss is interlocutory and
cannot be subject ofa petition for certiorari; Remedies ofthe aggrieved
party; Exceptions to the general ruJe.-
As a general rule, an order denying a motion to quash or to dismiss is
interlocutory and cannot be the subject of a petition for certiorari. The
remedy of the aggrieved party in a denied motion to dismiss is to file
an answer and interpose, as defense or defenses, the objection or
objections raised by him in said motion to dismiss, then proceed to
trial and, in case of adverse decision, to elevate the entire case by
appeal in due course. However, under certain situations, recourse to
the extraordinary legal remedies of certiorari, prohibition and
mandamus to question the denial of a motion to dismiss or quash is
considered proper, in the interest of more enlightened and substantial
justice. As the Court said in Pineda andAmpil Manufacturing Co. vs.
Bartolome, 95 Phil. 930, 938: "For analogous reasons it may be said
that the petition for certiorari interposed by the accused against the
order of the court a quo denying the motion to quash may be
entertained, not only because it was rendered in a criminal case, but
because it was rendered, as claimed, with grave abuse of discretion, as
found by the Court of Appeals, xxx." and reiterated in Mead v. Argel
citing Yap v. Lutero (105 Phil. 1307): "However, were we to require
adherence to this pretense, the case at bar would have to be dismissed
and petitioner required to go through the inconvenience, not to say the
mental agony the torture, of submitting himself to trial on the merits
in Case No. 166443, apart from the expenses incidental thereto,
despite the fact that his trial and conviction therein would violate one
of this [sic] constitutional rights, and that, an appeal to this Court, we
would, therefore, have to set aside the judgment of conviction of the
lower court. This would, obviously, be most unfair and unjust. Under
the circumstances obtaining in the present case, the flaw in the
procedure followed by petitioner herein may be overlooked, in the
interest of a more enlightened and substantial justice." Thus, where
there is patent grave abuse of discretion, in denying the motion to
disrniss, as in the present case, this Court may entertain the petition
for certiorari interposed by the party against whom the said order is
issued.
98
2. Remedial Law; Certiorari; Mjotion to
Quash; Jurisdiction; Jurisdiction of CFI to issue a writ of preliminary
or permanent injunction is confmed within the province where the land
in question is situated.-
Anent the first ground, it is a well-settled rule that the jurisdiction of a
Court of First Instance to issue a writ of preliminary permanent
injunction is confmed within the boundaries of the province where the
land in controversy is situated. The petition for mandamus of Batjak
prayed that NIDC and PNB be ordered to surrender, relinquish and
turnover to Batjak the assets, management and operation of Batjak
particularly the three (3) oil mills located in Sasa, Davao City,
Jimenez, Misamis Occidental and Tanauan, Leyte.
3. Remedial Law; Certiorari; Mjotion to Quash; Venue; Respondent
Batjak's complaint should have been filed in the provinces where the
oil mills are located pursuajit to Sec. 2, Rule 4, par. A ofRules
ofCourt.-
On the matter of proper venue, Batjak's complaint should have been
filed in the provinces where said oil mills are located. Under Rule 4,
Sec. 2, paragraph A of the Rules of Court, "actions affecting title to,
or for recovery of possession, or for partition or condemnation of, or
foreclo- sure of mortgage on, real property, shall be commenced and
tried in the province where the property or any part thereof lies."
4. Remedial Law; Certiorari; Mjotion to Quash; Actions; Every
action must beprosecuted and defended in the name ofthe real party in
interest.-
In support of the third ground of their motion to dismiss, PNB and
NIDC contend that Batjak's complaint for mandamus is based 011 its
claim or right to recovery of possession of the three (3) oil mills, on
the ground of an alleged breach of fiduciary relationship. Noteworthy
is the fact that, in the Voting Trust Agreement, the parties thereto were
NIDC and certain stockholders of Batjak. Batjak itself was not a
signatory thereto. Under Sec. 2, Rule 3 of the Rules of Court, every
action must be prosecuted and defended in the name of the real party
in interest. Applying the rule in the present case, the action should
have been filed by the stockholders of Batjak, who executed the
Voting Trust Agreement with NIDC; and not by Batjak itself which is
not a party to said agreement, and therefore, not the real party in
interest in the suit to enforce the same.
5. Remedial Law; Certiorari; Mjotion to Quash; Mandamus, nature
of; Legal Right, defined in Sec. 3, Rule 65 ofRules of Court.-
Moreover, the action instituted by Batjak before the respondent court
was a special civil action for mandamus with prayer for preliminajy
mandatory injunction. Generally, mandamus is not a writ of righiand
its allowance or refusal is a matter of discretion to be exercised on
equitable principles and in accordance with well-settled rules of law,
and that it should never be used to effectuate an injustice, but only to
prevent a failure of justice. The writ does not issue as a matter of
course. It will issue only where there is a clear legal right sought to be
enforced. It will not issue to enforce a doubtful right. A clear legal
right within the meaning of Sec. 3, Rule 65 of the Rules of Court
means a right clearly founded in or granted by law, a right which is
enforceable as a matter of law.
6. Remedial Law; Certiorari; Mjotion to Quash; Mandamus, nature
of; Writ of mandamus will not issue to give the applicant anything to
which he is not entitled by law; Case at bar.-
Applymg the above-cited principles of law in the present case, the
Court fmds no clear right in Batjak to be entitled to the writ prayed
for. It should be noted that the petition for mandamus filed by it prayed
that NIDC and PNB be ordered to surrender, relinquish and turn-over
to Batjak the assets, management, and operation of Batjak particularly
the three (3) oil mills and to make the order permanent, after trial, and
ordering NIDC and PNB to submit a complete accounting of the
assets, management and operation of Batjak from 1965. In effect, what
Batjak seeks to recover is title to, or possession of, real property (the
three (3) oil mills which really made up the assets of Batjak) but which
the records show already belong to NIDC. It is not disputed that the
mortgages on the three (3) oil mills were foreclosed by PNB and NIDC
and acquired by them as the highest bidder in the appropriate
foreclosure sales. Ownership thereto was subsequently consolidated
by PNB and NIDC, after Batjak failed to exercise its right of
redemption. The three (3) oil mills are now titled in the name of NIDC.
From the foregoing, it is evident that Batjak had no clear right to be
entitled to the writ prayed for. In Lamb vs. Philippines (22 Phil. 456)
citing the case of Gonzales V. Salazar vs. The Board ofPharmacy, 20
Phil. 367, the Court said that the writ of mandamus will not issue to
give to the applicant anything to which he is not entitled by law.
7. Remedial Law; Certiorari; Mjotion to Quash; Receivership; A
receiver ofproperty subject of the action may be appointed by the court
when the party applying for the appointment of a receiver has an
interest in said property.-
A receiver of real or personal property, which is the subject of the
action, may be appointed by the court when it appears from the
pleadings that the party applying for the appointment of receiver has
an interest in said property. The right, interest, or claim in property, to
entitle one to a receiver over it, must be present and existing.
8. Remedial Law; Certiorari; Mjotion to
Quash; Receivership; Prevention of imminent danger to property, the
guiding principle that governs courts in appointing receivers.-
Moreover, the prevention of imminent danger to property is the
guiding principle that governs courts in the matter of appointing
receivers. Under Sec. l(b), Rule 59 of the Rules of Court, it is
necessary in granting the relief of receivership that the property or
fund be in danger of loss, removal or material injury. In the case at
bar, Batjak in its petition for receivership, or in its amended petition
therefor, failed to present any evidence to establish the requisite
condition that the property is in danger of being lost, removed or
materially injured unless a receiver is appointed to guard and preserve
it.
9. Corporations; Voting Trust Agreement; A voting trust transfers
only voting or other rights pertaining to the shares subject of the
agreement or control over the stock.-
ln any event, a voting trust transfers only voting or other rights
pertaining to the shares subject of the agreement, or control over the
stock. The law on the matter is Section 59, paragraph 1 of the
Corporation Code (BP 68) which provides: "Sec. 59. Voting Trusts—
One or more stockholders of a stock corporation may create a voting
trust for the purpose of confer- ing upon a trustee or trusties the right
to vote and other rights pertaining to the shares for a period not
exceeding five (5) years at any one time: x x x"
Pooling Agreement Sec 100
Section 100. Agreements by stockholders. -
1. Agreements by and among stockholders executed before the
formation and organization of a close corporation, signed by all
stockholders, shall survive the incorporation of such corporation and
shall continue to be valid and binding between and among such
stockholders, if such be their intent, to the extent that such agreements
are not inconsistent with the articles of incorporation, irrespective of
where the provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of incorporation.
2. An agreement between two or more stockholders, if in writing and
signed by the parties thereto, may provide that in exercising any voting
rights, the shares held by them shall be voted as therein provided, or
as they may agree, or as determined in accordance with a procedure
agreed upon by them.
3. No provision in any written agreement signed by the stockholders,
relating to any phase of the corporate affairs, shall be invalidated as
between the parties on the ground that its effect is to make them
partners among themselves.
4. A written agreement among some or all of the stockholders in a
close corporation shall not be invalidated on the ground that it so
relates to the conduct of the business and affairs of the corporation as
to restrict or interfere with the discretion or powers of the board of
directors: Provided, That such agreement shall impose on the
99
stockholders who are parties thereto the liabilities for managerial acts
imposed by this Code on directors.
5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be
personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
ENFORCEMENT OF RIGHTS OF SH
Right to inspect
General rule: Any officer or agent of the corporation who refuses to
allow the inspection of corporate books and records, or any director or
trustee who through a resolution by the board votes for such refusal
shall be liable for damages and shall be guilty of an offense which
shall be punishable under Sec. 144.
Exception. It shall be a defense that the person demanding inspection
1. Has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any
other corporation; or
2. Was not acting in good faith or for a legitimate purpose in making
his demand.
Within ten (10) days from receipt of a written request of any
stockholder or member, the corporation shall furnish to him its most
recent financial statement, which shall include a balance sheet as of
the end of the last taxable year and a profit or loss statement for said
taxable year, showing in reasonable detail its assets and liabilities and
the result of its operations.
At the regular meeting of stockholders or members, the board of
directors or trustees shall present to such stockholders or members a
financial report of the operations of the corporation for the preceding
year, which shall include financial statements, duly signed and
certified by an independent certified public accountant. However, if
the paid-up capital of the corporation is less than P50,000.00, the
financial statements may be certified under oath by the treasurer or
any responsible officer of the corporation.
The basis of the right of the stockholder to inspect the books and
records of the corporation for a proper purpose is to protect his interest
as a stockholder.
General rule: The right of stockholders to examine corporate books
extends to a wholly owned subsidiary which is completely under the
control and management of the parent company where he is such a
stockholder. (Gokongwei vs. SEC)
Exception: The subsidiary and the parent are legally being operated as
separate and distinct entities.
The right to inspect corporate books, although personal, may be
exercised through an agent or representative since it may be unavailing
in many instances. (W.G. Philpotts vs. Philippine Manufacturing Co.)
The corporation, or its responsible directors and officers cannot
unduly restrict the right of inspection and may not arbitrarily set a few
days of the year within which the stockholder may make the
inspection. (Pardo vs. Hercules Lumber, Co.)
Directors of a corporation have the unqualified right to inspect the
books and records of the corporation at all reasonable hours. However,
there is no absolute right to secure certified copies of the minutes of
the corporation until these minutes have been written up and approved
by the directors. (Vegaruth vs. Isabela Sugar Co., Inc.)
It is a required condition for the inspection of corporate books that the
one requesting it must not have been guilty of using improperly any
information secured 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. (Gonzales vs. PNB)
Specified Records sec 74, 75
Section 74. Books to be kept; stock transfer agent. - Every corporation
shall keep and carefully preserve at its principal office a record of all
business transactions and minutes of all meetings of stockholders or
members, or of the board of directors or trustees, in which shall be set
forth in detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting was regular or
special, if special its object, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of any director,
trustee, stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted in
the minutes; and on a similar demand, the yeas and nays must be taken
on any motion or proposition, and a record thereof carefully made.
The protest of any director, trustee, stockholder or member on any
action or proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and the
minutes of any meetings shall 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, trustees, 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.
Stock corporations must also keep a book to be known as the "stock
and transfer book", in which must be kept a record of all stocks in the
names of the stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription has been made,
and the date of payment of any installment; a statement of every
alienation, sale or transfer of stock made, the date thereof, and by and
to whom made; and such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be open
for inspection by any director or stockholder of the corporation at
reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of
registering transfers of stocks in behalf of a stock corporation shall be
allowed to operate in the Philippines unless he secures a license from
the Securities and Exchange Commission and pays a fee as may be
fixed by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from performing
or making transfer of its own stocks, in which case all the rules and
regulations imposed on stock transfer agents, except the payment of a
license fee herein provided, shall be applicable. (51a and 32a; P.B. No.
268.)
100
Section 75. Right to financial statements. - Within ten (10) days from
receipt of a written request of any stockholder or member, the
corporation shall furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of the last taxable
year and a profit or loss statement for said taxable year, showing in
reasonable detail its assets and liabilities and the result of its
operations.
At the regular meeting of stockholders or members, the board of
directors or trustees shall present to such stockholders or members a
financial report of the operations of the corporation for the preceding
year, which shall include financial statements, duly signed and
certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than
P50,000.00, the financial statements may be certified under oath by
the treasurer or any responsible officer of the corporation.
Remedies
Remedies of a stockholder who is denied inspection of corporate
books:
1. Mandamus;
2. Damages either against the corporate or the responsible officer; or
3. Criminal complaint based on Sec. 144 of the Code.
Philpots vs Phil Manufacturing 40 Phil 471
1. CORPORATIONS; EXAMINATION OF COMPANY'S
AFFAIRS BY STOCKHOLDER; RIGHT OF STOCKHOLDER TO
ACT THROUGH REPRESENTATIVE.-
The right of examination into corporate affairs which is conceded to
the stockholder by section 51 of the Corporation Law may be
exercised either by the stockholder in person or by any duly authorized
representative.
Pardo vs Hercules 46 Phil 964
1. CORPORATIONS; STOCKHOLDERS' RlGHT TO INSPECT
RECORDS; UNREASONABLE RESTRICTION BY DlRECTORS
ON RlGHT OF INSPECTION.-
A resolution of the board of directors of a corporation limiting the right
of stockholders to inspect its records to a period of ten days shortly
prior to the annual stockholders' meeting is an unreasonable restriction
on the right of inspection given by section 51 of the Corporation Law
(Act No. 1459), which declares that the right of inspection can be
exercised "at reasonable hours." This means that the right of
inspection may be exercised at reasonable hours on business days
throughout the year, and not merely during an arbitrary period of a few
days chosen by the directors.
Veraguth vs Isabela Sugar 57 Scra 266
1. Special Proceedings; Mandamus; Cognizance of Special Pro-
ceedings by Supreme Court or Courts of First Instance.-
—Where the Supreme Court has concurrent jurisdiction with Courts
of First Instance of special proceedings, except for sufficient reasons
being shown, the action will be left for determination by the Court of
First Instance. This practice is especially to be commended where
questions of fact are involved, since the Court of First Instance is
better equipped for the taking of testimony and the resolution of
questions of fact than is the appellate court.
2. Id.; Id.; Id.; Id.-
—On the facts and the law, it is ruled that the petitioner has not made
out a case for relief by mandamus.
3. Id.; Id.; Id.; Id.-
—A director or stockholder has no absolute right to secure certified
copies of the minutes of a corporation until these minutes have been
written up and approved by the directors.
4. Id.; Id.; Id.; Id.-
—A director or shareholder can make copies, abstracts, and
memoranda of documents, books, and papers as an incident to the right
of inspection, but cannot, without an order of a court, be permitted to
take books from the office of the corporation.
5. Id.; Id.; Id.; Id.-
—Pretexts may not be put forward by the officers of a corporation to
keep a director or shareholder from inspecting the books and minutes
of the corporation, and the right of inspection is not to be denied on
the ground that the director or shareholder is on unfriendly terms with
'the officers of the corporation whose records are sought to be
inspected.
6. Corporations; Corporation Law, Section 51 Applied and Con-
strued; Right of Inspection of the Books and Minutes of a
Corporation; Mandamus.-
—Directors of a corporation have the unqualified right to inspect the
books and records of the corporation at all reasonable times.
Gonzales vs PNB 122 scra 489
1. Corporation Law; Under the new Corporation Code (B.P. No. 68)
the right of a stockholder to examine the books of a corporation is
subject to certain limitations.-
As may be noted from the abovequoted provisions, among the changes
introduced in the new Code with respect to the right of inspection
granted to a stockholder are the following: the records must be kept at
the principal office of the corporation; the inspection must be made on
business days; the stockholder may demand a copy of the excerpts of
the records or minutes; and the refusal to allow such inspection shall
subject the erring officer or agent of the corporation to civil and
criminal liabilities. However, while seemingly enlarging the right of
inspection, the new Code has prescribed limitations to the same. It is
now expressly required as a condition for such examination that the
one requesting it must not have been guilty of using improperly any
information secured 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.”
2. Corporation Law; The unqualified provision on the right of a
stockholder to examine corporate books under the old law (Act 1459)
no longer holds true under B.P. No. 68.-
The unqualified provision on the right of inspection previously
contained in Section 51, Act No. 1459, as amended, no longer holds
true under the provisions of the present law. The argument of the
petitioner that the right granted to him under Section 51 of the former
Corporation Law should not be dependent on the propriety of his
motive or purpose in asking for the inspection of the books of the
respondent bank loses whatever validity it might have had before the
amendment of the law. If there is any doubt in the correctness of the
ruling of the trial court that the right of inspection granted under
Section 51 of the old Corporation Law must be dependent on a
showing of proper motive on the part of the stockholder demanding
the same, it is now dissipated by the clear language of the pertinent
provision contained in Section 74 of Batas Pambansa Blg. 68.
3. Corporation Law; Stockholder has the duty of showing good motive
or purpose for demanding an examination of corporate books. One
who acquired one share of stock of a bank to be able to examine its
books can hardly be said to have been motivated with good faith or
proper purpose in demanding inspection of the bank’s transactions
before he became a stockholder.-
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
101
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.
4. Corporation Law; Banks; The Philippine National Bank is not
governed, as a rule, by the Corporation Code, but by its Charter.-
The Philippine National Bank is not an ordinary corporation. Having
a charter of its own, it is not governed, as a rule, by the Corporation
Code of the Philippines. 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.”
5. Corporation Law; Banks; The right of a stockholder to examine
corporate books under the new Corporation Code does not apply to
the Philippine National Bank.-
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 above-quoted 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 supplemental capacity to the charter of the respondent bank.
Confidential Nature of SEC examinations sec 142
Section 142. Confidential nature of examination results. - All
interrogatories propounded by the Securities and Exchange
Commission and the answers thereto, as well as the results of any
examination made by the Commission or by any other official
authorized by law to make an examination of the operations, books
and records of any corporation, shall be kept strictly confidential,
except insofar as the law may require the same to be made public or
where such interrogatories, answers or results are necessary to be
presented as evidence before any court.
Appraisal Right sec 81-86
Section 81. Instances of appraisal right. - Any stockholder of a
corporation shall have the right to dissent and demand payment of the
fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect
of changing or restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect superior to those
of outstanding shares of any class, or of extending or shortening the
term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and
assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. - The appraisal right may be
exercised by any stockholder who shall have voted against the
proposed corporate action, by making a written demand on the
corporation within thirty (30) days after the date on which the vote
was taken for payment of the fair value of his shares: Provided, That
failure to make the demand within such period shall be deemed a
waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or certificates of stock
representing his shares, the fair value thereof as of the day prior to the
date on which the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
If within a period of sixty (60) days from the date the corporate action
was approved by the stockholders, the withdrawing stockholder and
the corporation cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation,
and the third by the two thus chosen. The findings of the majority of
the appraisers shall be final, and their award shall be paid by the
corporation within thirty (30) days after such award is made: Provided,
That no payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its books to cover
such payment: and Provided, further, That upon payment by the
corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation. (n)
Section 83. Effect of demand and termination of right. - From the time
of demand for payment of the fair value of a stockholder's shares until
either the abandonment of the corporate action involved or the
purchase of the said shares by the corporation, all rights accruing to
such shares, including voting and dividend rights, shall be suspended
in accordance with the provisions of this Code, except the right of such
stockholder to receive payment of the fair value thereof: Provided,
That if the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend rights shall
immediately be restored. (n)
Section 84. When right to payment ceases. - No demand for payment
under this Title may be withdrawn unless the corporation consents
thereto. If, however, such demand for payment is withdrawn with the
consent of the corporation, or if the proposed corporate action is
abandoned or rescinded by the corporation or disapproved by the
Securities and Exchange Commission where such approval is
necessary, or if the Securities and Exchange Commission determines
that such stockholder is not entitled to the appraisal right, then the right
of said stockholder to be paid the fair value of his shares shall cease,
his status as a stockholder shall thereupon be restored, and all dividend
distributions which would have accrued on his shares shall be paid to
him. (n)
Section 85. Who bears costs of appraisal. - The costs and expenses of
appraisal shall be borne by the corporation, unless the fair value
ascertained by the appraisers is approximately the same as the price
which the corporation may have offered to pay the stockholder, in
which case they shall be borne by the latter. In the case of an action to
recover such fair value, all costs and expenses shall be assessed against
the corporation, unless the refusal of the stockholder to receive
payment was unjustified. (n)
Section 86. Notation on certificates; rights of transferee. - Within ten
(10) days after demanding payment for his shares, a dissenting
stockholder shall submit the certificates of stock representing his
shares to the corporation for notation thereon that such shares are
dissenting shares. His failure to do so shall, at the option of the
corporation, terminate his rights under this Title. If shares represented
by the certificates bearing such notation are transferred, and the
certificates consequently cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall cease and the transferee
shall have all the rights of a regular stockholder; and all dividend
distributions which would have accrued on such shares shall be paid
to the transferee.
Appraisal right – the method of paying a shareholder for the taking of
his property; the statutory means whereby a stockholder can avoid the
conversion of his property into another property not of his own
choosing. The purpose of the right is to protect the property rights of
dissenting stockholders from actions by the majority shareholders
102
which alters the nature and character of their investment. It is a right
granted to dissenting stockholders on certain corporate or business
decisions to demand payment of the fair market value of their shares.
Instances when a stockholder may have the right to dissent and
demand payment of the fair value of his shares:
1. In case any amendment to the articles of incorporation has the effect
of:
a. Changing or restricting the rights of any stockholder or class of
shares;
b. Authorizing preferences in any respect superior to those of
outstanding shares of any class; or
c. Extending or shortening the term of corporate existence.
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and
assets as provided in the Code; and
3. In case of merger or consolidation.
Other instances provided for in the Code:
1. Investment of corporate funds in another corporation or business or
for any other purpose;
2. In a close corporation, a stockholder has the right to compel the
corporation for any reason to purchase his shares at their fair value
which shall not be less than the par or issued value when the
corporation has sufficient assets to cover it debts and liabilities,
exclusive of capital stock.
Requirements and procedure for the exercise of the appraisal right:
1. The stockholder must have voted against the proposed corporate
action in any of the instances allowed by law for the exercise of the
appraisal right;
2. A written demand for payment must be made by the dissenting
stockholder within 30 days after the date on which the vote was taken.
Failure to make the demand within the said period shall be deemed a
waiver of the appraisal right;
3. Surrender of the certificate of stock by the dissenting stockholder
for notation in the corporate books and payment by the corporation of
the fair market value of said shares as of the day prior to the date on
which the vote was taken, excluding any appreciation or depreciation
in anticipation of such corporate action. If the stockholder and the
corporation cannot agree on the fair market value thereof, the same
shall be determined by appraisers;
4. The corporation must have unrestricted retained earnings in it books
to cover the payment of the fair value of the shares of the dissenting
stockholder;
5. Upon payment of the shares by the corporation, the dissenting
stockholder shall transfer his shares to the corporation.
Effects of demand for payment of the fair value of a stockholder‟s
shares:
1. From the time of demand for payment – all rights accruing to such
shares, including voting and dividend rights, are suspended, except the
right to receive payment.
2. After either the right ceases or the purchase of the said shares by the
corporation – all rights accruing to such shares are restored and all
dividend distributions which would have accrued on the shares shall
be paid to the holder thereof.
If the dissenting stockholder is not paid the value of his shares within
30 days after the award, his voting and dividend rights shall
immediately be restored.
No demand for payment may be withdrawn unless the corporation
consents thereto.
Instances when the right to payment ceases:
1. The stockholder withdraws his demand for payment with the
consent of the corporation;
2. The proposed corporate action is abandoned or rescinded by the
corporation;
3. The proposed corporate action is disapproved by the SEC where
such approval is necessary;
4. The SEC determines that such stockholder is not entitled to the
appraisal right;
5. The stockholder fails within 10 days after demanding payment for
his shares to submit the certificates of stock representing his shares to
the corporation for notation and the corporation, at its option,
terminates the right.
6. The shares represented by the certificates bearing such notation are
transferred and the certificates subsequently canceled.
General rule: The costs and expenses of appraisal shall be borne by
the corporation. Exception: The fair value ascertained by the
appraisers is approximately the same as the price which the
corporation offered to pay the stockholder.
General rule: In an action to recover the fair value of stocks, all costs
and expenses shall be assessed against the corporation.
Exception: The refusal of the stockholder to receive payment is
unjustified.
A dissenting stockholder is required within 10 days after demanding
payment for his shares to submit the stock certificates representing his
shares to the corporation for notation. His failure to do so shall, at the
option of the corporation, terminate his rights.
The dissenting stockholder is not prohibited from selling, transferring
or assigning his shares. If such be the case, once the certificates are
subsequently canceled, the rights of the transferor as a dissenting
stockholder shall cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions which would have
accrued on such shares shall be paid to the transferee.
A director who exercises his appraisal right remain to be a director
until his shares are no longer registered in his name.
A stockholder whose subscription is not fully paid is still entitled to
exercise his appraisal right.
Derivative Suits
Suits that stockholders may bring against erring directors or officers:
1. Individual or personal suit – one brought by the shareholders for
direct injury to his rights, such as denial of his right to inspect
corporate books and records or pre-emptive right;
2. Representative of class suit - ; and
3. Derivative suit – an action based on injury to the corporation – to
enforce a corporate right – wherein the corporation is joined as a
necessary party, and recovery is in favor of the corporation.
A stockholder in a corporation who was not such at the time of the
transactions complained of, or whose shares had not devolved upon
him since by operation of law, can not maintain a derivative suit unless
such transactions continue and are injurious to the stockholder, or
affect him specifically in some other way. (Pascual vs. Orozco, et al.)
When the board is under the complete control of the principal
defendants in the case, demand upon such board to institute action and
prosecute the same is not required. The law does not require litigants
to do useless acts. (Everett vs. Asia Banking Corporation)
The corporation should be made a party, in order to make the court‟s
judgment binding upon it, and thus bar future relitigation of the issue.
On what side the corporation appears is not important. (Republic Bank
vs. Cuaderno)
103
The minority shareholder who is suing for and in behalf of the
corporation must allege in his complaint before the proper forum that
he is suing on a derivative cause of action on behalf of the corporation
and all other shareholders similarly situated who wish to join. This is
necessary to vest jurisdiction upon the tribunal in line with the rule
that it is the allegations in the complaint that vest jurisdiction upon the
court or quasi-judicial body concerned over the subject matter and
nature of the action. (Western Institute of Technology, Inc. vs. Salas)
The bona fide ownership by a stockholder of stock in his own right
suffices to invest him with standing to bring a derivative action for the
benefit of the corporation. The number of his shares is immaterial
since he is not suing in his own behalf, or for the protection or
vindication of his own particular right, or the redress of a wrong
committed against him, individually, but in behalf and for the benefit
of the corporation. (SMC vs. Khan)
Where corporate directors are guilty of breach of trust – not mere error
of judgment or abuse of discretion – and intra-corporate remedy is
futile or useless, a stockholder may institute a suit in behalf of himself
and other stockholders and for the benefit of the corporation, to bring
about a
redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholders. (Reyes vs. Tan, et al.)
The stockholders in a derivate suit cannot allege or vindicate their own
individual interests or prejudice. (Gamboa vs. Victoriano, et al.)
In a derivative suit, the injury complained of is primarily to the
corporation, so that the suit for the damages claimed should be by the
corporation rather than by the stockholders. The stockholders may not
directly claim those damages for themselves for that would result in
the appropriation by, and the distribution among them of part of the
corporate assets before the dissolution of the corporation and the
liquidation of its debts and liabilities. (Evangelista vs. Santos)
Rules, requirements and procedure so that a derivative suit may
proceed or prosper:
1. The party bringing the action should be a stockholder as of the time
the act or transaction complained of took place, or whose shares have
evolved upon him since by operation of law. This rule, however, does
not apply if such act or transaction continues and is injurious to the
stockholder or affects him specifically in some other way. The number
of shares is immaterial.
2. He has tried to exhaust intra-corporate remedies, i.e. he has made a
demand on the board of directors for the appropriate relief but the
latter had failed or refused to heed his plea. Demand, however, is not
required if the company is under the complete control of the directors
who are the very ones to be sued (or where it becomes obvious that a
demand upon them would have been futile and useless) since the law
does not require a litigant to perform useless acts.
3. The stockholder bringing the suit must allege in his complaint that
he is suing on a derivative cause of action on behalf of the corporation
and all other stockholders similarly situated, otherwise, the case is
dismissible.
4. The corporation should be made a party, either as party-plaintiff or
defendant, in order to make the court‟s judgment binding upon it.
5. Any benefit or damages recovered shall pertain to the corporation.
Bitong vs CA GR 123553 1998
Actions; Pleadings and Practice; Evidence; Admissions; A party
whose pleading is admitted as an admission against interest is entitled
to overcome by evidence the apparent inconsistency, and it is
competent for the party against whom the pleading is offered to show
that the statements were inadvertently made or were made under a
mistake of fact.—A party whose pleading is admitted as an admission
against interest is entitled to overcome by evidence the apparent
inconsistency, and it is competent for the party against whom the
pleading is offered to show that the statements were inadvertently
made or were made under a mistake of fact. In addition, a party against
whom a single clause or paragraph of a pleading is offered may have
the right to introduce other paragraphs which tend to destroy the
admission in the paragraph offered by the adversary.
Same; Same; Same; Same; Where the statements of a party were
qualified with phrases such as, “insof ar as they are limited, qualified
and/or expanded by,” “the truth be ing as stated in the Affirmative
Allegations/Defenses of this Answer” they cannot be considered
definite and certain enough and cannot be construed as judicial
admissions.—The answer of private respondents shows that there was
no judicial admission that petitioner was a stockholder of Mr. &
Ms. to entitle her to file a derivative suit on behalf of the corporation.
Where the statements of the private respondents were qualified with
phrases such as, “insofar as they are limited, qualified and/or expanded
by,” “the truth being as stated in the Affirmative Allegations/Defenses
of this Answer” they cannot be considered definite and certain enough,
cannot be construed as judicial admissions.
Same; Same; Same; Same; Where part of a statement of a party is
used against him as an admission, the court should weigh any other
portion connected with the statement, which tends to neutralize the
portion which is against interest—while admission is admissible in
evidence, its probative value is to be determined from the whole
statement and others intimately related to or connected therewith as an
integrated unit.—When taken in its totality, the Amended Answer to
the Amended Petition, or even the Answer to the Amended
Petition alone, clearly raises an issue as to the legal personality of
petitioner to file the complaint. Every alleged admission is taken as an
entirety of the fact which makes for the one side with the qualifications
which limit, modify or destroy its effect on the other side. The reason
for this is, where part of a statement of a party is used against him as
an admission, the court should weigh any other portion connected with
the statement, which tends to neutralize or explain the portion which
is against interest. In other words, while the admission is admissible
in evidence, its probative value is to be determined from the whole
statement and others intimately related or connected therewith as an
integrated unit. Although acts or facts admitted do not require proof
and cannot be contradicted, however, evidence aliunde can be
presented to show that the admission was made through palpable
mistake. The rule is always in favor of liberality in construction of
pleadings so that the real matter in dispute may be submitted to the
judgment of the court.
Same; Same; Same; Words and Phrases; Interlocutory Orders; An
interlocutory order refers to something between the commencement
and end of the suit which decides some point or matter but it is not the
final decision of the whole controversy.—For, an interlocutory order
refers to something between the commencement and end of the suit
which decides some point or matter but it is not the final decision of
the whole controversy. Thus, even though the 6 December 1990 Order
was adverse to private respondents, they had the legal right and option
not to elevate the same to the SEC En Banc but rather to await the
decision which resolves all the issues raised by the parties and to
appeal therefrom by assigning all errors that might have been
committed by the Hearing Panel.
Corporation Law; Stock Certificates; A mere typewritten statement
advising a stockholder of the extent of his ownership in a corporation
without qualification and/or authentication cannot be considered as a
formal certificate of stock.—Section 63 of The Corporation
Code expressly provides—x x x This provision above quoted
envisions a formal certificate of stock which can be issued only upon
compliance with certain requisites. First, the certificates must be
signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the
104
corporation. A mere typewritten statement advising a stockholder of
the extent of his ownership in a corporation without qualification
and/or authentication cannot be considered as a formal certificate of
stock. Second, delivery of the certificate is an essential element of its
issuance. Hence, there is no issuance of a stock certificate where it is
never detached from the stock books although blanks therein are
properly filled up if the person whose name is inserted therein has no
control over the books of the company. Third, the par value, as to par
value shares, or the full subscription as to no par value shares, must
first be fully paid. Fourth, the original certificate must be surrendered
where the person requesting the issuance of a certificate is a transferee
from a stockholder.
Same; Same; Stock and Transfer Books; Evidence; Books and
records of a corporation which include even the stock and transfer
book are generally admissible in evidence in favor of or against the
corporation and its members to prove the corporate acts, its financial
status and other matters including one’s status as a stockholder.—The
certificate of stock itself once issued is a continuing affirmation or
representation that the stock described therein is valid and genuine and
is at least prima facie evidence that it was legally issued in the absence
of evidence to the contrary. However, this presumption may be
rebutted. Similarly, books and records of a corporation which include
even the stock and transfer book are generally admissible in evidence
in favor of or against the corporation and its members to prove the
corporate acts, its financial status and other matters including one’s
status as a stockholder. They are ordinarily the best evidence of
corporate acts and proceedings.
Same; Same; Same; Same; Parol Evidence; The books and records of
a corporation are not conclusive even against the corporation but are
prima facie evidence only—parol evidence may be admitted to supply
omissions in the records, explain ambiguities, or show what transpired
where no records were kept, or in some cases where such records were
contradicted.—However, the books and records of a corporation are
not conclusive even against the corporation but are prima
facie evidence only. Parol evidence may be admitted to supply
omissions in the records, explain ambiguities, or show what transpired
where no records were kept, or in some cases where such records were
contradicted. The effect of entries in the books of the corporation
which purport to be regular records of the proceedings of its board of
directors or stockholders can be destroyed by testimony of a more
conclusive character than mere suspicion that there was an irregularity
in the manner in which the books were kept.
Same; Same; Same; Stock issued without authority and in violation of
law is void and confers no rights on the person to whom it is issued
and subjects him to no liabilities.—The foregoing considerations are
founded on the basic principle that stock issued without authority and
in violation of law is void and confers no rights on the person to whom
it is issued and subjects him to no liabilities. Where there is an inherent
lack of power in the corporation to issue the stock, neither the
corporation nor the person to whom the stock is issued is estopped to
question its validity since an estoppel cannot operate to create stock
which under the law cannot have existence.
Same; Same; Same; A formal certificate of stock could not be
considered issued in contemplation of law unless signed by the
president or vice-president and countersigned by the secretary or
assistant secretary.—Based on the foregoing admission of petitioner,
there is no truth to the statement written in Certificate of Stock No.
008 that the same was issued and signed on 25 July 1983 by its duly
authorized officers specifically the President and Corporate Secretary
because the actual date of signing thereof was 17 March 1989. Verily,
a formal certificate of stock could not be considered issued in
contemplation of law unless signed by the president or vice-president
and countersigned by the secretary or assistant secretary.
Same; Same; Same; When a Certificate of Stock was admittedly
signed and issued only on 17 March 1989 and not on 25 July 1983, the
certificate has no evidentiary value for the purpose of proving that a
stockholder was such since 1983 up to 1989.—In this case, contrary
to petitioner’s submission, the Certificate of Stock No. 008 was only
legally issued on 17 March 1989 when it was actually signed by the
President of the corporation, and not before that date. While a
certificate of stock is not necessary to make one a
stockholder, e.g.,where he is an incorporator and listed as stockholder
in the articles of incorporation although no certificate of stock has yet
been issued, it is supposed to serve as paper representative of the stock
itself and of the owner’s interest therein. Hence, when Certificate of
Stock No. 008 was admittedly signed and issued only on 17 March
1989 and not on 25 July 1983, even as it indicates that petitioner owns
997 shares of stock of Mr. & Ms., the certificate has no evidentiary
value for the purpose of proving that petitioner was a stockholder since
1983 up to 1989.
Same; Same; Trusts; It is a settled rule that the trustee should endorse
the stock certificate to validate the cancellation of her share and to
have the transfer recorded in the books of the corporation.—And, there
is nothing in the records which shows that JAKA had revoked the trust
it reposed on respondent Eugenia D. Apostol. Neither was there any
evidence that the principal had requested her to assign and transfer the
shares of stock to petitioner. If it was true that the shares of stock
covered by Certificate of Stock No. 007 had been transferred to
petitioner, the person who could legally endorse the certificate was
private respondent Eugenia D. Apostol, she being the registered owner
and trustee of the shares of stock covered by Certificate of Stock No.
007. It is a settled rule that the trustee should endorse the stock
certificate to validate the cancellation of her share and to have the
transfer recorded in the books of the corporation.
Same; Same; Requirements for a Valid Transfer of Stocks.—Thus, for
a valid transfer of stocks, the requirements are as follows: (a) There
must be delivery of the stock certificate; (b) The certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and, (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation.
At most, in the instant case, petitioner has satisfied only the third
requirement. Compliance with the first two requisites has not been
clearly and sufficiently shown.
Same; Same; Considering that the requirements provided under Sec.
63 of the Corporation Code should be mandatorily complied with, the
rule on presumption of regularity cannot apply.—Considering that the
requirements provided under Sec. 63 of The Corporation Code should
be mandatorily complied with, the rule on presumption of regularity
cannot apply. The regularity and validity of the transfer must be
proved. As it is, even the credibility of the stock and transfer book and
the entries thereon relied upon by petitioner to show compliance with
the third requisite to prove that she was a stockholder since 1983 is
highly doubtful.
Same; Same; Dividends; When a dividend is declared, it belongs to
the person who is the substantial and beneficial owner of the stock at
the time regardless of when the distribution profit was earned.—
That JAKA retained its ownership of its Mr. & Ms. shares was clearly
shown by its receipt of the dividends issued in December 1986. This
only means, very obviously, that Mr. & Ms. shares in question still
belonged to JAKA and not to petitioner. For, dividends are distributed
to stockholders pursuant to their right to share in corporate profits.
When a dividend is declared, it belongs to the person who is the
substantial and beneficial owner of the stock at the time regardless of
when the distribution profit was earned.
Same; Actions; Derivative Suits; The power to sue and be sued in any
court by a corporation even as a stockholder is lodged in the board of
directors that exercises its corporate powers and not in the president
or officer thereof.—The admissions of a party against his interest
105
inscribed upon the record books of a corporation are competent and
persuasive evidence against him. These admissions render nugatory
any argument that petitioner is a bona fide stockholder of Mr. & Ms.at
any time before 1988 or at the time the acts complained of were
committed. There is no doubt that petitioner was an employee
of JAKA as its managing officer, as testified to by Senator Enrile
himself. However, in the absence of a special authority from the board
of directors of JAKA to institute a derivative suit for and in its behalf,
petitioner is disqualified by law to sue in her own name. The power to
sue and be sued in any court by a corporation even as a stockholder is
lodged in the board of directors that exercises its corporate powers and
not in the president or officer thereof.
Same; Same; Same; The stockholder’s right to institute a derivative
suit is not based on any express provision of the Corporation Code but
is impliedly recognized when the law makes corporate directors or
officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.—It is well settled
in this jurisdiction that where corporate directors are guilty of a breach
of trust, not of mere error of judgment or abuse of discretion, and
intracorporate remedy is futile or useless, a stockholder may institute
a suit in behalf of himself and other stockholders and for the benefit
of the corporation, to bring about a redress of the wrong inflicted
directly upon the corporation and indirectly upon the stockholders.
The stockholder’s right to institute a derivative suit is not based on any
express provision of The Corporation Code but is impliedly
recognized when the law makes corporate directors or officers liable
for damages suffered by the corporation and its stockholders for
violation of their fiduciary duties.
Same; Same; Same; A stockholder’s suit cannot prosper without first
complying with the legal requisites for its institution, the most
important being the bona fide ownership by a stockholder of a stock
in his own right at the time of the transaction complained of which
invests him with standing to institute a derivative action for the benefit
of the corporation.—The basis of a stockholder’s suit is always one in
equity. However, it cannot prosper without first complying with the
legal requisites for its institution. The most important of these is
the bona fide ownership by a stockholder of a stock in his own right
at the time of the transaction complained of which invests him with
standing to institute a derivative action for the benefit of the
corporation.
SMC vs Khan 176 scra 447
1. Actions; Jurisdiction; De los Angeles’ complaint does not involve
any property illegally acquired or misappropriated by Marcos, et al.,
or “any incidents arising from, incidental to or related to” any case
involving such property but assets indisputably belonging to San
Miguel Corporation.-
The subject matter of his complaint in the SEC does not therefore fall
within the ambit of this Court’s Resolution of August 10, 1988 on the
cases just mentioned, to the effect that, citing PCGG v. Peña, et al, “all
cases of the Commission regarding ‘the funds, moneys, assets, and
properties illegally acquired or misappropriated by former President
Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their close
relatives, Subordinates, Business Associates, Dummies, Agents, or
Nominees, whether civil or criminal, are lodged within the exclusive
and original jurisdiction of the Sandiganbayan,’ and all incidents
arising from, incidental to, or related to, such cases necessarily fall
likewise under the Sandiganbayan’s exclusive and original
jurisdiction, subject to review on certiorari exclusively by the
Supreme Court.” His complaint does not involve any property
illegally acquired or misappropriated by Marcos, et al., or “any
incidents arising from, incidental to, or related to” any case involving
such property, but assets indisputably belonging to San Miguel
Corporation which were, in his (de los Angeles’) view, being illicitly
committed by a majority of its board of directors to answer for loans
assumed by a sister corporation, Neptunia Co., Ltd.
2. Actions; Jurisdiction; The contention therefore that in view of this
Court’s ruling as regards the sequestered SMC stock, the SEC has no
jurisdiction over the de los Angeles complaint cannot be sustained and
must be rejected.-
De los Angeles’ complaint, in fine, is confined to the issue of the
validity of the assumption by the corporation of the indebtedness of
Neptunia Co., Ltd., allegedly for the benefit of certain of its officers
and stockholders, an issue evidently distinct from, and not even
remotely requiring inquiry into the matter of whether or not the
33,133,266 SMC shares sequestered by the PCGG belong to Marcos
and his cronies or dummies (on which issue, as already pointed out,
de los Angeles, in common with the PCGG, had in fact espoused the
affirmative). De los Angeles’ dispute, as stockholder and director of
SMC, with other SMC directors, an intra-corporate one, to be sure, is
of no concern to the Sandiganbayan, having no relevance whatever to
the ownership of the sequestered stock. The contention, therefore, that
in view of this Court’s ruling as regards the sequestered SMC stock
above adverted to, the SEC has no jurisdiction over the de los Angeles
complaint, cannot be sustained and must be rejected. The dispute
concerns acts of the board of directors claimed to amount to fraud and
misrepresentation which may be detrimental to the interest of the
stockholders, or is one arising out of intra-corporate relations between
and among stockholders, or between any or all of them and the
corporation of which they are stockholders.
3. Corporation Law; Derivative Suit; Theory that de los Angeles has
no personality to bring suit in behalf of the corporation cannot be
sustained.-
The theory that de los Angeles has no personality to bring suit in
behalf of the corporation—because his stockholding is minuscule, and
there is a “conflict of interest” between him and the PCGG—cannot
be sustained, either.
4. Corporation Law; Derivative Suit; The implicit argument that a
stockholder to be considered as qualified to bring a derivative suit
must hold a substantial or significant block of stock finds no support
whatever in the law; Requisites for a derivative suit.-
It is claimed that since de los Angeles’ 20 shares (owned by him since
1977) represent only .00001644% of the total number of outstanding
shares (121,645,860), he cannot be deemed to fairly and adequately
represent the interests of the minority stockholders. The implicit
argument—that a stockholder, to be considered as qualified to bring a
derivative suit, must hold a substantial or significant block of stock—
finds no support whatever in the law. The requisites for a derivative
suit are as follows: a) the party bringing suit should be a shareholder
as of the time of the act or transaction complained of, the number of
his shares not being material; b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea;
and c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.
5. Corporation Law; Derivative Suit; Bona fide ownership by a
stockholder of stock in his own right suffices to invest him with
standing to bring a derivative action for the benefit of the corporation;
Number of shares is immaterial.-
The bona fide ownership by a stockholder of stock in his own right
suffices to invest him with standing to bring a derivative action for the
benefit of the corporation. The number of his shares is immaterial
since he is not suing in his own behalf, or for the protection or
vindication of his own particular right, or the redress of a wrong
committed against him, individually, but in behalf and for the benefit
of the corporation.
6. Corporation Law; Derivative Suit; Theory of conflict-of-interest
cannot be upheld.-
Neither can the “conflict-of-interest” theory be upheld. From the
conceded premise that de los Angeles now sits in the SMC Board of
Directors by the grace of the PCGG, it does not follow that he is
106
legally obliged to vote as the PCGG would have him do, that he cannot
legitimately take a position inconsistent with that of the PCGG, or that,
not having been elected by the minority stockholders, his vote would
necessarily never consider the latter’s interests. The proposition is not
only logically indefensible, non sequitur, but also constitutes an
erroneous conception of a director’s role and function, it being plainly
a director’s duty to vote according to his own independent judgment
and his own conscience as to what is in the best interests of the
company. Moreover, it is undisputed that apart from the qualifying
shares given to him by the PCGG, he owns 20 shares in his own right,
as regards which he cannot from any aspect be deemed to be
“beholden” to the PCGG, his ownership of these shares being
precisely what he invokes as the source of his authority to bring the
derivative suit.
7. Corporation Law; Derivative Suit; Argument that the PCGG has no
power to vote sequestered shares of stock as an act of dominion but
only in pursuance of its power of administration is strained and of no
merit.-
It is also theorized, on the authority of the BASECO decision, that the
PCGG has no power to vote sequestered shares of stock as an act of
dominion but only in pursuance to its power of administration. The
inference is that the PCGG’s act of voting the stock to elect de los
Angeles to the SMC Board of Directors was unauthorized and void;
hence, the latter could not bring suit in the corporation’s behalf. The
argument is strained and obviously of no merit. As already more than
plainly indicated, it was not necessary for de los Angeles to be a
director in order to bring a derivative action; all he had to be was a
stockholder, and that he was—owning in his own right 20 shares of
stock, a fact not disputed by the respondents.
8. Corporation Law; Derivative Suit; Nothing in the Baseco decision
which can be interpreted as ruling that sequestered stock may not
under any circumstances be voted by the PCGG to elect a director in
the company in which such stock is held.-
Nor is there anything in the Baseco decision which can be interpreted
as ruling that sequestered stock may not under any circumstances be
voted by the PCGG to elect a director in the company in which such
stock is held. On the contrary, that it held such act permissible is
evident from the context of its reference to the Presidential
Memorandum of June 26, 1986 authorizing the PCGG, “pending the
outcome of proceedings to determine the ownership of x x sequestered
shares of stock,” “to vote such shares x x at all stockholders’ meetings
called for the election of directors x x” the only caveat being that the
stock is not to be voted simply because the power to do so exists,
whether it be to oust and replace directors or to effect substantial
changes in corporate policy, programs or practice, but only “for
demonstrably weighty and defensible grounds” or “when essential to
prevent disappearance or wastage of corporate property.”
Pascual vs Orosco 19 Phil 83
1. BANKS AND BANKING; CORPORATIONS; RIGHTS OF
STOCKHOLDERS.-
A stockholder in a banking corporation has a right to maintain a suit
for and on behalf of the corporation, but the extent of such right
depends upon when and f or what purpose he acquired the shares of
stock of which he is the owner.
2. BANKS AND BANKING; CORPORATIONS; LIMITATION
UPON RIGHTS OF ACTION.-
A stockholder in a corporation who was not such at the time when
allegedobjectionable transactions took place, or whose shares of stock
have not since devolved upon him by operation of law, can not
maintain suits of this character, unless such transactions continue and
are injurious to such stockholder or affect him especially or
specifically in some other way.
3. PLEADING AND PRACTICE; GENERAL DEMURRER.-
Where the matter in a single count is divisible in its nature, the
demurrer should be confined to those parts which are different, as the
same general rule which applies to different counts applies also to
divisible matter in the same count constituting different causes of
action; and where one count, containing distinct averments, discloses
a good cause of action in one of such averments, as when several
breaches are assigned, some well and.others ill, a general demurrer
will be overruled. (6 Ency. Pl. and Pr., 303.)
Evangelista vs Santos 86 Phil 387
1. PLEADING AND PRACTICE; VENUE; MERE SOJOURNING
IN A PLACE DOES NOT MAKE THE LATTER A RESIDENT FOR
PURPOSES OF VENUE-
The facts in this case show that the objection to the venue is well-
founded. The fact that defendant was sojourning in Pasay at the time
he was served with summons does not make him a resident of that
place for purposes of venue.
2. PARTIES; CORPORATION; MISMANAGEMENT BY ITS
OFFICER; RIGHT OF STOCKHOLDERS TO BRING SUIT.-
The plaintiff stockholders have brought the action not for the benefit
of the corporation but f or their own benefit, since they ask that the def
endant make good the losses occasioned by his mismanagement and
pay to them the value of their respective participation in the corporate
assets on the basis of their respective holdings.Clearly, this cannot be,
done until all corporate debts, if there be any, are paid and the
existence of the corporation terminated by the limitation of its charter
or by lawful dissolution in view of the provisions of section 16 of the
Corporation Law.
Republic Bank vs Cuadero 19 scra 671
1. Corporation; Banks; Derivative suit by stockholder.-
An individual stockholder may institute a derivative or representative
suit on behalf of the corporation, wherein he holds stock, in order to
protect or vindicate corporate rights, whenever the of f icials of the
corporation refuse to sue, or are the ones to be sued or hold control of
the corporation. In such actions, the suing stockholder is regarded as
a nominal party, with the corporation as the real party in interest.
2. Corporation; When authority of corporation to bring suit is not
required.-
Such a suit need not be authorized by the corporation where its
objective is to nullify the action taken by its manager and the board of
directors, in which case any demand for intra-corporate remedy would
be futile.
3. Corporation; Nonjoinder of other stockholders.-
The fact that no other stockholder has made common cause with the
plaintiff is irrelevant since the smallness of plaintiff’s holding is no
ground for denying him relief.
4. Corporation; Joinder of corporation.-
Whether in a derivative suit filed by a stockholder, the corporation
should be joined as a plaintiff or a defendant is not important. What is
important is that the corporation should be made a party in order to
make the court’s judgment binding upon it and thus bar future
relitigations of the issues. Misjoinder of parties is not a ground for
dismissing an action.
5. Corporation; Derivative suit is not a quo warranto proceeding.-
A derivative suit by a stockholder for the purpose of annulling the
appointment of a defendant as Chairman of the Board of Directors is
not a quo warranto proceeding. The plaintiff is not claiming title to the
position of Chairman of the Board of Directors. His action is designed
to prevent diversion of the corporate funds for the payment of the
salary of said Chairman.
6. Corporation; Stockholder’s suit to annul actions of bank’s Board of
Directors.-
A stockholder has a cause of action to annul certain actions of the
Board of Directors of a bank, which actions were considered
anomalous and a breach of trust prejudicial to the bank.
7. Pleadings; Motion to dismiss; Hypothetical admission of facts
alleged in the complaint.-
107
The facts pleaded in the com- plaint are deemed hypothetically
admitted by the defendants who file a motion to dismiss the complaint
for failure to state a cause of action.
8. Pleadings; Actions; Sufficiency of cause of action.-
The test of sufficiency of the facts alleged in the complaint is whether
or not the court could render a valid judgment as prayed for, accepting
as true the exclusive facts set forth in the complaint. If the court should
doubt the truth of the facts averred, it must not dismiss the complaint
but should require an answer and proceed to trial on the merits.
9. Pleadings; Pendency of other cases.-
A case should not be dismissed due to the pendency of other litigations
between the same parties if said ground was not invoked in the motion
to dismiss, The .fact that said case may be incorporated, by
amendment, in any one of the other pending actions does not justify
its dismissal since the amendment of the complaint in the other cases
rests on the discretion of the court. It is possible that the amendment
would not be allowed.
Reyes vs Tan 3 Scra 198
1. Corporations; Appointment of a receiver; When derivative suit may
be brought.-
Where corporate directors are guilty of a breach of trust—not of mere
error of judgment or abuse of discretion—and intra-corporate remedy
is futile or useless, a stockholder may institute a suit in behalf of
himself and other stockholders and for the benefit of the corporation,
to bring about a redress of the wrong inflicted directly upon the
corporation and indirectly upon the stockholders (Angeles vs. Santos,
64 Phil. 697).
2. Corporations; Failure of stockholder to take remedial steps against
the corporation within two years from commission of fraud not fatal
to suit.-
Although the stockholder did not take steps to remedy the illegal
importation by the corporation for a period of two years, that act does
not bar him from bringing an action for the appointment of a receiver,
because during that period of time he had the right to assume and
expect that the directors would remedy the anomalous situation of the
corporation brought about by their own wrong doing. Only after such
period had elapsed could he conclude that the directors were remiss in
their duty to protect the corporation property and business.
3. Corporations; When expedient is necessary.-
Where the directors of the corporation permitted the fraudulent
transaction to go unpunished by allowing the importation of finished
textile instead of raw cotton for the textile mill, and nothing appears
to have been done to remove the erring purchasing managers, the
appointment of a receiver may have been thought of by the court so
that the dollar allocation for raw material may be reviewed and the
textile mill placed on an operating basis, because it is possible that if
a receiver in which the Central Bank may have confidence is
appointed, the dollar allocation for raw material may be restored.
ROLE OF DIRECTORS AND OFFICERS
Function of the BOD
Role of directors, officers and trustees
Generally:
Rural Bank of Milaor vs Ocfemia GR 137686 2000
1. Remedial Law; Courts; Jurisdiction; Well-settled rule is that
jurisdiction is determined by the allegations of the complaint; The
Regional Trial Court has jurisdiction over the Petition for Mandamus
pursuant to Section 21 of Batas Pambansa 129.-
The well-settled rule is that jurisdiction is determined by the
allegations of the complaint. In the present case, the Petition for
Mandamus filed by respondents before the trial court prayed that
petitioner-bank be compelled to issue a board resolution confirming
the Deed of Sale covering five parcels of unregistered land, which the
bank manager had executed in their favor. The RTC has jurisdiction
over such action pursuant to Section 21 of BP 129.
2. Civil Law; Agency; Estoppel; A bank is liable to innocent third
persons where representation is made in the course of its normal
business by an agent even though such agent is abusing her authority.-
Tena had previously transacted business on behalf of the bank, and the
latter had acknowledged her authority. A bank is liable to innocent
third persons where representation is made in the course of its normal
business by an agent like Manager Tena, even though such agent is
abusing her authority. Clearly, persons dealing with her could not be
blamed for believing that she was authorized to transact business for
and on behalf of the bank.
3. Civil Law; Agency; Estoppel; Bank is estopped from questioning
the authority of the bank manager to enter into the contract of sale.-
In this light, the bank is estopped from questioning the authority of the
bank manager to enter into the contract of sale. If a corporation
knowingly permits one of its officers or any other agent to act within
the scope of an apparent authority, it holds the agent out to the public
as possessing the power to do those acts; thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent,
be estopped from denying the agent’s authority.
4. Civil Law; Agency; Estoppel; A corporation may be held in
estoppel from denying as against innocent third persons the authority
of its officers or agents who have been clothed by it with ostensible or
apparent authority.-
A corporate officer entrusted with general management and control of
the business has the implied authority to act or contract for the
corporation which may be necessary or appropriate to conduct the
ordinary business. If the act of corporate officers comes within
corporate powers but it is done without any express or implied
authority therefor from the by-laws, board resolutions or corporate
practices, such an act does not bind the corporation. The Board,
however, acting within its competence, may ratify the unauthorized
act of the corporate officer. So, too, a corporation may be held in
estoppel from denying as against innocent third persons the authority
of its officers or agents who have been clothed by it with ostensible or
apparent authority.
Election and Tenure of Directors/Trustees
The tenure of the director filling up the vacancy shall only be for the
unexpired term of his predecessor in office.
Qualifications of Directors and trustees sec 44
Section 44. Power to enter into management contract. - No corporation
shall conclude a management contract with another corporation unless
such contract shall have been approved by the board of directors and
by stockholders owning at least the majority of the outstanding capital
stock, or by at least a majority of the members in the case of a non-
stock corporation, of both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than
one-third (1/3) of the total outstanding capital stock entitled to vote of
the managing corporation; or (2) where a majority of the members of
the board of directors of the managing corporation also constitute a
majority of the members of the board of directors of the managed
corporation, then the management contract must be approved by the
stockholders of the managed corporation owning at least two-thirds
(2/3) of the total outstanding capital stock entitled to vote, or by at
least two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a period
longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
108
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or
operating agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered into for
such periods as may be provided by the pertinent laws or regulations.
(n)
Qualifications:
1. Directors must own at least one (1) share of the capital stock of the
corporation. Trustees must be members.
2. A majority of the directors or trustees must be residents of the
Philippines.
Disqualifications:
1. Conviction by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the date of election
or appointment.
2. Other disqualifications under applicable special laws.
A by-laws may validly provide that no person may be elected as
director unless he owns a specified number of shares required for the
directorate qualification.
It may likewise disqualify a stockholder from being elected into office
if he has a substantial interest in a competitor corporation to avoid any
possible adverse effects of conflicting interest of a director.
In order to be eligible as a director, what is material is the legal title
to, not beneficial ownership, of the stock as appearing on the books of
the corporation. (Lee vs. CA)
If no election is conducted or no qualified candidate is elected, the
incumbent director shall continue to act as such in a hold over capacity
until the election is held and a qualified candidate is so elected.
(Detective and Protective Bureau vs. Cloribel)
Qualifications of trustees:
1. He is a member of the corporation;
2. Majority thereof must be residents of the Philippines; and
3. Other qualifications as may be provided for in the by-laws.
General rule: officers of a non-stock corporation may be directly
elected by the members.
Exception: The articles of incorporation or the by-laws provide
otherwise.
Trustees elected to fill vacancies occurring before the expiration of a
particular term hold office only for the unexpired period.
General rule: The courts will not interfere on matters involving the
internal affairs of an unincorporated association such as elections, the
manner by which it was conducted and the results thereof. (Lions Club
International vs. CA)
Exceptions:
1. There is fraud, oppression or bad faith;
2. The action complained of is capricious, arbitrary or unjustly
discriminatory;
3. Property and civil rights are invaded;
4. The proceedings are violative of the laws of society, or the law of
the land, as by depriving a person of due process of law;
5. There is lack of jurisdiction on the part of the tribunal conducting
the proceedings;
6. The organization exceeds its powers;
7. The proceedings are illegal; or
8. An incorporated association or its members avail of the remedy of
instituting an intra-corporate dispute case.
Lee vs CA 205 scra 752 1992
1. Mercantile Law; Corporation Code; Every director must own at
least one (1) share of the capital stock of the corporation of which he
is a director which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one
(1) share of the capital stock of the corporation of which he is a
director shall thereby cease to be a director.-
Under the old Corporation Code, the eligibility of a director, strictly
speaking, cannot be adversely affected by the simple act of such
director being a party to a voting trust agreement inasmuch as he
remains owner (although beneficial or equitable only) of the shares
subject of the voting trust agreement pursuant to which a transfer of
the stockholder's shares in favor of the trustee is required (section 36
of the old Corporation Code). No disqualification arises by virtue of
the phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of
trustees and other persons who in fact are not the beneficial owners of
the shares registered in their names on the books of the corporation
becomes formally legalized (see Campos and Lopez-Campos, supra,
p. 296) Hence, this is a clear indication that in order to be eligible as a
director, what is material is the legal title to, not beneficial ownership
of, the stock as appearing on the books of the corporation (2 Fletcher,
Cyclopedia of the Law of Private Corporations, section 300, p. 92
[1969] citing People v. Lihme, 269111. 351, 109 N.E. 1051).
2. Mercantile Law; Corporation Code; Voting Trusts; A voting trust
agreement results in the separation of the voting rights of a stockholder
from his other rights such as the right to receive dividends and other
rights to which a stockholder may be entitled until the liquidation of
the corporation.-
There can be no reliance on the inference that the five-year period of
the voting trust agreement in question had lapsed in 1986 so that the
legal title to the stocks covered by the said voting trust agreement ipso
facto reverted to the petitioners as beneficial owners pursuant to the
6th paragraph of section 59 of the new Corporation Code which reads:
"Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed period,
and the voting trust certificates as well as the certificates of stock in
the name of the trustee or trustees shall thereby be deemed cancelled
and new certificates of stock shall be reissued in the name of the
transferors." On the contrary, it is manifestly clear from the terms of
the voting trust agreement between ALFA and the DBP that the
duration of the agreement is contingent upon the fulfillment of certain
obligations of ALFA with the DBP.
3. Remedial Law; Civil Procedure; Service of summons; If the
defendant is a corporation organized under the laws of the Philippines,
service may be made on the president, manager, secretary, cashier,
agent or any of its directors.-
It is a basic principle in Corporation Law that a corporation has a
personality separate and distinct from the officers or members who
compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347
[1976]; Osias Academy v. Department of Labor and Employment, et
al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on
service of processes on a corporation enumerates the representatives
of a corporation who can validly receive court processes on its behalf.
Not every stockholder or officer can bind the corporation considering
the existence of a corporate entity separate from those who compose
it. The rationale of the aforecited rule is that service must be made on
a representative so integrated with the corporation sued as to make it
a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him. (Far
Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey
Transit, Inc. v. Far East Motor Corp., 81 SCRA 303 [1978]).
Gokongwei vs SEC 89 Scra 336 1979 ( Cited Above )
Detective and Protective Bureau vs Cloribel 26 scra 255 1968
109
1. Special civil action; Preliminary injunction; Dissolution; When
verification of motion for dissolution of writ of preliminary injunction
is required.-
From the rulings in Sy Yam Bio, et al. v. Barrios, et al., 63 Phil. 203;
Caluya, et al. v. Ramos, et al., 79 Phil. 640, and Canlas, et al. v.
Aquino, et al., L-16815, July 24, 1961, as well as from the terminology
of Section 6 of Rule 58 of the new Rules of Court, it is evident that
whether the application for dissolution of a writ of preliminary
injunction must be verified or not depends upon the ground upon
which such application is based. If the application or motion for
dissolution is based on the insufficiency of the complaint, the motion
need not be verified. If the motion is based on the ground that the
injunction would cause great damage to defendant while the plaintiff
can be fully compensated for such damages as he may suffer, the
motion should be verified.
2. Special civil action; A preliminary injunction issued after hearing
and in accordance with Rule 58 may still be set aside; Reason; A writ
of preliminary injunction is an interlocutory order; Sec. 6 of Rule 58
construed; Writ may be dissolved without giving the other party an
opportunity to be heard.-
The provision of Section 6 of Rule 58 that "the injunction may be
refused, or, if granted ex parte, may be dissolved" cannot be construed
as putting beyond the reach of the court the dissolution of an injunction
which was granted after hearing. The reason is because a writ of
preliminary injunction is an interlocutory order, and as such it is
always under the control of the court before final judgment (Manila
Electric Co. v. Artiaga, et al., 50 Phil. 144; Caluya, et al. v. Ramos, et
al., 79 Phil 640; Clarke v. Philippine Ready Mix Concrete Co., Inc.,
88 Phil. 460).
3. Corporation law; Director; Stock; To qualify as a director of a
corporation, one must own at least one share of stock therein.-
Every director must own in his own right at least one share of the
capital stock of the stock corporation of which he is a director, which
stock shall stand in his name on the books of the corporation (Sec. 30,
Corporation Law). So that, if the By-Laws of the Corporation provides
that "The manager shall be elected by the Board of Directors from
among its members," one could not be a managing director of said
corporation unless he owns at least one share of stock thereof.
4. Corporation law; Dispute as to who owns the controlling interest in
the corporation; Party in control or in possession of the controlling
interest is presumed to have the better right to the position of managing
corporate director.-
Where ownership of the controlling interest in the corporation is in
dispute, the party in control or in possession of the disputed interest is
presumed to have the better right (to the position of managing'
corporate director) until the contrary is adjudged, and hence, that party
should not be deprived of the control or possession until the court is
prepared to adjudicate the controverted right in favor of the other party
(Gordillo, et al. v. Del Rosario, et al., 39 Phil. 829). Relevant here is:
"The rule that a court should not, by means of a preliminary injunction,
transfer property in litigation from the possession of one party to
another is more particularly applicable where the legal title is in
dispute and the party having possession asserts ownership in himself"
(Gordillo, et al. v. Del Rosario, supra; Rodulfa v. Alfonso, et al., 79
Phil. 225).
5. Special civil action; Writ of preliminary injunction; Issuance
discretionary upon trial court;Limitation of court's discretion; Wide
latitude of trial court's discretion in the modifica-tion or dissolution of
the writ.-
It is a settled rule that the issuance of the writ of preliminary injunction
as an ancillary or preventive remedy to secure the rights of a party in
a pending case is 'entirely within the discretion of the court taking
cognizance of the case—the only limitation being that this discretion
should be exercised based upon the grounds and in the manner
provided by law (Agno River Gold Dredging Co., Inc. v. De Leon, et
al., 61 Phil. 190), and it is equally well-settled that a wide latitude is
given under Section 7 of Rule 58 of the Rules of Court to the trial court
to modify or dissolve the injunction as justice' may require. The court
which is to exercise that discretion is the trial court, not the appellate
court (North Negros Co., Inc. v. Hidalgo, 63 Phil. 664). The exercise
of sound judicial discretion by the lower court in injunctive matters
should not be interfered with except in cases of manifest abuse
(Rodulfa v. Alfonso, supra; North Negros Sugar Co. v. Hidalgo,
supra).
6. Special civil action; Petition for certiorari against a trial court's
order dissolving writ of preliminary injunction; Prior motion for
reconsideration filed with trial court required; Exception.-
Before a petition for certiorari should be filed with the Supreme Court,
against an order dissolving the writ of preliminary injunction the
petitioner -should first give the respondent Judge (or trial court) a
chance or opportunity to correct his error, if any, in an appropriate
motion for reconsideration. An omission to comply with this
procedural requirement justifies a denial of the writ of certiorari
applied for (Herrera v. Barreto, et al., 25 Phil. 245; Uy Chu v. Imperial,
et al, 44 Phil. 27; Alvarez, et al. v. Ibañez, et al., 83 Phil. 104; Ricafort
v. Duran, 54 O.G. 2539; Cueto v. Ortiz, L-11555, May 31, 1960;
Pagkakaisa Samahang Manggagawa ng San Miguel Brewery v.
Enriquez, L-12999, July 26, 1960; Maritime Company of the
Philippines, et al. v. Paredes, et al., L-24811, March 3, 1967). The
exceptions to the application of this procedural rule are: (1) where the
question of jurisdiction has been squarely raised, argued before,
submitted to, and met and decided by the respondent court; (2) where
the questioned order is a patent nullity; and (3) where there is a dep-
rivation of the petitioner's fundamental right to due process (Moran,
Comments on the Rules of Court, 1963 ed., Vol. III, p. 154).
Directors sec 24 and 26
Section 24. Election of directors or trustees. - At all elections of
directors or trustees, there must be present, either in person or by
representative authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there be no capital stock,
a majority of the members entitled to vote. The election must be by
ballot if requested by any voting stockholder or member. In stock
corporations, every stockholder entitled to vote shall have the right to
vote in person or by proxy the number of shares of stock standing, at
the time fixed in the bylaws, in his own name on the stock books of
the corporation, or where the by-laws are silent, at the time of the
election; and said stockholder may vote such number of shares for as
many persons as there are directors to be elected or he may cumulate
said shares and give one candidate as many votes as the number of
directors to be elected multiplied by the number of his shares shall
equal, or he may distribute them on the same principle among as many
candidates as he shall see fit: Provided, That the total number of votes
cast by him shall not exceed the number of shares owned by him as
shown in the books of the corporation multiplied by the whole number
of directors to be elected: Provided, however, That no delinquent stock
shall be voted. Unless otherwise provided in the articles of
incorporation or in the by-laws, members of corporations which have
no capital stock may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one candidate.
Candidates receiving the highest number of votes shall be declared
elected. Any meeting of the stockholders or members called for an
election may adjourn from day to day or from time to time but not sine
die or indefinitely if, for any reason, no election is held, or if there are
not present or represented by proxy, at the meeting, the owners of a
majority of the outstanding capital stock, or if there be no capital stock,
a majority of the member entitled to vote.
Section 26. Report of election of directors, trustees and officers. -
Within thirty (30) days after the election of the directors, trustees and
officers of the corporation, the secretary, or any other officer of the
corporation, shall submit to the Securities and Exchange Commission,
the names, nationalities and residences of the directors, trustees, and
officers elected. Should a director, trustee or officer die, resign or in
110
any manner cease to hold office, his heirs in case of his death, the
secretary, or any other officer of the corporation, or the director,
trustee or officer himself, shall immediately report such fact to the
Securities and Exchange Commission.
Grace Christian HS vs CA GR 108905 23 October 1997
1. Corporation Law; Board of Directors; The board of directors of
corporations must be elected from among the stockholders or mem-
bers.-
These provisions of the former and present corporation law leave no
room for doubt as to their meaning: the board of directors of
corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by
petitioner the unelected members sit as ex officio members, i.e., by
virtue of and for as long as they hold a particular office. But in the case
of petitioner, there is no reason at all for its representative to be given
a seat in the board. Nor does petitioner claim a right to such seat by
virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-
laws sought to give it one.
2. Corporation Law; Board of Directors; By-Laws; No provision of
the by-laws can be adopted if it is contrary to law.-
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the
contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither can
it attain validity through acquiescence because, if it is contrary to law,
it is beyond the power of the members of the association to waive its
invalidity. For that matter the members of the association may have
formally adopted the provision in question, but their action would be
of no avail because no provision of the by-laws can be adopted if it is
contrary to law.
3. Corporation Law; Board of Directors; By-Laws; Tolerance cannot
be considered a ratification.-
It is probable that, in allowing petitioner’s representative to sit on the
board, the members of the association were not aware that this was
contrary to law. It should be noted that they did not actually implement
the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of
petitioner’s representative as an unelected member of the board of
directors. It is more accurate to say that the members merely tolerated
petitioner’s representative and tolerance cannot be considered
ratification.
4. Corporation Law; Board of Directors; By-Laws; Practice, no
matter how long continued, cannot give rise to any vested right if it is
contrary to law.-
Nor can petitioner claim a vested right to sit in the board on the basis
of “practice.” Practice, no matter how long continued, cannot give rise
to any vested right if it is contrary to law. Even less tenable is
petitioner’s claim that its right is “coterminus with the existence of the
association.”
Trustees sec 92 and 138
Section 92. Election and term of trustees. - Unless otherwise provided
in the articles of incorporation or the by-laws, the board of trustees of
nonstock corporations, which may be more than fifteen (15) in number
as may be fixed in their articles of incorporation or by-laws, shall, as
soon as organized, so classify themselves that the term of office of
one-third (1/3) of their number shall expire every year; and subsequent
elections of trustees comprising one-third (1/3) of the board of trustees
shall be held annually and trustees so elected shall have a term of three
(3) years. Trustees thereafter elected to fill vacancies occurring before
the expiration of a particular term shall hold office only for the
unexpired period.
No person shall be elected as trustee unless he is a member of the
corporation.
Unless otherwise provided in the articles of incorporation or the by-
laws, officers of a non-stock corporation may be directly elected by
the members. (n)
Section 138. Designation of governing boards. - The provisions of
specific provisions of this Code to the contrary notwithstanding, non-
stock or special corporations may, through their articles of
incorporation or their by-laws, designate their governing boards by
any name other than as board of trustees.
Cumulative Voting
In stock corporations, cumulative voting is a matter of right.
In non-stock corporations, cumulative voting is not available unless
provided for in the articles of incorporation or by-laws. I.e., a member
may cast as many votes as there are trustees to be elected but may not
cast more than one vote for one candidate.
Cole Formula
Glassner Formula
D’Hondt Remainders Table
Vacancy in the Board sec 29
Section 29. Vacancies in the office of director or trustee. - Any
vacancy occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may
be filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must
be filled by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy shall be
elected only or the unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of an increase in
the number of directors or trustees shall be filled only by an election
at a regular or at a special meeting of stockholders or members duly
called for the purpose, or in the same meeting authorizing the increase
of directors or trustees if so stated in the notice of the meeting. (n)
Term of office: Hold-over Principle sec 23
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 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 until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the capital stock of
the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be
the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations must be members thereof.
111
A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
If no election is conducted or no qualified candidate is elected, the
incumbent director shall continue to act as such in a hold-over capacity
until the election is held and a qualified candidate is so elected.
(Detective and Protective Bureau vs. Cloribel)
Ponce vs Encarnacion 94 Phil 81 1953
1. CORPORATION LAW; STOCKHOLDERS' MEETING TO
ELECT A NEW BOARD OF DlRECTORSJ CALL OF MEETING
BY A STOCKHOLDER ONCOURT'S AUTHORITY.-
Under and pursuant to section 26 of Act No. 1459, on the showing of
good cause therefor the court may authorize a stockholder to call a
meeting and to preside thereat until the majority stockholders
representing a majority of the stockholders present and permitted to
be voted shall have chosen one among them to preside it. And this
showing of good cause therefor exists when the court is apprised of
the fact that the by-laws of the corporation require the calling of a
general meeting of 'the stockholders to elect the board of directors but
the call for such meeting has not been done.
2. CORPORATION LAW; PETITION FOR SUCH PURPOSE
NEED NOT BE SET FOR HEARING.-
The requirement that "on the showing of good cause therefor," the
court may grant to a stockholder the authority to call such meeting and
to preside thereat does not mean that the petition for such authority
must be set for hearing with notice served upon the board of directors.
It may be likened to a writ of preliminary injunction or of attachment
which may be issued ex-parte upon compliance with the requirements
of the rules and upon the court being satisfied that the same should
issue. Such provisional reliefs have not been deemed and held as
violative of the due process of law clause of the Constitution.
3. CORPORATION LAW; "QUO WARRANTO" TO QUESTION
AN ILLEGALITY IN THE ELECTION OF A MEMBER OF THE
BOARD OF DIRECTORS.-
The alleged illegality of the election of one member of the board of
directors at the meeting called as authorized by the court being
subsequent to the order complained of cannot affect the validity and
legality of the order. If it be true that one of the directors elected at
such meeting was not qualified in accordance with the provisions of
the by-laws, the remedy of an aggrieved party would be quo warranto.
4. CORPORATION LAW; AGREEMENT TO DISSOLVE
CORPORATION, IS NO HINDRANCE TO THE COURT'S POWER
TO AUTHORIZE STOCKHOLDER TO CALL SUCH MEETING.-
An alleged previous agreement to dissolve the corporation does not
affect or render illegal the said order issued by the court.
Removal of Directors or trustees sec 28
Section 28. Removal of directors or trustees. - Any director or trustee
of a corporation may be removed from office by a vote of the
stockholders holding or representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the members
entitled to vote: Provided, That such removal shall take place either at
a regular meeting of the corporation or at a special meeting called for
the purpose, and in either case, after previous notice to stockholders
or members of the corporation of the intention to propose such
removal at the meeting. A special meeting of the stockholders or
members of a corporation for the purpose of removal of directors or
trustees, or any of them, must be called by the secretary on order of
the president or on the written demand of the stockholders
representing or holding at least a majority of the outstanding capital
stock, or, if it be a non-stock corporation, on the written demand of a
majority of the members entitled to vote. Should the secretary fail or
refuse to call the special meeting upon such demand or fail or refuse
to give the notice, or if there is no secretary, the call for the meeting
may be addressed directly to the stockholders or members by any
stockholder or member of the corporation signing the demand. Notice
of the time and place of such meeting, as well as of the intention to
propose such removal, must be given by publication or by written
notice prescribed in this Code. Removal may be with or without cause:
Provided, That removal without cause may not be used to deprive
minority stockholders or members of the right of representation to
which they may be entitled under Section 24 of this Code.
The Special Commercial Courts have original and exclusive
jurisdiction to hear and decide cases involving controversies in the
election or appointment of directors, trustees, officers or managers of
corporations, partnerships or associations.
General rule: A corporate officer‟s election, appointment or
termination by the board of directors is always a corporate act, and the
fact that the officer asks for backwages does not alter the picture. The
original and exclusive jurisdiction rests with the Special Commercial
Courts.
Exception: The main cause of action is for the recovery of unpaid
wages and separation pay. (Midland Construction Co., Inc. vs.
Movilla)
The main aspect to be considered is whether the corporate officer
asserts his rights as such officer or questions his removal or ouster. If
so, the case would fall within the ambit of the jurisdiction of the
Special Commercial Courts and not the NLRC.
Roxas vs DelaRosa 49 Phil 609 1926
1. CORPORATIONS; SPECIAL MEETING OF
STOCKHOLDERS; POWER OF COURT OF FlRST INSTANCE
TO ISSUE PRELIMINARY INJUNCTION.-
Where it appears that a corporation already has a duly functioning
board of directors, -without any existing vacancies, the election of a
new board of directors at a called meeting is irregular; and a Court of
First Instance has jurisdiction to enjoin the holding of a special
meeting of the shareholders called by a committee representing a
majority of the shareholders, when the call shows that the purpose is
to elect a new board of directors. The action of the court in issuing a
temporary injunction against the holding of such meeting will not be
disturbed by the Supreme Court upon petition for the writ of certiorari.
Exercise of Directors’ Functions
Meetings of directors or trustees sec 49, 53
Section 49. Kinds of meetings. - Meetings of directors, trustees,
stockholders, or members may be regular or special. (n)
Section 53. Regular and special meetings of directors or trustees. -
Regular meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide
otherwise.
Special meetings of the board of directors or trustees may be held at
any time upon the call of the president or as provided in the by-laws.
Meetings of directors or trustees of corporations may be held
anywhere in or outside of the Philippines, unless the by-laws provide
otherwise. Notice of regular or special meetings stating the date, time
and place of the meeting must be sent to every director or trustee at
least one (1) day prior to the scheduled meeting, unless otherwise
provided by the by-laws. A director or trustee may waive this
requirement, either expressly or impliedly. (n)
DIRECTORS’/TRUSTEES’ MEETING
112
Regular meetings – held monthly, unless the by-laws provide
otherwise
Special meetings – held at any time upon the call of the president or
as provided in the by-laws
Meetings may be held anywhere in or outside of the Philippines,
unless the by-laws provide otherwise.
Notice must be sent at least one (1) day prior to the scheduled meeting,
unless otherwise provided by the by-laws.
Notice may be waived, expressly or impliedly.
If the notice requirement is not complied with the meeting is illegal
and will not bind the corporation except when subsequently ratified.
(Lopez vs. Fontecha)
In a close corporation, the act of any one director may bind the
corporation without a meeting.
Presence at a meeting waives want of notice.
Physical presence at the meeting is not required; teleconferencing and
videoconferencing is allowed. (RA 8792)
The president shall preside at the meeting, unless the by-laws provide
otherwise.
A director or trustee cannot attend or vote by proxy at any board
meeting.
Expertravel & Tours Inc. vs CA GR 152392 2005
1. Actions; Pleadings and Practice; Certificate of Non-Forum
Shopping; Corporations; The requirement to file a certificate of non-
forum shopping is mandatory and the failure to comply with this
requirement cannot be excused; Where the plaintiff is a private
corporation, the certification may be signed, for and on behalf of the
said corporation, by a specifically authorized person, including its
retained counsel, who has personal knowledge of the facts required to
be established by the documents.-
It is settled that the requirement to file a certificate of non-forum
shopping is mandatory and that the failure to comply with this
requirement cannot be excused. The certification is a peculiar and
personal responsibility of the party, an assurance given to the court or
other tribunal that there are no other pending cases involving basically
the same parties, issues and causes of action. Hence, the certification
must be accomplished by the party himself because he has actual
knowledge of whether or not he has initiated similar actions or
proceedings in different courts or tribunals. Even his counsel may be
unaware of such facts. Hence, the requisite certification executed by
the plaintiff’s counsel will not suffice. In a case where the plaintiff is
a private corporation, the certification may be signed, for and on
behalf of the said corporation, by a specifically authorized person,
including its retained counsel, who has personal knowledge of the
facts required to be established by the documents.
2. Actions; Pleadings and Practice; Certificate of Non-Forum
Shopping; Corporations; Attorneys; The certificate of non-forum
shopping may be incorporated in the complaint or appended thereto as
an integral part of the complaint; If the authority of a party’s counsel
to execute a certificate of non-forum shopping is disputed by the
adverse party, the former is required to show proof of such authority
or representation.-
The certificate of non-forum shopping may be incorporated in the
complaint or appended thereto as an integral part of the complaint. The
rule is that compliance with the rule after the filing of the complaint,
or the dismissal of a complaint based on its non-compliance with the
rule, is impermissible. However, in exceptional circumstances, the
court may allow subsequent compliance with the rule. If the authority
of a party’s counsel to execute a certificate of non-forum shopping is
disputed by the adverse party, the former is required to show proof of
such authority or representation. In this case, the petitioner, as the
defendant in the RTC, assailed the authority of Atty. Aguinaldo to
execute the requisite verification and certificate of non-forum
shopping as the resident agent and counsel of the respondent. It was,
thus, incumbent upon the respondent, as the plaintiff, to allege and
establish that Atty. Aguinaldo had such authority to execute the
requisite verification and certification for and in its behalf. The
respondent, however, failed to do so.
3. Actions; Pleadings and Practice; Certificate of Non-Forum
Shopping; Corporations; Attorneys;Foreign Corporations; Resident
Agents; Being a resident agent of a foreign corporation does not mean
that he is authorized to execute the requisite certification against forum
shopping—while a resident agent may be aware of actions filed
against his principal (a foreign corporation doing business in the
Philippines), he may not be aware of actions initiated by its principal,
whether in the Philippines against a domestic corporation or private
individual, or in the country where such corporation was organized
and registered, against a Philippine registered corporation or a Filipino
citizen.-
While Atty. Aguinaldo is the resident agent of the respondent in the
Philippines, this does not mean that he is authorized to execute the
requisite certification against forum shopping. Under Section 127, in
relation to Section 128 of the Corporation Code, the authority of the
resident agent of a foreign corporation with license to do business in
the Philippines is to receive, for and in behalf of the foreign
corporation, services and other legal processes in all actions and other
legal proceedings against such corporation, thus: * * * Under the law,
Atty. Aguinaldo was not specifically authorized to execute a
certificate of non-forum shopping as required by Section 5, Rule 7 of
the Rules of Court. This is because while a resident agent may be
aware of actions filed against his principal (a foreign corporation
doing business in the Philippines), such resident may not be aware of
actions initiated by its principal, whether in the Philippines against a
domestic corporation or private individual, or in the country where
such corporation was organized and registered, against a Philippine
registered corporation or a Filipino citizen.
4. Actions; Evidence; Judicial Notice; The principal guide in
determining what facts may be assumed to be judicially known is that
of notoriety.-
Generally speaking, matters of judicial notice have three material
requisites: (1) the matter must be one of common and general
knowledge; (2) it must be well and authoritatively settled and not
doubtful or uncertain; and (3) it must be known to be within the limits
of the jurisdiction of the court. The principal guide in determining
what facts may be assumed to be judicially known is that of notoriety.
Hence, it can be said that judicial notice is limited to facts evidenced
by public records and facts of general notoriety. Moreover, a judicially
noticed fact must be one not subject to a reasonable dispute in that it
is either: (1) generally known within the territorial jurisdiction of the
trial court; or (2) capable of accurate and ready determination by
resorting to sources whose accuracy cannot reasonably be
questionable.
5. Actions; Evidence; Judicial Notice; A court cannot take judicial
notice of any fact which, in part, is dependent on the existence or non-
existence of a fact which the court has no constructive knowledge.-
Things of “common knowledge,” of which courts take judicial matters
coming to the knowledge of men generally in the course of the
ordinary experiences of life, or they may be matters which are
generally accepted by mankind as true and are capable of ready and
unquestioned demonstration. Thus, facts which are universally
known, and which may be found in encyclopedias, dictionaries or
other publications, are judicially noticed, provided, they are of such
universal notoriety and so generally understood that they may be
regarded as forming part of the common knowledge of every person.
113
As the common knowledge of man ranges far and wide, a wide variety
of particular facts have been judicially noticed as being matters of
common knowledge. But a court cannot take judicial notice of any fact
which, in part, is dependent on the existence or non-existence of a fact
of which the court has no constructive knowledge.
6. Actions; Evidence; Judicial
Notice; Telecommunications; Teleconferencing; Types; Words and
Phrases; In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals through
teleconferencing; Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium, bringing people together under one
roof even though they are separated by hundreds of miles.-
In this age of modern technology, the courts may take judicial notice
that business transactions may be made by individuals through
teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing can
bring people together under one roof even though they are separated
by hundreds of miles. This type of group communication may be used
in a number of ways, and have three basic types: (1) video
conferencing—television-like communication augmented with sound;
(2) computer conferencing—printed communication through
keyboard terminals, and (3) audio-conferencing—verbal
communication via the telephone with optional capacity for
telewriting or telecopying. A teleconference represents a unique
alternative to face-to-face (FTF) meetings. It was first introduced in
the 1960’s with American Telephone and Telegraph’s Picturephone.
At that time, however, no demand existed for the new technology.
Travel costs were reasonable and consumers were unwilling to pay the
monthly service charge for using the picturephone, which was
regarded as more of a novelty than as an actual means for everyday
communication. In time, people found it advantageous to hold
teleconferencing in the course of business and corporate governance,
because of the money saved, among other advantages.
7. Actions; Evidence; Judicial
Notice; Telecommunications; Teleconferencing; Corporation Law; In
the Philippines, teleconferencing and videoconferencing of members
of the board of directors of private corporations is a reality in light of
R.A. No. 8792.-
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality, in
light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on November
30, 2001, providing the guide- lines to be complied with related to
such conferences. Thus, the Court agrees with the RTC that persons
in the Philippines may have a teleconference with a group of persons
in South Korea relating to business transactions or corporate
governance.
Compensation for directors or trustees sec 30
General rule: Directors shall not receive any compensation, as such
directors, except for reasonable per diems.
Exceptions:
1. When there is a provision in the by-laws fixing their compensation;
2. When the stockholders, by a majority vote the outstanding capital
stock grant the same; and
3. If the director renders extra-ordinary or unusual service.
In no case shall the total yearly compensation of directors, as such
directors, exceed 10% of the net income before income tax of the
corporation during the preceding year.
If there is wastage of corporate assets, the courts may be justified to
look into the reasonableness and fairness of the compensation despite
the fact that the grant thereof is authorized pursuant to the by-laws and
by the vote of the majority of the holders of the outstanding capital
stock of the corporation.
The board may not grant compensation upon itself without
authorization of the by-laws or in contravention of the by-laws.
(Central Cooperative Exchange vs. Tibe, Jr.)
Members of the board of directors may receive compensation, in
addition to reasonable per diems, when they render services to the
corporation in a capacity other than as directors or trustees. (Western
Institute of Technology, Inc. vs. Salas)
The fact that the amount paid as compensation to directors under a by-
law provision has increased beyond what would probably be necessary
to secure adequate service from them is a matter that cannot be
corrected by the court. The remedy is in the hands of the stockholders
who have the power at any lawful meeting to change the rule. (Govt.
vs. El Hogar Filipino)
Western Institute of Technology vs Salas GR 113032 1997
Corporation Law; Two ways by which members of the board can be
granted compensation apart from reasonable per diems.—There is no
argument that directors or trustees, as the case may be, are not entitled
to salary or other compensation when they perform nothing more than
the usual and ordinary duties of their office. This rule is founded upon
a presumption that directors/trustees render service gratuitously, and
that the return upon their shares adequately furnishes the motives for
service, without compensation. Under the foregoing section, there are
only two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a
provision in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital stock
at a regular or special stockholders’ meeting agree to give it to them.
Same; Members of the board may receive compensation, in addition
to reasonable per diems, when they render services to the corporation
in a capacity other than as directors/trustees.—This proscription,
however, against granting compensation to directors/trustees of a
corporation is not a sweeping rule. Worthy of note is the clear
phraseology of Section 30 which states: “x x x [T]he directors shall
not receive any compensation, as such directors, x x x.” The phrase as
such directors is not without significance for it delimits the scope of
the prohibition to compensation given to them for services performed
purely in their capacity as directors or trustees. The unambiguous
implication is that members of the board may receive compensation,
in addition to reasonable per diems, when they render services to the
corporation in a capacity other than as directors/trustees. In the case at
bench, Resolution No. 48, s. 1986 granted monthly compensation to
private respondents not in their capacity as members of the board, but
rather as officers of the corporation, more particularly as Chairman,
Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology.
Same; Remedial Law; Action; Meaning of Derivative Suit; For a
derivative suit to prosper, it is required that the minority shareholder
who is suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a derivative
cause of action on behalf of the corporation and all other shareholders
similarly situated who wish to join.—A derivative suit is an action
brought by minority shareholders in the name of the corporation to
redress wrongs committed against it, for which the directors refuse to
sue. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority.
Here, however, the case is not a derivative suit but is merely an appeal
on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with
the RTC of Iloilo for estafa and falsification of public document.
Among the basic requirements for a derivative suit to prosper is that
the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that
114
he is suing on a derivative cause of action on behalf of the corporation
and all other shareholders similarly situated who wish to join. This is
necessary to vest jurisdiction upon the tribunal in line with the rule
that it is the allegations in the complaint that vests jurisdiction upon
the court or quasi-judicial body concerned over the subject matter and
nature of the action. This was not complied with by the petitioners
either in their complaint before the court a quo nor in the instant
petition which, in part, merely states that “this is a petition for review
on certiorari on pure questions of law to set aside a portion of the RTC
decision in Criminal Cases Nos. 37097 and 37098” since the trial
court’s judgment of acquittal failed to impose any civil liability
against the private respondents. By no amount of equity
considerations, if at all deserved, can a mere appeal on the civil aspect
of a criminal case be treated as a derivative suit.
Criminal Law; Civil Liability; Acquittal in a criminal action bars the
civil action arising therefrom where the judgment of acquittal holds
that the accused did not commit the criminal acts imputed to them.—
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely
based on reasonable doubt but rather on a finding that the accused-
private respondents did not commit the criminal acts complained of.
Thus, pursuant to the above rule and settled jurisprudence, any civil
action ex delicto cannot prosper. Acquittal in a criminal action bars
the civil action arising therefrom where the judgment of acquittal
holds that the accused did not commit the criminal acts imputed to
them.
Officers sec 25
Section 25. Corporate officers, quorum. - Immediately after their
election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen
of the Philippines, and such other officers as may be provided for in
the by-laws. Any two (2) or more positions may be held concurrently
by the same person, except that no one shall act as president and
secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in
the articles of incorporation shall constitute a quorum for the
transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there
is a quorum shall be valid as a corporate act, except for the election of
officers which shall require the vote of a majority of all the members
of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
Ongkingco vs NLRC 270 scra 613 1997
1. Corporation Law; Labor Law; A Superintendent/Administrator
who is included in the by-laws of an association in its roster of
corporate officers is an officer of said corporation and not a mere
employee.-
The contentions of public respondent lack merit. That private
respondent is an officer of petitioner corporation and not its mere
employee cannot be questioned. The by-laws of the Galeria de
Magallanes Condominium Association specifically includes the
Superintendent/Administrator in its roster of corporate officers.
2. Corporation Law; Labor Law; Jurisdiction; Securities and
Exchange Commission; The dismissal or non-appointment of a
corporate officer is clearly an intra-corporate matter and jurisdiction
properly belongs to the SEC and not the NLRC.-
Based on the foregoing, we must rule that private respondent was
indeed a corporate officer. He was appointed directly by the Board of
Directors not by any managing officer of the corporation and his salary
was, likewise, set by the same Board. Having thus determined, his
dismissal or nonappointment is clearly an intra-corporate matter and
jurisdiction, therefore, properly belongs to the SEC and not the NLRC.
3. Corporation Law; Labor Law; Jurisdiction; Securities and
Exchange Commission; Sec. 5(c) of P.D. 902-A expressly covers both
election and appointment of corporate directors, trustees, officers and
managers.-
The respondents also attack the SEC’s jurisdiction over the instant
case on grounds that Guilas was not elected by the Board of Directors
but was merely appointed. This particular argument baffles us. P.D.
902-A cannot be any clearer. Sec. 5(c) of said law expressly covers
both election and appointment of corporate directors, trustees, officers
and managers.
4. Corporation Law; Labor Law; Jurisdiction; Securities and
Exchange Commission; Jurisdiction pertains to the SEC even if the
complaint by a corporate officer includes money claims since such
claims are actually part of the perquisites of his position in, and
therefore interlinked with his relations with the corpora-tion.-
It is of no consequence, likewise, that the complaint of private
respondent for illegal dismissal includes money claims, jurisdiction
remains with the SEC as ruled in the case of Cagayan de Oro
Coliseum, Inc. v. Office of the MOLE: Although the reliefs sought by
Chaves appear to fall under the jurisdiction of the labor arbiter as they
are claims for unpaid salaries and other remunerations for services
rendered, a close scrutiny thereof shows that said claims are actually
part of the perquisites of his position in, and therefore interlinked with
his relations with the corporation. In Dy vs. NLRC, the Court said:
“(t)he question of remuneration involving as it does, a person who is
not a mere employee but a stockholder and officer, an integral part, it
might be said, of the corporation, is not a simple labor problem but a
matter that comes within the area of corporate affairs and
management, and is in fact a corporate controversy in contemplation
of the Corporation Code.”
Tabang vs NLRC 266 scra 462 1997
Corporations; Foreign Corporations; The term “doing business”
implies a continuity of commercial dealings and arrangements and the
performance of acts or works or the exercise of some of the functions
normally incident to the purpose and object of its organization.—This
Court interpreted the same phrase in the old case of Mentholatum v.
Mangaliman as follows: The true test, however, seems to be whether
the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int. Revenue [C.C.A. Ohio], 223 F. 984, 987.)
The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object
of its organization.
Same; Same; A single actor transaction, if not merely incidental or
casual but indicates the foreign corporation’s intention to do other
business in the Philippines, also constitutes doing business in the
Philippines.—We have amplified on that discussion in subsequent
cases, among them Top-Weld Manufacturing, Inc. v. ECED, S.A.,
where we said: There is no general rule or governing principle laid
down as to what constitutes “doing” or “engaging in” or “transacting”
business in the Philippines. Each case must be judged in the light of
its peculiar circumstances. Thus, a foreign corporation with a settling
agent in the Philippines which issued twelve marine policies covering
different shipments to the Philippines and a foreign corporation which
had been collecting premiums on outstanding policies were regarded
as doing business here. The acts of these corporations should be
distinguished from a single or isolated business transaction or
occasional, incidental and casual transactions which do not come
within the meaning of the law. Where a single act or transaction,
however, is not merely incidental or casual but indicates the foreign
corporation’s intention to do other business in the Philippines, said
115
single act or transaction constitutes “doing” or “engaging in” or
“transacting” business in the Philippines.
Same; Same; Same; A foreign corporation operating in the
Philippines without submitting to our laws, should not be allowed to
invoke the minour courts when it should need them for its own
protection.—The purpose of the rule requiring foreign corporations to
secure a license to do business in the Philippines is to enable us to
exercise jurisdiction over them for the regulation of their activities in
this country. If a foreign corporation operates in the Philippines
without submitting to our laws, it is only just that it not be allowed to
invoke them in our courts when it should need them later for its own
protection. While foreign investors are always welcome in this land to
collaborate with us for our mutual benefit, they must be prepared as
an indispensable condition to respect and be bound by Philippine law
in proper cases, as in the one at bar.
Gurrea vs Lezama 103 Phil 553 1958
1. CORPORATION LAW; WHO ARE CONSIDERED OFFICERS
OF THE CORPORATION; CASE AT BAR.-
The only officers of a corporation are those given that character either
by the Corporation Law or by its by-laws. The rest can be considered
merely as employees or subordinate officials. In the case at bar;
considering that plaintiff has been appointed manager by the board of
2. ID.; ID.; ID.; LIABILITY FOR VIOLATION OF PENAL
PROVISIONS OF STATUTES DOES NOT MAKE MANAGER
OFFICER OF CORPORATION.-
The fact that the "manager" of the corporation in the several statutes
enacted by Congress is held criminally liable for violation of any of
the penal provisions therein prescribed does not make him an "officer"
of the corporation. This liability flows from the nature of his duties
which are delegated to him by the board of directors. He is paid for
them. Hence, he has to answer for them should he use it in violation
of law.
PSBA vs Leano 127 scra 778 1984
1. Mercantile Law; Corporation; Jurisdiction; Securities and
Exchange Commission; Issue of the election of directors, officers or
managers of a corporation, the relation between them and the
corporation, which is intracorporate in nature, and the issue of the
ouster of the Executive Vice President of the corporation, fall within
the jurisdiction of the Securities and Exchange Commission and the
National Labor Relations Commission.-
The foregoing indubitably show that, fundamentally, the controversy
is intra-corporate in nature. It revolves around the election of directors,
officers or managers of the PSBA, the relation between and among its
stockholders, and between them and the corporation. Private
respondent also contends that his “ouster” was a scheme to intimidate
him into selling his shares and to deprive him of his just and fair return
on his investment as a stockholder received through his salary and
allowances as Executive Vice-President. Vis-a-vis the NLRC, these
matters fall within the jurisdiction of the SEC.
2. Mercantile Law; Corporation; Jurisdiction; Securities and
Exchange Commission; Declaring vacant the corporate office and the
non-election of the Executive Vice President, not a case of dismissal;
Matter of whom to elect, a prerogative of the corporate board.-
This is not a case of dismissal. The situation is that of a corporate
office having been declared vacant, and of TAN’s not having been
elected thereafter. The matter of whom to elect is a prerogative that
belongs to the Board, and involves the exercise of deliberate choice
and the faculty of discriminative selection. Generally speaking, the
relationship of a person to a corporation, whether as officer or as agent
or employee, is not determined by the nature of the services
performed, but by the incidents of the relationship as they actually
exist.
Pearson & George vs NLRC 67 scad 698 30 Jan 1996 113928

1. Corporation Law; Intra-Corporate Dispute; Securities and
Exchange Commission; Removal of Llorente as Managing Director is
purely an intra-corporate dispute which falls within the exclusive
jurisdiction of Securities and Exchange Commission.-
We agree with both the petitioner and the Office of the Solicitor
General that the removal of Llorente as Managing Director is purely
an intracorporate dispute which falls within the exclusive jurisdiction
of the SEC and not of the NLRC.
2. Corporation Law; Intra-Corporate Dispute; Securities and
Exchange Commission; Llorente’s loss of his position as Managing
Director because of non-reelection is not dismissal but failure to
qualify or to maintain a prerequisite for that position.-
In reality, Llorente was not dismissed. If he lost the position of
Managing Director, it was primarily because he was not reelected as
Director during the regular stockholders’ meeting on 5 March 1990.
The office of Managing Director presupposes that its occupant is a
Director; hence, one who is not a Director of the petitioner or who has
ceased to be a Director cannot be elected or appointed as a Managing
Director. Elsewise stated, the holding of the position of Director is a
prerequisite for the election, appointment, or designation of Managing
Director. If a Managing Director should lose his position because he
ceased to be a Director for any reason, such as non-reelection as in the
case of Llorente, such loss is not dismissal but failure to qualify or to
maintain a prerequisite for that position. Then too, the position of
Managing Director was abolished.
3. Corporation Law; Intra-Corporate Dispute; Securities and
Exchange Commission; Intra-corporate disputes, if unresolved within
the corporate structure may be resolved in an appropriate action only
by the Securities and Exchange Commission.-
Any question relating or incident to the election of the new Board of
Directors, the non-reelection of Llorente as a Director, his loss of the
position of Managing Director, or the abolition of the said office are
intracorporate matters. Disputes arising therefrom are intra-corporate
disputes which, if unresolved within the corporate structure of the
petitioner, may be resolved in an appropriate action only by the SEC
pursuant to its authority under paragraphs (b) and (c), Section 5 of P.D.
No. 902-A.
4. Corporation Law; Intra-Corporate Dispute; Same.-
Thus, in Philippine School of Business Administration vs. Leano, we
ruled that a complaint for illegal dismissal arising from a Board of
Directors’ action declaring vacant all corporate positions except that
of Chairman and President, and from the non-reelection of the former
Executive Vice-President during the ensuing election of officers is not
cognizable by the NLRC.
5. Corporation Law; Intra-Corporate Dispute; Same.-
We reiterated this rule in Dy vs. National Labor Relations
Commission, which involved an action for illegal dismissal filed by a
bank manager who was not reelected as such, and in Fortune Cement
Corporation vs. National Labor Relations Commission, which
involved a complaint for illegal dismissal instituted by an Executive
Vice-President of the corporation who lost that position when he was
dismissed as such by the Board of Directors for loss of trust and
confidence.
Reahs Corporation vs NLRC GR 117473
1. Labor Law; Cessation of Operation; Termination Pay; The burden
of proving that the termination was for a valid or authorized cause
shall rest on the employer.-
It is not the function of the law nor its intent to supplant the prerogative
of management in running its business, such as, to compel the latter to
operate at a continuing loss. Thus, Article 283 provides as an
authorized cause in the termination of employment the “closing or
cessation of operation of the establishment or undertaking.” However,
the burden of proving that the termination was for a valid or authorized
cause shall rest on the employer. If the business closure is due to
serious losses or financial reverses, the employer must present
116
sufficient proof of its actual or imminent losses; it must show proof
that the cessation of or withdrawal from business operations was bona
fide in character.
2. Labor Law; Cessation of Operation; Termination Pay; In the
absence of such proof of serious business losses or financial reverses,
the employer closing his business is obligated to pay his employees
and workers their separation pay.-
The grant of separation pay, as an incidence of termination of
employment under Article 283, is a statutory obligation on the part of
the employer and a demandable right on the part of the employee,
except only where the closure or cessation of operations was due to
serious business losses or financial reverses and there is sufficient
proof of this fact or condition. In the absence of such proof of serious
business losses or financial reverses, the employer closing his business
is obligated to pay his employees and workers their separation pay.
3. Labor Law; Cessation of Operation; Termination Pay; The rule is
that in all cases of business closure or cessation of operation or
undertaking of the employer, the affected employee is entitled to
separation pay except when the closure of business or cessation of
operations is due to serious business losses or financial reverses, duly
proved.-
The rule, therefore, is that in all cases of business closure or cessation
of operation or undertaking of the employer, the affected employee is
entitled to separation pay. This is consistent with the state policy of
treating labor as a primary social economic force, affording full
protection to its rights as well as its welfare. The exception is when
the closure of business or cessation of operations is due to serious
business losses or financial reverses, duly proved, in which case, the
right of affected employees to separation pay is lost for obvious
reasons. In the case at bar, the corporation’s alleged serious business
losses and financial reverses were not amply shown or proved.
4. Labor Law; Corporation Law; Under the Labor Code, when a
corporation violates a provision declared to be penal in nature, the
penalty shall be imposed upon the guilty officer or officers of the
corporation.-
As a general rule established by legal fiction, the corporation has a
personality separate and distinct from its officers, stockholders and
members. Hence, officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their
authority. This fictional veil, however, can be pierced by the very same
law which created it when “the notion of the legal entity is used as a
means to perpetrate fraud, an illegal act, as a vehicle for the evasion
of an existing obligation, and to confuse legitimate issues.” Under the
Labor Code, for instance, when a corporation violates a provision
declared to be penal in nature, the penalty shall be imposed upon the
guilty officer or officers of the corporation.
5. Labor Law; Corporation Law; To justify solidary liability, there
must be an allegation or showing that the officers of the corporation
deliberately or maliciously designed to evade the financial obligation
of the corporation to its employees, or a showing that the officers
indiscriminately stopped its business to perpetrate an illegal act, as a
vehicle for the evasion of existing obligations, in circumvention to
statutes, and to confuse legitimate issues.-
At the very least, as what we held in Pabalan v. NLRC, to justify
solidary liability, “there must be an allegation or showing that the
officers of the corporation deliberately or maliciously designed to
evade the financial obligation of the corporation to its employees,” or
a showing that the officers indiscriminately stopped its business to
perpetrate an illegal act, as a vehicle for the evasion of existing
obligations, in circumvention of statutes, and to confuse legitimate
issues.
THREE-FOLD DUTY OF DIRECTORS
Three-fold duty of directors:
1. Obedience
2. Diligence
3. Loyalty
Solidarily liability for all damages suffered by the corporation, its
stockholders or members or other persons shall be imposed upon
directors or trustees:
1. Who willfully and knowingly vote for or assent to patently unlawful
acts of the corporation;
2. Who are guilty of gross negligence or bad faith in directing the
affairs of the corporation; or
3. Who acquire any personal property or pecuniary interest in conflict
with their duty as such directors or trustees.
Business judgment rule – directors are not liable for losses due to
imprudence or honest error of judgment. Questions of policy and
management are left solely to the honest decision of the board of
directors and the courts are without authority to substitute its judgment
as against the former.
Resolutions passed in good faith by the board of directors are valid
and binding, and whether or not it will cause losses or decrease in
profits are not subject to the review of the court. (Montelibano vs.
Bacolod Murcia Milling, Co., Inc.)
General rule: A director is not liable for misconduct of co-directors or
other officers.
Exceptions:
1. He connives or participates in it; or
2. He is negligent in not discovering or acting to prevent it.
The duty of loyalty is violated in the following instances:
1. When a director or trustee acquires any personal or pecuniary
interest in conflict with his duty as such director or trustee;
2. When he attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect to any matter which
has been reposed in him in confidence, as to which equity imposes a
disability upon him to deal in his own behalf; and
3. When he, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining
profit to the prejudice of such corporation.
Corporate opportunity doctrine – It places a director of a corporation
in the position of a fiduciary and prohibits him from seizing a business
opportunity and/or developing it at the expense and with the facilities
of the corporation. He cannot appropriate to himself a business
opportunity which in fairness should belong to the corporation.
Distinction between Secs. 31 & 34:
1. Sec. 31, where a director is liable to account for profits if he attempts
to acquire or acquires any interest adverse to the corporation in respect
to any matter reposed in him in confidence as to which equity imposes
a disability upon him to deal in his own behalf is not subject to
ratification by the stockholders.
2. Sec. 34, where the director acquires for himself a business
opportunity which should belong to the corporation, he is bound to
account for such profits unless his act is ratified by the stockholders
owning or representing at least 2/3 of the outstanding capital stock.
Directors are liable for fraud committed by concealment of
information as to the state and probable result of the negotiations for
the sale of corporate assets which may affect the price of the
corporation‟s stock. (Strong vs. Repide)
Duties of Directors and Officers
Duty of Obedience
Duty of Diligence; Business Judgement Rule sec 31
117
Section 31. 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.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect
of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf,
he shall be liable as a trustee for the corporation and must account for
the profits which otherwise would have accrued to the corporation.
Montelibano vs Bacold-Murica 5 scra 36 1962
1. Sugar Centrals; Milling Contracts; Concessions given by central to
planters, if retracted, will constitute fraud; Case at Bar.-
Since there is no rational explanation for the company's assenting to
the further concessions asked by the planters before the contracts were
signed, except as further inducement for the planters to agree to the
extension of the contract period, to allow the company now to retract
such concessions would be to sanction a fraud upon the planters who
relied on such additional stipulations.
2. Contracts; Novation; Modification before a bargain not novation in
law.-
There can be no novation unless two distinct and successive binding
contracts take place, with the later one designed to replace the
preceding convention. Modifications introduced before a bargain
becomes obligatory can in no sense constitute novation in law.
3. Contracts; Assent and concurrence of parties necessary to perfect a
contract; Setting down of terms not important except in certain cases.-
Except in the cases of statutory forms or solemn agreements, it is the
assent and concurrence of the parties, and not the setting down of its
terms, that constitutes a binding contract.
4. Corporations; Exercise of charter powers; Test to be applied.-
"It is a question, therefore, in each case, of the logical relation of the
act to the corporate purpose expressed in the charter. If that act is one
which is lawful in itself, and not otherwise prohibited, is done for the
purpose of serving corporate ends, and is reasonably tributary to the
promotion of those ends, in a substantial, and not in a remote and
fanciful, sense, it may fairly be considered within charter powers. The
test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incident to
the express powers and reasonably necessary to their exercise. If so,
the corporation has the power to do it; otherwise, not." (Fletcher Cyc.
Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)
5. Corporations; Exercise of charter powers; Question on probable
losses or decrease in profits not reviewable by courts.-
Whether or not a valid and binding resolution passed by the board of
directors, will cause losses or decrease the profits of the corporation,
may not be reviewed by the courts.
Board of Liquidators vs Kalaw 20 scra 987 1967
1. Courts; Judgment; Appeals.-
An appellate court may base its decision of affirmance of the judgment
below on a point or points ignored by the trial court on which said
court was in error.
2. Corporations; Three methods of winding up corporate affairs.-
Accepted in this jurisdiction are three methods by which a corporation
may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of
Court (which superseded Section 66 of the Corporation Law),
whereby, upon voluntary dissolution of a corporation, the court may
direct "such disposi- tion of its assets as justice requires, and may
appoint a receiver to collect such assets and pay the debts of the
corporation"; (2) under Section 77 of the Corporation Law, whereby a
corporation whose corporate existence is terminated, "shall
nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it
gradually to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established"; and (3) under
Section 78 of the Corporation Law, by virtue of which the corporation,
within the three-year period just mentioned, "is authorized and
empowered to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested,"
3. Board of Liquidators; Trustee for government.-
By Executive Order No. 372, the government, the sole stockholder,
abolished the National Coconut Corporation (NACOCO) and placed
its assets in the hands of the Board of Liquidators. The Board thus
became the trustee on behalf of the government. It was an express
trust. The legal interest became vested in the trustee, the Board of
Liquidators. The beneficial interest remained with the sole
stockholder, the government. The Board took the place of the
dissolved government corporations after the expiration of the statutory
three-year period for the liquidation of their affairs.
4. Board of Liquidators; No term for life of Board.-
No time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of various
government corporations. Its term of life is not fixed.
5. Board of Liquidators; Right of Board of Liquidators to proceed as
partyplaintiff; Case at bar.-
At no time had the government withdrawn the property. or the
authority to continue the present suit, from the Board of Liquidators.
Hence, the Board can prosecute this case to its final conclusion. The
provisions of Section 78 of the Corporation Law, the third method of
winding up corporate affairs, find application. The Board has
personality to proceed as party-plaintiff in this case.
6. Settlement of decedent's estate; Actions; Actions that
survive; Executors and administrators.-
The actions that survive against a decedent's executors or
administrators are: (1) actions to recover real and personal property
from the estate; (2) actions to enforce a lien thereon; and (3) actions
to recover damages for an injury to person or property. A suit to
recover damages, based on the alleged tortious acts of the manager of
a government corporation, survives. It is not a mere money claim that
is extinguished upon the death of a party.
7. Corporations; Implied authority of corporate officer to enter into
contracts.-
A corporate officer, entrusted with the general management and
control of its business, has implied authority to make any contract or
do any other act which is necessary or appropriate to the conduct of
the ordinary business of the corporation. As such officer, he may,
without any special authority from the Board of Directors, perform all
acts of an ordinary nature, which by usage or necessity are incident to
his office, and may bind the corporation by contracts in matters arising
in the usual course of business.
8. Corporations; Where similar acts of manager were approved by
directors.-
Where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind
the company without formal authorization of the board of directors. In
varying language, existence of such authority is established by proof
of the course of business, the usages and practices of the company and
by the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and about
the affairs of the corporation. Where the practice of the corporation
has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in Nacoco's behalf
without prior board approval, and the board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of
118
prior approval, the contracts of the general manager, under the given
circumstances, are valid corporate acts.
9. Corporations; Ratification by corporation of unauthorized contract
of its officers.-
Ratification by a corporation of an unauthorized act or contract by its
officers or others relates back to the time of the act or contract ratified
and is equivalent to original authority. The corporation and the other
party to the transaction are in precisely the same position as if the act
or contract had been authorized at the time. The adoption or ratif
ication of a contract by a corporation is nothing more nor less than the
making of an original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any ratification
or adoption is equivalent to a grant of prior authority.
10. Contracts; Bad faith.-
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive
or interest or ill-will; it partakes of the nature of fraud.
11. Damages; Damnum absque injuria.-
The present case is one of damnum absque injuria. Conjunction of
damage and wrong is here absent. There cannot be an actionable
wrong if either one or the other is wanting.
Duty of loyalty: doctrine of Corporate opportunity sec 31, 34
Section 34. Disloyalty of a director. - Where a director, by virtue of
his office, acquires for himself a business opportunity which should
belong to the corporation, thereby obtaining profits to the prejudice of
such corporation, he must account to the latter for all such profits by
refunding the same, unless his act has been ratified by a vote of the
stockholders owning or representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the
venture.
Corporate Dealings sec 32
Section 32. Dealings of directors, trustees or officers with the
corporation. - A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances;
and
4. That in case of an officer, the contract has been previously
authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee,
such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of at least twothirds (2/3) of the members in a meeting called for
the purpose: Provided, That full disclosure of the adverse interest of
the directors or trustees involved is made at such meeting: Provided,
however, That the contract is fair and reasonable under the
circumstances.
SELF-DEALING DIRECTORS
A contract of the corporation with one or more of its directors or
trustees or officers is voidable, at the option of such corporation,
unless all of the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances;
and
4. That in case of an officer, the contract has been previously
authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee,
such contract may be ratified, provided:
1. The contract is ratified by the vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members
2. Such ratification is made at a meeting called for that purpose;
3. Full disclosure of the adverse interest of the directors or trustees
involved is made; and
4. The contract is fair and reasonable under the circumstances.
In the absence of express delegation, a contract entered into by the
president, on behalf of the corporation, may bind the corporation if the
board should ratify the same expressly or impliedly. Furthermore, the
president as such may bind the corporation by a contract in the
ordinary course of
business, provided the same is reasonable under the circumstances.
These rules only apply where the president or other officer,
purportedly acting for the corporation, is dealing with a third person,
i.e., person outside the corporation. It does not apply to self-dealing
directors or officers. (Prime White Cement Corp. vs. IAC)
A director or officer may in good faith and for an adequate
consideration purchase from a majority of the directors or
stockholders the property even of an insolvent corporation. (Mead vs.
Mc Cullough)
Mead vs McCullough 21 Phil 95 1911
1. CORPORATIONS; SALARY OF GENERAL MANAGER.-
Held: That the verbal contract, entered into between the board of
directors and the plaintiff as general manager, as to the latter's salary,
was a contingent one, dependent upon the success of the business, and
that, as the corporation was a failing concern, the plaintiff was only
entitled to his actual and necessary expenses.
2. CORPORATIONS; INDUSTRIAL CIVIL PARTNERSHIP
UNDER CIVIL CODE.-
A corporation organized for the purpose of engaging in general
engineering and construction work, the names of the organizers
appearing in the articles of agreement which were duly inscribed in
the Commercial Register, is an industrial civil partnership
(corporation) in the mercantile form; an anonymous partnership,
legally constituted, and must be governed by the provisions of the
Civil Code, the provisions of the Code of Commerce being applicable
subsidiarily.
3. CORPORATIONS; POWER TO ACQUIRE, HOLD, SELL AND
BUY PROPERTY.-
A corporation, upon the execution of the public instrument in which
its articles of agreement appear, and the contribution of funds and
personal property, becomes a juridical person, an artificial being,
existing only in contemplation of the law, with power to hold, buy,
and sell property. The inscribing of its articles of incorporation in the
mercantile register is not necessary to make such a corporation a
juridical person, the inscription operating only to show that it partakes
of the form of a commercial concern.
4. CORPORATIONS; ARTICLES OF
INCORPORATION; MEETINGS; CONDUCT OF BUSINESS BY
MAJORITY VOTE.-
119
Where the articles of incorporation prescribe that at all meetings of the
stockholders a majority of votes of those present shall be necessary to
determine any question discussed, the sale or transfer to one of its
members of the corporate property is a matter which the majority of
the stockholders can properly consider, and, generally speaking, the
voice of the majority of the stockholders is the law of the corporation
within the limitation which is found in the essential compacts of the
articles of agreement, which have served as a basis upon which the
members united, and without which it is not probable that they would
have entered into the corporation.
5. CORPORATIONS; POWERS OF DIRECTORS AND
STOCKHOLDERS; SALE OF CORPORATE PROPERTY.+
6. CORPORATIONS; POWERS OF DIRECTORS AND
STOCKHOLDERS; ID.-
A private corporation which owes no special duty to the public and
which has not been given the right of eminent domain, has the absolute
-power as against the whole world, "except the State, to sell and
dispose of all its property, such power resting in the board of directors
or majority of the stockholders, without reference to the assent or
authority of the minority when the corporation is in failing
circumstances or insolvent, or when it can no longer continue the
business with profit and when such action is regarded as an -
imperative necessity.
7. CORPORATIONS; POWERS OF DIRECTORS AND
STOCKHOLDERS; OFFICER MAY DEAL WITH THE
CONCERN.-
While a private corporation remains solvent, there is no reason why a
director or officer, by authority of the majority of its stockholders or
board of managers, may not deal with the corporation, loan it money,
or buy property from it in like manner as a stranger. This is likewise
true of an insolvent corporation, but, in all cases, such officer or
director must act in good faith and
8. CORPORATIONS; POWERS OF DIRECTORS AND
STOCKHOLDERS; DISSOLUTION; CIVIL CODE; CODE OF
COMMERCE.-
There is nothing in the provisions of the Civil Code, nor of the Code
of Commerce, dealing with the manner of dissolving a corporation,
which expressly or impliedly prohibits the sale of the corporate
property to one of its members, and the dissolution of the corporation
in such a manner.
9. CORPORATIONS; POWERS OF DIRECTORS AND
STOCKHOLDERS; PRESUMPTION OF ABANDONMENT OF
OFFICE BY A DIRECTOR.-
Where a director in a corporation accepts a position in which his duties
are incompatible with those as such director, it is presumed that he has
abandoned his office as director of the corporation.
10. CORPORATIONS; DUTY OF DIRECTORS OF INSOLVENT
CORPORATION.-
The directors of an insolvent corporation become trustees for all the
creditors, and a director who is also a creditor will not be permitted to
secure to himself any personal advantage over other creditors.
Prime White Cement vs IAC 220 scra 103 1993
1. Corporation Law; Contracts; When contracts signed by corporate
officers binding on corporation.-
Under the Corporation Law, which was then in force at the time this
case arose, as well as under the present Corporation Code, all
corporate powers shall be exercised by the Board of Directors, except
as otherwise provided by law. Although it cannot completely abdicate
its power and responsibility to act for the juridical entity, the Board
may expressly delegate specific powers to its President or any of its
officers. In the absence of such express delegation, a contract entered
into by its President, on behalf of the corporation, may still bind the
corporation if the board should ratify the same expressly or impliedly.
Implied ratification may take various forms—like silence or
acquiescence; by acts showing approval or adoption of the contract;
or by acceptance and retention of benefits flowing therefrom.
Furthermore, even in the absence of express or implied authority by
ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided
the same is reasonable under the circumstances. These rules are basic,
but are all general and thus quite flexible. They apply where the
President or other officer, purportedly acting for the corporation, is
dealing with a third person, i.e., a person outside the corporation.
2. Corporation Law; Contracts; A board director or other corporate
officer cannot readily enter into a contract with his own corporation;
Exceptions.-
A director of a corporation holds a position of trust and as such, he
owes a duty of loyalty to his corporation. In case his interests conflict
with those of the corporation, he cannot sacrifice the latter to his own
advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the corporation.
This trust relationship "is not a matter of statutory or technical law. It
springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of
the stockholders."
3. Corporation Law; Contracts; Same.-
On the other hand, a director's contract with his corporation is not in
all instances void or voidable. If the contract is fair and reasonable
under the circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
4. Corporation Law; Contracts; Same.-
Granting arguendo that the "dealership agreement" involved here
would be valid and enforceable if entered into with a person other than
a director or officer of the corporation, the fact that the other party to
the contract was a Director and Auditor of the petitioner corporation
changes the whole situation. First of all, We believe that the contract
was neither fair nor reasonable. The "dealership agreement" entered
into in July, 1969, was to sell and supply to respondent Te 20,000 bags
of white cement per month, for five years starting September, 1970, at
the fixed price of P9.70 per bag. Respondent Te is a businessman
himself and must have known, or at least must be presumed to know,
that at that time, prices of commodities in general, and white cement
in particular, were not stable and were expected to rise. At the time of
the contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that
period of six years, there would be a considerable rise in the price of
white cement. In fact, respondent Te's own Memorandum shows that
in September, 1970, the price per bag was P 14.50, and by the middle
of 1975, it was already P37.50 per bag. Despite this, no provision was
made in the "dealership agreement" to allow for an increase in price
mutually acceptable to the parties. Instead, the price was pegged at
P9.70 per bag for the whole five years of the contract. Fairness on his
part as a director of the corporation from whom he was to buy the
cement, would require such a provision. In fact, this unfairness in the
contract is also a basis which renders a contract entered into by the
President, without authority from the Board of Directors, void or
voidable, although it may have been in the ordinary course of business.
We believe that the fixed price of P9.70 per bag for a period of five
years was not fair and reasonable. Respondent Te, himself, when he
subsequently entered into contracts to resell the cement to his "new
dealers" Henry Wee and Gaudencio Galang stipulated as follows: The
price of white cement shall be mutually determined by us but in no
case shall the same be less than P14.00 per bag (94 Ibs)."
5. Corporation Law; Contracts; Damages; No moral damages for lost
goodwill are awardable to a corporation.-
As a result of this action which has been proven to be without legal
basis, petitioner corporation's reputation and goodwill have been
prejudiced. However, there can be no award for moral damages under
Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title
XVIII of the Civil Code in favor of a corporation.
Contracts between corporations with interlocking directors sec 33
120
Section 33. Contracts between corporations with interlocking
directors. - Except in cases of fraud, and provided the contract is fair
and reasonable under the circumstances, a contract between two or
more corporations having interlocking directors shall not be
invalidated on that ground alone:
Provided, That if the interest of the interlocking director in one
corporation is substantial and his interest in the other corporation or
corporations is merely nominal, he shall be subject to the provisions
of the preceding section insofar as the latter corporation or
corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding
capital stock shall be considered substantial for purposes of
interlocking directors.
A director who owns a substantial interest in one corporation dealing
with another where he has a nominal interest is a regarded as a self-
dealing director in so far as the latter corporation is concerned.
IV. FUNDAMENTAL CHANGES
CHARTER AMENDMENTS
CORPORATE CHARTER
Corporate charter – an instrument or authority from the sovereign
power, bestowing rights and power.
The corporate charter is a three-fold contract:
1. Between the corporation and the state insofar as it concerns its
primary franchise to be and act as a corporation;
2. Between the corporation and the stockholders or members insofar
as it governs their respective rights and obligations; and
3. Between and among the stockholders or members themselves as far
as their relationship with one another is concerned.
The charter of corporations created under the Corporation Code
consists of the articles of incorporation and the Corporation Code
inclusive of the by-laws adopted thereunder and all pertinent
provisions of any statute governing them.
The charter of corporations created by special laws consists of the
special law creating the same and any and all laws, rules and
regulations affecting or applicable to them.
Franchise – the right or privilege itself to be and act as a corporation
or to do a certain act.
Kinds of franchises:
1. Primary franchise – the right or privilege of being a corporation
which the state confers upon the applicant for this faculty.
2. Secondary franchise – the powers and privileges vested in, and to
be exercised by the corporate body as such.
AOI sec 16 ( See Amendment of AOI )
Section 16. Amendment of Articles of Incorporation. - Unless
otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of incorporation
may be amended by a majority vote of the board of directors or
trustees and the vote or written assent of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or written
assent of at least two-thirds (2/3) of the members if it be a non-stock
corporation.
The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Such
articles, as amended shall be indicated by underscoring the change or
changes made, and a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly approved
by the required vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities
and Exchange Commission or from the date of filing with the said
Commission if not acted upon within six (6) months from the date of
filing for a cause not attributable to the corporation.
By-Laws sec 48
Section 48. Amendments to by-laws. - The board of directors or
trustees, by a majority vote thereof, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of the
members of a non-stock corporation, at a regular or special meeting
duly called for the purpose, may amend or repeal any by-laws or adopt
new by-laws. The owners of two-thirds (2/3) of the outstanding capital
stock or two-thirds (2/3) of the members in a non-stock corporation
may delegate to the board of directors or trustees the power to amend
or repeal any by-laws or adopt new by-laws: Provided, That any power
delegated to the board of directors or trustees to amend or repeal any
by-laws or adopt new by-laws shall be considered as revoked
whenever stockholders owning or representing a majority of the
outstanding capital stock or a majority of the members in non-stock
corporations, shall so vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be attached to the original by-laws
in the office of the corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of the directors or
trustees, shall be filed with the Securities and Exchange Commission
the same to be attached to the original articles of incorporation and
original by-laws.
The amended or new by-laws shall only be effective upon the issuance
by the Securities and Exchange Commission of a certification that the
same are not inconsistent with this Code.
COMBINATIONS
Concept of Merger and Consolidation
Merger – a union effected by absorbing one or more existing
corporations by another which survives and continues the combined
business; the uniting of two or more corporations by the transfer of
property to one of them which continues in existence, the other or
others being dissolved and merged therein.
Consolidation – the uniting or amalgamation of two or more existing
corporations to form a new corporation and the termination of
existence of the old ones.
Requirements and procedure for merger or consolidation:
1. The board of directors or trustees of each constituent corporation
shall approve a plan of merger or consolidation setting forth the
following:
a. The names of the constituent corporations;
b. The terms of the merger or consolidation and the mode of carrying
the same into effect;
c. A statement of changes, if any, in the articles of incorporation; and
d. Other provisions deemed necessary and desirable.
2. Approval of the plan by the stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the members in a non-stock
121
corporations of each constituent corporation at separate corporate
meetings called for the purpose;
3. Prior notice of such meeting, with a copy or summary of the plan of
merger or consolidation shall be given to all stockholders or members
at least 2 weeks prior to the scheduled meeting, either personally or by
registered mail stating the purpose thereof;
4. Execution of the articles of merger or consolidation by each
constituent corporation to be signed by the president or vice-president
and certified by the corporate secretary or assistant secretary setting
forth the following:
a. The plan of the merger or consolidation;
b. As to stock corporations, the number of shares outstanding, or in
the case of non-stock corporations, the number of members; and
c. As to each corporation, the number of shares or members voting for
and against such plan, respectively.
5. Submission of the articles of merger or consolidation in
quadruplicate to the SEC subject to the requirement of that if it
involves corporations under the direct supervision of any other
government agency or governed by special laws the favorable
recommendation of the government agency concerned shall first be
secured; and
6. Issuance of the certificate of merger or consolidation by the SEC at
which time the merger or consolidation shall be effective. If the plan,
however, is believed to be contrary to law, the SEC shall set a hearing
to give the corporations concerned an opportunity to be heard upon
proper notice and thereafter, the SEC shall proceed as provided in the
Code.
Any amendment to the plan of merger or consolidation must be
approved by majority vote of the respective boards of directors or
trustees of all the constituent corporations and ratified by the
affirmative vote of stockholders representing at least 2/3 of the
outstanding capital stock or of 2/3 of the members of each of the
constituent corporations.
Mergers and consolidations may not be entered into for the purpose of
circumventing the law against monopolies and illegal combinations in
restraint of trade or for purposes of fraud.
Effects of merger or consolidation:
1. There will only be a single corporation. In case of merger, the
surviving corporation, or in case of consolidation, the consolidated
corporation;
2. Termination of the corporate existence of the constituent
corporations, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation will possess all the
rights, privileges, immunities and powers and shall be subject to all
the duties and liabilities of a corporation organized under the Code;
4. The surviving or the consolidated corporation shall possess all the
rights, privileges, immunities and franchises of the constituent
corporations; and all property and all receivables due on whatever
account, including subscriptions to shares and other choses in action,
and all and every other interest of, or belonging to, or due to each
constituent corporation, shall be deemed transferred to and vested in
such surviving or consolidated corporation without further act or deed;
and
5. The surviving or consolidated corporation shall be responsible and
liable for all the liabilities and obligations of each of the constituent
corporations; and any pending claim, action or proceeding brought by
or against any of such constituent corporations may be prosecuted by
or against the surviving or consolidated corporation. The rights of
creditors or liens upon the property of any of such constituent
corporations shall not be impaired by such merger or consolidation.
Merger or consolidation does not become effective upon the mere
agreement of the constituent corporations. It shall be effective only
upon the issuance of a certificate of merger. (Associated Bank vs. CA)

PNB vs Andrada Electric GR 142936 2002
1. Corporate Law; A corporation that purchases the assets of
another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate
consideration for such assets; Exceptions.-
As a rule, a corporation that purchases the assets of another will not
be liable for the debts of the selling corporation, provided the former
acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: (1) where
the purchaser expressly or impliedly agrees to assume the debts, (2)
where the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the
transaction is fraudulently entered into in order to escape liability
for those debts.
2. Corporate Law; A corporation is an artificial being created by
operation of law; It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which
it may be related.-
A corporation is an artificial being created by operation of law. It
possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from the persons composing
it, as well as from any other legal entity to which it may be related.
This is basic.
3. Corporate Law; Piercing the Corporate Veil; The corporate mask
may be removed or the corporate veil pierced when the corporation
is just an alter ego of a person or of another corporation; The
corporate veil will justifiably be impaled only when it becomes a
shield for fraud, illegality or inequity committed against third
persons.-
Equally well-settled is the principle that the corporate mask may be
removed or the corporate veil pierced when the corporation is just
an alter ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
4. Corporate Law; Piercing the Corporate Veil; Court must be
certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in
disregard of its rights; Wrongdoings must be clearly and
convincingly established.-
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The
wrongdoing must be clearly and convincingly established; it cannot
be presumed. Otherwise, an injustice that was never unintended may
result from an erroneous application.
5. Corporate Law; Piercing the Corporate Veil; Elements before
piercing the veil of corporate fiction may be allowed.-
Piercing the veil of corporate fiction may be allowed only if the
following elements concur: (1) control—not mere stock control, but
complete domination—not only of finances, but of policy and
business practice in respect to the transaction attacked, must have
been such that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; (2) such control
must have been used by the defendant to commit a fraud or a wrong
to perpetuate the violation of a statutory or other positive legal duty,
or a dishonest and an unjust act in contravention of plaintiff ’s legal
right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of.
6. Corporate Law; Consolidation; Merger; Consolidation and
Merger Distinguished.-
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A consolidation is the union of two or more existing entities to form a
new entity called the consolidated corporation. A merger, on the
other hand, is a union whereby one or more existing corporations
are absorbed by another corporation that survives and continues the
combined business.
7. Corporate Law; Consolidation; Merger; Merger does not become
effective upon the mere agreement of the constituent corporations;
There must be an express provision of law authorizing them; For a
valid merger or consolidation, the approval by the Securities and
Exchange Commission of the article of merger or consolidation is
required.-
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. Since a merger or
consolidation involves fundamental changes in the corporation, as
well as in the rights of stockholders and creditors, there must be an
express provision of law authorizing them. For a valid merger or
consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is
required. These articles must likewise be duly approved by a
majority of the respective stockholders of the constituent
corporations.
Procedure
Plan of merger or Consolidation sec 76
Section 76. Plan or merger of consolidation. - Two or more
corporations may merge into a single corporation which shall be one
of the constituent corporations or may consolidate into a new single
corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the
merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying
the same into effect;
3. A statement of the changes, if any, in the articles of incorporation
of the surviving corporation in case of merger; and, with respect to the
consolidated corporation in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations
organized under this Code; and
4. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.
SH or members Approval sec 77
Section 77. Stockholder's or member's approval. - Upon approval by
majority vote of each of the board of directors or trustees of the
constituent corporations of the plan of merger or consolidation, the
same shall be submitted for approval by the stockholders or members
of each of such corporations at separate corporate meetings duly called
for the purpose. Notice of such meetings shall be given to all
stockholders or members of the respective corporations, at least two
(2) weeks prior to the date of the meeting, either personally or by
registered mail. Said notice shall state the purpose of the meeting and
shall include a copy or a summary of the plan of merger or
consolidation. The affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital stock of each
corporation in the case of stock corporations or at least two-thirds (2/3)
of the members in the case of non-stock corporations shall be
necessary for the approval of such plan. Any dissenting stockholder in
stock corporations may exercise his appraisal right in accordance with
the Code: Provided, That if after the approval by the stockholders of
such plan, the board of directors decides to abandon the plan, the
appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made,
provided such amendment is approved by majority vote of the
respective boards of directors or trustees of all the constituent
corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members of each of the constituent
corporations. Such plan, together with any amendment, shall be
considered as the agreement of merger or consolidation.
Articles of Merger or Consolidation sec 78
Section 78. Articles of merger or consolidation. - After the approval
by the stockholders or members as required by the preceding section,
articles of merger or articles of consolidation shall be executed by each
of the constituent corporations, to be signed by the president or vice-
president and certified by the secretary or assistant secretary of each
corporation setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in
the case of non-stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for
and against such plan, respectively.
Approval by SEC sec 79
Section 79. Effectivity of merger or consolidation. - The articles of
merger or of consolidation, signed and certified as herein above
required, shall be submitted to the Securities and Exchange
Commission in quadruplicate for its approval: Provided, That in the
case of merger or consolidation of banks or banking institutions,
building and loan associations, trust companies, insurance companies,
public utilities, educational institutions and other special corporations
governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained. If the
Commission is satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with the provisions of this
Code and existing laws, it shall issue a certificate of merger or of
consolidation, at which time the merger or consolidation shall be
effective.
If, upon investigation, the Securities and Exchange Commission has
reason to believe that the proposed merger or consolidation is contrary
to or inconsistent with the provisions of this Code or existing laws, it
shall set a hearing to give the corporations concerned the opportunity
to be heard. Written notice of the date, time and place of hearing shall
be given to each constituent corporation at least two (2) weeks before
said hearing. The Commission shall thereafter proceed as provided in
this Code.
Effects of Merger or consolidation sec 80
Section 80. Effects of merger or consolidation. - The merger or
consolidation shall have the following effects:
1. The constituent corporations shall become a single corporation
which, in case of merger, shall be the surviving corporation designated
in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporations shall cease,
except that of the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the
rights, privileges, immunities and powers and shall be subject to all
the duties and liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and
thereafter possess all the rights, privileges, immunities and franchises
of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including
subscriptions to shares and other choses in action, and all and every
123
other interest of, or belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such
surviving or consolidated corporation without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and
liable for all the liabilities and obligations of each of the constituent
corporations in the same manner as if such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any
pending claim, action or proceeding brought by or against any of such
constituent corporations may be prosecuted by or against the surviving
or consolidated corporation. The rights of creditors or liens upon the
property of any of such constituent corporations shall not be impaired
by such merger or consolidation.
Associated Bank vs CA GR 123793 1998
1. Corporate Law; A corporation that purchases the assets of another
will not be liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for such
assets; Exceptions.-
As a rule, a corporation that purchases the assets of another will not
be liable for the debts of the selling corporation, provided the former
acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: (1) where
the purchaser expressly or impliedly agrees to assume the debts, (2)
where the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction
is fraudulently entered into in order to escape liability for those debts.
2. Corporate Law; A corporation is an artificial being created by
operation of law; It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which
it may be related.-
A corporation is an artificial being created by operation of law. It
possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from the persons composing it,
as well as from any other legal entity to which it may be related. This
is basic.
3. Corporate Law; Piercing the Corporate Veil; The corporate mask
may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation; The corporate
veil will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons.-
Equally well-settled is the principle that the corporate mask may be
removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably
be impaled only when it becomes a shield for fraud, illegality or
inequity committed against third persons.
4. Corporate Law; Piercing the Corporate Veil; Court must be certain
that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its
rights; Wrongdoings must be clearly and convincingly established.-
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an
erroneous application.
5. Corporate Law; Piercing the Corporate Veil; Elements before
piercing the veil of corporate fiction may be allowed.-
Piercing the veil of corporate fiction may be allowed only if the
following elements concur: (1) control—not mere stock control, but
complete domination—not only of finances, but of policy and
business practice in respect to the transaction attacked, must have been
such that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; (2) such control must have
been used by the defendant to commit a fraud or a wrong to perpetuate
the violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of plaintiff ’s legal right; and (3) the
said control and breach of duty must have proximately caused the
injury or unjust loss complained of.
6. Corporate Law; Consolidation; Merger; Consolidation and Merger
Distinguished.-
A consolidation is the union of two or more existing entities to form a
new entity called the consolidated corporation. A merger, on the other
hand, is a union whereby one or more existing corporations are
absorbed by another corporation that survives and continues the
combined business.
7. Corporate Law; Consolidation; Merger; Merger does not become
effective upon the mere agreement of the constituent corporations;
There must be an express provision of law authorizing them; For a
valid merger or consolidation, the approval by the Securities and
Exchange Commission of the article of merger or consolidation is
required.-
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. Since a merger or
consolidation involves fundamental changes in the corporation, as
well as in the rights of stockholders and creditors, there must be an
express provision of law authorizing them. For a valid merger or
consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is
required. These articles must likewise be duly approved by a majority
of the respective stockholders of the constituent corporations.
Filipinas Port Services Inc., vs NLRC GR 97237 1991
1. Remedial Law; Evidence; Findings of administrative agencies
which have acquired expertise because their jurisdiction is confined to
specific matters generally accorded not only respect but at times even
finality.-
We see no reason to disturb the findings of fact of the public
respondent, supported as they are by substantial evidence in the light
of the well established principle that findings of administrative
agencies which have acquired expertise because their jurisdiction is
confined to specific matters are generally accorded not only respect
but at times even finality, and that judicial review by this Court on
labor cases does not go so far as to evaluate the sufficiency of the
evidence upon which the Labor Arbiter and the NLRC based their
determinations but are limited to issues of jurisdiction or grave abuse
of discretion.
2. Labor Law; Merger; By the fact of the merger, a succession of
employment rights and obligations had occurred between Filport and
the private respondents.-
Thus, granting that Filport had no contract whatsoever with the private
respondents regarding the services rendered by them prior to February
16, 1977, by the fact of the merger, a succession of employment rights
and obligations had occurred between Filport and the private
respondents. The law enforced at the time of the merger was Section
3 of Act No. 2772 which took effect on March 6, 1918.
3. Labor Law; Merger; The intention to continue the employer-
employee relationships of the individual companies with its
employees through Filport clearly indicated.-
As earlier stated, it was mandated that Filport shall absorb all labor
force and necessary personnel complement of the merging operators,
thus, clearly indicating the intention to continue the employer-
employee relationships of the individual companies with its
employees through Filport.
4. Labor Law; Merger; The alleged memorandum of the PPA
Assistant General Manager exonerating Filport from any liability
arising from and as a result of the merger is contrary to public policy
and violative of the worker’s right to security of tenure.-
The alleged memorandum of the PPA Assistant General Manager
exonerating Filport from any liability arising from and as a result of
124
the merger is contrary to public policy and is violative of the workers’
right to security of tenure. Said memorandum was issued in response
to a query of the PMU Officer-in-Charge and was not even published
nor made known to the workers who came to know of its existence
only at the hearing before the NLRC.
5. Labor Law; Merger; Principle involved in the case cited by the First
Division applies only where the transferee is an entirely new
corporation with a distinct personality from the integrating firm.-
The principle involved in the case cited by the First Division
(Fernando v. Angat Labor Union [supra] applies only when the
transferee is an entirely new corporation with a distinct personality
from the integrating firms and NOT where the transferee was found to
be merely an alter ego of the different merging firms, as in this case.
Thus, Filport has the obligation not only to absorb the workers of the
dissolved companies but also to include the length of service earned
by the absorbed employees with their former employers as well. To
rule otherwise would be manifestly less than fair, certainly, less than
just and equitable.
6. Labor Law; Constitutional Law; To deny the private respondents
the fruits of their labor corresponding to the time they worked with
their previous employers would render at naught the constitutional
provisions on labor protection.-
Finally, to deny the private respondents the fruits of their labor
corresponding to the time they worked with their previous employers
would render at naught the constitutional provisions on labor
protection. In interpreting the protection to labor and social justice
provisions of the Constitution and the labor laws, and rules and
regulations implementing the constitutional mandate, the Supreme
Court has always adopted the liberal approach which favors the
exercise of labor rights.
REHABILITATION
PVB employees Union NUBE vs Vega GR 105364 2001
1. Banks and Banking; Liquidation; Rehabilitation; Philippine
Veterans Bank; A liquidation court may not continue with the
liquidation pro-ceedings of the Philippine Veterans Bank after
Congress has mandated its rehabilitation and reopening.-
Republic Act No. 7169 entitled “An Act To Rehabilitate The
Philippine Veterans Bank Created Under Republic Act No. 3518,
Providing The Mechanisms Therefor, And For Other Purposes,”
which was signed into law by President Corazon C. Aquino on January
2, 1992 and which was published in the Official Gazette on February
24, 1992, provides in part for the reopening of the Philippine Veterans
Bank together with all its branches within the period of three (3) years
from the date of the reopening of the head office. The law likewise
provides for the creation of a rehabilitation committee in order to
facilitate the implementation of the provisions of the same. Pursuant
to said R.A. No. 7169, the Rehabilitation Committee submitted the
proposed Rehabilitation Plan of the PVB to the Monetary Board for
its approval. Meanwhile, PVB filed a Motion to Terminate
Liquidation of Philippine Veterans Bank dated March 13, 1992 with
the respondent judge praying that the liquidation proceedings be
immediately terminated in view of the passage of R.A. No. 7169. On
April 10, 1992, the Monetary Board issued Monetary Board
Resolution No. 348 which approved the Rehabilitation Plan submitted
by the Rehabilitation Committee. Thereafter, the Monetary Board
issued a Certificate of Authority allowing PVB to reopen. On June 3,
1992, the liquidator filed A Motion for the Termination of the
Liquidation Proceedings of the Philippine Veterans Bank with the
respondent judge. As stated above, the Court, in a Resolution dated
June 8, 1992, issued a temporary restraining order in the instant case
restraining respondent judge from further proceeding with the
liquidation of PVB. On August 3, 1992, the Philippine Veterans Bank
opened its doors to the public and started regular banking operations.
Clearly, the enactment of Republic Act No. 7169, as well as the
subsequent developments has rendered the liquidation court functus
officio. Consequently, respondent judge has been stripped of the
authority to issue orders involving acts of liquidation.
2. Banks and Banking; Liquidation; Rehabilitation; Philippine
Veterans Bank; Words and Phrases;“Liquidation” and
“Rehabilitation,” Explained.-
Liquidation, in corporation law, connotes a winding up or settling with
creditors and debtors. It is the winding up of a corporation so that
assets are distributed to those entitled to receive them. It is the process
of reducing assets to cash, discharging liabilities and dividing surplus
or loss. On the opposite end of the spectrum is rehabilitation which
connotes a reopening or reorganization. Rehabilitation contemplates a
continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation
and solvency.
3. Banks and Banking; Liquidation; Rehabilitation; Philippine
Veterans Bank; The concept of liquidation is diametrically opposed or
contrary to the concept of rehabilitation, such that both cannot be
undertaken at the same time.-
It is crystal clear that the concept of liquidation is diametrically
opposed or contrary to the concept of rehabilitation, such that both
cannot be undertaken at the same time. To allow the liquidation
proceedings to continue would seriously hinder the rehabilitation of
the subject bank.
4. Statutes; Republic Act No. 7169; Effectivity of Statutes; Where the
statute provides for effectivity upon its approval, said law becomes
effective on the date of its approval; Republic Act No. 7169 was
signed into law by the President on 2 January 1992 and became
effective on said date.-
While as a rule, laws take effect after fifteen (15) days following the
completion of their publication in the Official Gazette or in a
newspaper of general circulation in the Philippines, the legislature has
the authority to provide for exceptions, as indicated in the clause
“unless otherwise provided.” In the case at bar, Section 10 of R.A. No.
7169 provides: Sec. 10. Effectivity.—This Act shall take effect upon
its approval. Hence, it is clear that the legislature intended to make the
law effective immediately upon its approval. It is undisputed that R.A.
No. 7169 was signed into law by President Corazon C. Aquino on
January 2, 1992. Therefore, said law became effective on said date.
5. Statutes; Republic Act No. 7169; Effectivity of Statutes; Assuming
that publication is necessary for the effectivity of Republic Act No.
7169, then it became legally effective on 24 February 1992, the date
when the same was published in the Official Gazette.-
Assuming for the sake of argument that publication is necessary for
the effectivity of R.A. No. 7169, then it became legally effective on
February 24, 1992, the date when the same was published in the
Official Gazette, and not on March 10, 1992, as erroneously claimed
by respondents Central Bank and Liquidator.
PAL vs Spouses Sadic GR 146698 2002
1. Jurisdiction; Courts; Securities and Exchange Commission; A.M.
No. 00-8-10-SC transferred from the SEC to Regional Trial Courts,
all petitions for rehabilitation filed by corporations, partnerships, and
associations under P.D. 902-A in accordance with the amendatory
provisions of Republic Act No. 8799.-
On 15 December 2000, the Supreme Court, in A.M. No. 00-8-10-SC,
adopted the Interim Rules of Procedure on Corporate Rehabilitation
and directed to be transferred from the SEC to Regional Trial Courts,
all petitions for rehabilitation filed by corporations, partnerships, and
associations under P.D. 902-A in accordance with the amendatory
provisions of Republic Act No. 8799. The rules require trial courts to
issue, among other things, a stay order in the “enforcement of all
claims, whether for money or otherwise, and whether such
enforcement is by court action or otherwise,” against the corporation
under rehabilitation, its guarantors and sureties not solidarily liable
with it.
2. Jurisdiction; Courts; Securities and Exchange Commission; Upon
the appointment of a management committee, rehabilitation receiver,
125
board or body pursuant to the decree, “all actions” for claims against
the distressed corporation “pending before any court, tribunal, board
or body shall be suspended accordingly.”-
The interim rules must likewise be read and applied along with Section
6(c) of P.D. 902-A, as so amended, directing that upon the
appointment of a management committee, rehabilitation receiver,
board or body pursuant to the decree, “all actions” for claims against
the distressed corporation “pending before any court, tribunal, board
or body shall be suspended accordingly.”
3. Jurisdiction; Courts; Securities and Exchange Commission; Claim
of private respondents against petitioner PAL is a money claim which
the law requires to be suspended pending the rehabilitation
proceedings.-
Verily, the claim of private respondents against petitioner PAL is a
money claim for the missing luggages, a financial demand, that the
law requires to be suspended pending the rehabilitation proceedings.
RCBC vs IAC gr 74851 1999
1. Corporation Law; Creditors; Issue of whether or not preferred
creditors of distressed corporations stand on equal footing with all
other creditors gains relevance and materiality only upon the
appointment of a management committee, rehabilitation receiver,
board, or body.-
The issue of whether or not preferred creditors of distressed
corporations stand on equal footing with all other creditors gains
relevance and materiality only upon the appointment of a management
committee, rehabilitation receiver, board, or body. Insofar as
petitioner RCBC is concerned, the provisions of Presidential Decree
No. 902-A are not yet applicable and it may still be allowed to assert
its preferred status because it foreclosed on the mortgage prior to the
appointment of the management committee on March 18, 1985. The
Court, therefore, grants the motion for reconsideration on this score.
2. Corporation Law; Creditors; Suspension of claims against a
corporation under rehabilitation is counted or figured up only upon the
appointment of a management committee or a rehabilitation receiver.-
It is thus adequately clear that suspension of claims against a
corporation under rehabilitation is counted or figured up only upon the
appointment of a management committee or a rehabilitation receiver.
The holding that suspension of actions for claims against a corporation
under rehabilitation takes effect as soon as the application or a petition
for rehabilitation is filed with the SEC—may, to some, be more logical
and wise but unfortunately, such is incongruent with the clear
language of the law. To insist on such ruling, no matter how practical
and noble, would be to encroach upon legislative prerogative to define
the wisdom of the law—plainly judicial legislation.
3. Corporation Law; Creditors; Statutory Construction; When the law
is clear and free from any doubt or ambiguity, there is no room for
construction or interpretation; Only when the law is ambiguous or of
doubt-ful meaning may the court interpret or construe its true intent.-
It bears stressing that the first and fundamental duty of the Court is to
apply the law. When the law is clear and free from any doubt or
ambiguity, there is no room for construction or interpretation. As has
been our consistent ruling, where the law speaks in clear and
categorical language, there is no occasion for interpretation; there is
only room for application (Cebu Portland Cement Co. vs.
Municipality of Naga, 24 SCRA 708 [1968]). x x x Only when the law
is ambiguous or of doubtful meaning may the court interpret or
construe its true intent. Ambiguity is a condition of admitting two or
more meanings, of being understood in more than one way, or of
referring to two or more things at the same time. A statute is
ambiguous if it is admissible of two or more possible meanings, in
which case, the Court is called upon to exercise one of its judicial
functions, which is to interpret the law according to its true intent.
4. Corporation Law; Creditors; A petition for rehabilitation does not
always result in the appointment of a receiver or the creation of a
management committee; Instances before a management committee
and receivers may be appointed.-
As relevantly pointed out in the dissenting opinion, a petition for
rehabilitation does not always result in the appointment of a receiver
or the creation of a management committee. The SEC has to initially
determine whether such appointment is appropriate and necessary
under the circumstances. Under Paragraph (d), Section 6 of
Presidential Decree No. 902-A, certain situations must be shown to
exist before a management committee may be created or appointed,
such as: (1.) when there is imminent danger of dissipation, loss,
wastage or destruction of assets or other properties; or (2.) when there
is paralization of business operations of such corporations or entities
which may be prejudicial to the interest of minority stockholders,
parties-litigants or to the general public. On the other hand, receivers
may be appointed whenever: (1.) necessary in order to preserve the
rights of the parties-litigants; and/or (2.) protect the interest of the
investing public and creditors. (Section 6 [c], P.D. 902-A.)
5. Corporation Law; Creditors; Once a management committee,
rehabilitation receiver, board or body is appointed pursuant to
Presidential Decree 902-A, all actions for claims against a distressed
corporation pending before any court, tribunal, board or body shall be
suspended accordingly;Suspension shall not prejudice or render
ineffective the status of a secured creditor as compared to a totally
unse-; cured creditor; In the event that rehabilitation is no longer
feasible and claims against the distressed corporation would
eventually have to be settled, the secured creditors shall enjoy
preference over the unsecured creditors subject only to the provisions
of the Civil Code on Concurrence and Preferences of Credit.-
In other words, once a management committee, rehabilitation receiver,
board or body is appointed pursuant to P.D. 902-A, all actions for
claims against a distressed corporation pending before any court,
tribunal, board or body shall be suspended accordingly. This
suspension shall not prejudice or render ineffective the status of a
secured creditor as compared to a totally unsecured creditor. P.D. 902-
A does not state anything to this effect. What it merely provides is that
all actions for claims against the corporation, partnership or
association shall be suspended. This should give the receiver a chance
to rehabilitate the corporation if there should still be a possibility for
doing so. (This will be in consonance with Alemar’s, BF Homes,
Araneta, and RCBC insofar as enforcing liens by preferred creditors
are concerned.) However, in the event that rehabilitation is no longer
feasible and claims against the distressed corporation would
eventually have to be settled, the secured creditors shall enjoy
preference over the unsecured creditors (still maintaining PCIB
ruling), subject only to the provisions of the Civil Code on
Concurrence and Preferences of Credit (our ruling in State Investment
House, Inc. vs. Court of Appeals, 277 SCRA 209 [1997]).
6. Corporation Law; Creditors; Securities and Exchange
Commission; Securities and Exchange Commission acquires
jurisdiction over the distressed companies upon the submission of a
petition for suspension of payments; When the legal requirements are
complied with, it has the authority to issue injunctive reliefs for the
effective exercise of its jurisdiction.-
It is obvious from the above-quoted provisions that the SEC acquires
jurisdiction over the distressed companies upon the submission of a
petition for suspension of payments. And when the legal requirements
are complied with, it has the authority to issue injunctive reliefs for
the effective exercise of its jurisdiction. I would like to emphasize that
this power to issue restraining orders or preliminary injunctions, upon
the prayer of the petitioning corporation, may be the only buffer that
could save a company from being feasted on by any vulture- creditor,
prior to the appointment of a management committee or a
rehabilitation receiver.
DISSOLUTION
Dissolution sec 117
Section 117. Methods of dissolution. - A corporation formed or
organized under the provisions of this Code may be dissolved
voluntarily or involuntarily.
126
Dissolution – the extinguishment of the corporate franchise and the
termination of corporate existence.
General rule: When a corporation is dissolved, it ceases to be a
juridical entity and can no longer pursue the business for which it is
incorporated.
Exception: The corporation will continue as a body corporate for
another period of 3 years from the time it is dissolved for the purpose
of winding up its affairs and the liquidation of its assets.
Three modes of dissolution:
1. By expiration of the corporate term;
2. By voluntary surrender of its primary franchise (voluntary
dissolution); or
3. By the revocation of its corporate franchise (involuntary
dissolution).
DISTRIBUTION OF ASSETS UPON DISSOLUTION
Rules of distribution:
1. All liabilities and obligations of the corporation shall be paid,
satisfied and discharged, or adequate provision shall be made
therefore;
2. Assets held by the corporation upon a condition requiring return,
transfer or conveyance, and which condition occurs by reason of the
dissolution, shall be returned, transferred or conveyed in accordance
with such requirements;
3. Assets received and held by the corporation subject to limitations
permitting their use only for charitable, religious, benevolent,
educational or similar purposes, but not held upon a condition
requiring return, transfer or conveyance by reason of the dissolution,
shall be transferred or conveyed to one or more corporations, societies
or organizations engaged in activities in the Philippines substantially
similar to those of the dissolving corporation according to a plan of
distribution;
4. Assets other than those mentioned in the preceding paragraphs, if
any, shall be distributed in accordance with the provisions of the
articles of incorporation or the by-laws, to the extent that the articles
of incorporation or the by-laws, determine the distributive rights of
members, or any class or classes of members, or provide for
distribution; and
5. In any other case, assets may be distributed to such persons,
societies, organizations or corporations, whether or not organized for
profit, as may be specified in a plan of distribution.
Procedure and requirements for a plan of distribution of assets:
1. Majority vote of the board of trustees adopting a plan of
distribution;
2. Approval of such plan by at least 2/3 of the members having voting
rights present or represented by proxy at a regular or special meeting
for that purpose; and
3. Prior written notice setting forth the proposed plan of distribution
or a summary thereof and the date, time and place of such meeting
shall be given to each member entitled to vote, within the time and in
the manner provided in the Code for the giving of notice of meetings
to members.
EFFECTS OF DISSOLUTION
No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability
incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired by the subsequent
dissolution of said corporation.
Dissolution terminates a corporation‟s primary franchise and
generally prevents it from further exercising other or secondary
franchises which have been conferred to it.
Dissolution terminates the corporation‟s power to enter into contracts
or to continue the business as a going concern. (Hall vs. Piccio)
General rule: In a lease to a corporation, the rights and obligations
thereunder are not extinguished by the corporation‟s dissolution since
leases affect property rights and survives the death of parties. The
stockholders succeed to the rights and liabilities of the dissolved
corporation in an unexpired leasehold state which may be enforced by
or against the receiver or liquidating trustee.
Exception: The lease, by its terms, terminates when the corporation
ceases to exist.
Contracts for personal services are deemed terminated by the
dissolution of the corporation. There is an implied condition that the
contract shall terminate in such event. (Gelano vs. CA)
A dissolved corporation has no juridical personality; it ceases to exist
as a corporation and cannot apply for a new certificate or a secondary
franchise. (Buenaflor vs. Camarines Sur Industry Corp.)
The 3-year period allowed by the law is only for the purpose of
liquidation or winding up of corporate affairs. No act can be done for
the purpose of continuing the business for which it was established.
Neither can it enforce a contract executed prior to its dissolution.
(Cebu Port Labor Union vs. State Marine Co.)
The termination of the life of a juridical entity does not, by itself,
imply the diminution or extinction of rights demandable against such
juridical entity. Debts due to or against the corporation will not be
extinguished. Otherwise, it will amount to an impairment of contracts
or a denial of due process. (Gonzales vs. Sugar Regulatory
Administration)
Voluntary
SURRENDER OF FRANCHISE (VOLUNTARY DISSOLUTION)
Three modes of voluntary dissolution:
1. Voluntary dissolution where no creditors are affected;
2. Voluntary dissolution where creditors are affected; and
3. Shortening of corporate term.
No Creditors are affected sec 118
Section 118. Voluntary dissolution where no creditors are affected. -
If dissolution of a corporation does not prejudice the rights of any
creditor having a claim against it, the dissolution may be effected by
majority vote of the board of directors or trustees, and by a resolution
duly adopted by the affirmative vote of the stockholders owning at
least two-thirds (2/3) of the outstanding capital stock or of at least two-
thirds (2/3) of the members of a meeting to be held upon call of the
directors or trustees after publication of the notice of time, place and
object of the meeting for three (3) consecutive weeks in a newspaper
published in the place where the principal office of said corporation is
located; and if no newspaper is published in such place, then in a
newspaper of general circulation in the Philippines, after sending such
notice to each stockholder or member either by registered mail or by
personal delivery at least thirty (30) days prior to said meeting. A copy
of the resolution authorizing the dissolution shall be certified by a
majority of the board of directors or trustees and countersigned by the
secretary of the corporation. The Securities and Exchange
Commission shall thereupon issue the certificate of dissolution.
Voluntary dissolution where no creditors are affected
127
Formal and procedural requirements for voluntary dissolution where
no creditors are affected:
1. Majority vote of the board of directors or trustees;
2. Sending of notice to each stockholder or member either by
registered mail or personal delivery at least 30 days prior to the
meeting (scheduled by the board for the purpose of submitting the
board action to dissolve the corporation for approval of the
stockholders or members);
3. Publication of the notice of time, place and subject of the meeting
for 3 consecutive weeks in a newspaper published in the place where
the principal office of said corporation is located or in a newspaper of
general circulation in the Philippines;
4. Resolution adopted by the affirmative vote of the stockholders
owning at least 2/3 of the outstanding capital stock or 2/3 of the
members at the meeting duly called for the purpose;
5. A copy of the resolution authorizing the dissolution must be
certified by a majority of the board of directors or trustees and
countersigned by the corporate secretary; and
6. Issuance of a certificate of dissolution by the SEC.
The requirements and formalities provided by law for the dissolution
of corporations are mandatory such that failure to comply therewith
will have no effect on the legal existence of the corporation. A
corporation being a creation of law may only terminate its existence
in the manner prescribed by law.
A mere resolution by the stockholders or the board of directors of a
corporation to dissolve the same does not affect the dissolution of a
corporation. (Daguhoy Enterprises vs. Ponce)
Creditors are affected sec 119
Section 119. Voluntary dissolution where creditors are affected. -
Where the dissolution of a corporation may prejudice the rights of any
creditor, the petition for dissolution shall be filed with the Securities
and Exchange Commission. The petition shall be signed by a majority
of its board of directors or trustees or other officers having the
management of its affairs, verified by its president or secretary or one
of its directors or trustees, and shall set forth all claims and demands
against it, and that its dissolution was resolved upon by the affirmative
vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds (2/3) of the members
at a meeting of its stockholders or members called for that purpose.
If the petition is sufficient in form and substance, the Commission
shall, by an order reciting the purpose of the petition, fix a date on or
before which objections thereto may be filed by any person, which
date shall not be less than thirty (30) days nor more than sixty (60)
days after the entry of the order. Before such date, a copy of the order
shall be published at least once a week for three (3) consecutive weeks
in a newspaper of general circulation published in the municipality or
city where the principal office of the corporation is situated, or if there
be no such newspaper, then in a newspaper of general circulation in
the Philippines, and a similar copy shall be posted for three (3)
consecutive weeks in three (3) public places in such municipality or
city.
Upon five (5) day's notice, given after the date on which the right to
file objections as fixed in the order has expired, the Commission shall
proceed to hear the petition and try any issue made by the objections
filed; and if no such objection is sufficient, and the material allegations
of the petition are true, it shall render judgment dissolving the
corporation and directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the
debts of the corporation.
Voluntary dissolution where creditors are affected
Formal and procedural requirements for voluntary dissolution where
creditors are affected:
1. Affirmative vote of the stockholder representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the members at a meeting
duly called for that purpose;
2. Petition for the dissolution shall be filled with the SEC signed by
the majority of its board of directors or trustees or other officers having
the management of its affairs, verified by the president or secretary or
one of its directors or trustees, setting forth all claims and demands
against it;
3. Issuance of an order by the SEC reciting the purpose of the petition
and fixing the date on or before which objections thereto may be filed
by any person, which date shall not be less than 30 days nor more than
60 days after entry of the order;
4. Before such date, a copy of the order must be published once a week
for 3 consecutive weeks in a newspaper of general circulation
published in the city or municipality where the principal office is
situated or in a newspaper of general circulation in the Philippines;
5. Posting of the same order for 3 consecutive weeks in 3 public places
in such city or municipality;
6. Upon 5 days notice, given after the date on which the right to file
objects has expired, the SEC shall hear the petition and try any issue
made by the objections filed; and
7. Judgment dissolving the corporation and directing disposition of its
assets as justice requires and the appointment of a receiver (if
necessary in the court‟s discretion) to collect such assets and pay the
debts of the corporation.
The appointment of a receiver is only permissive and not mandatory.
The law is intended to let the stockholders have control of the assets
of the corporation upon dissolution and winding up of its affairs.
Involuntary Dissolution sec 121, sec 6, sec 2 of R66
Section 2. When Solicitor General or public prosecutor must
commence action. — The Solicitor General or a public prosecutor,
when directed by the President of the Philippines, or when upon
complaint or otherwise he has good reason to believe that any case
specified in the preceding section can be established by proof, must
commence such action.
Section 121. Involuntary dissolution. - A corporation may be
dissolved by the Securities and Exchange Commission upon filing of
a verified complaint and after proper notice and hearing on the
grounds provided by existing laws, rules and regulations.
INVOLUNTARY DISSOLUTION
Requirements for involuntary dissolution by the SEC:
1. Filing of a verified complaint; and
2. Proper notice and hearing on the grounds provided by laws, rules
and regulations.
Notwithstanding the fact that RA 8799 transferred the jurisdiction of
the SEC under Sec. 5 of PD 902-A to the Special Commercial Courts,
the same law granted the SEC concurrent jurisdiction over revocation
proceedings. Sec. 5 (m) of RA 8799 provides that the SEC shall have
the power to suspend or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations, partnerships or
associations, upon any ground provided by law.
Grounds for involuntary dissolution under Sec. 6, PD 902-A:
1. Fraud in procuring the certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is
doing to the great prejudice of or damage to the general public;
128
3. Refusal to comply or defiance of any lawful order of the
Commission restraining commission of acts which would amount to a
grave violation of its franchise;
4. Continuous inoperation for a period of at least 5 years;
5. Failure to file by-laws within the required period; and
6. Failure to file required reports in appropriate forms as determined
by the Commission within the prescribed period.
Other grounds provided for the in Corporation Code:
1. Violation of any provision of the Code (Sec. 144);
2. In case of deadlock in a close corporation (Sec. 105);
3. In a close corporation, any acts of directors, officers or those in
control of the corporation which is illegal or fraudulent or dishonest
or oppressive or unfairly prejudicial to the
corporation or any stockholder or whenever corporate assets are being
misapplied or wasted (Sec. 105).
Other grounds can be found in special laws, e.g. the Securities
Regulation Code and the General Banking Act.
Courts proceed with extreme caution in the proceeding which have for
their object the forfeiture of corporate franchises, and a forfeiture will
not be allowed, except under express limitation, or for a plain abuse
of power by which the corporation fails to fulfill the design and
purpose of its organization. But when such abuses and violations
constitute or threaten a substantial injury to the public or such as to
amount to a violation of the fundamental conditions of the contract
(charter) by which the franchise were granted and thus defeat the
purpose of the grant, then dissolution will be granted. (Government
vs. Philippine Sugar Estates Co.)
The court has a discretion with respect to the infliction of capital
punishment upon corporations and there are certain misdemeanors and
misusers of franchises which should not be recognized as requiring
their dissolution. (Government vs. El Hogar)
That the corporation is guilty of willful and repeated violation of the
law and that its continuance inflicts substantial injury to the public
warrants its dissolution. (Republic vs. Security Credit)
Relief by dissolution will be awarded only where no other adequate
remedy is available, and is not available where the rights of the
stockholders can be, or are, protected in some other way. The several
acts of misuse and misapplication of the funds and/or assets of the
corporation were committed more particularly by the corporation‟s
president, for the commission of which they may be held personally
liable. (Republic vs. Bisaya Land Transportation Co., Inc.)
Under the present state of law, any stockholder or member of a
corporation can institute a dissolution proceeding against his own
corporation before the proper forum.
The Special Commercial Courts, shall hear and decide cases involving
intra-corporate dispute 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. (PD
902-A)
The SEC has concurrent jurisdiction to suspend, revoke, after proper
notice and hearing, the franchise or certificate of registration of
corporations, partnership or associations upon any of the grounds
provided by law. (Sec. 5(m) RA 8799)
The existence of a de jure corporation may be determined in a private
suit for its dissolution between stockholders, without intervention of
the State. (Hall vs. Piccio)
In a close corporation, a petition for the dissolution of the corporation
may be instituted by any shareholder on the ground of mere
dishonesty.
Quo warranto
Republic vs Bisaya Land Transportation 81 scra 9
1. Quo warranto; Dissolution; Evidence to prove quo warranto
dissolution of private corporation must be sufficient; When quo
warranto should not be granted.-
After a very careful and deliberate consideration of the evidence
adduced by petitioner, the lower court came to the conclusion that the
same did not really warrant a quo warranto by the State that could truly
justify to decapitate corporate life, and that the corporate acts or
omissions complained of had not resulted in substantial injury to the
public, nor were they wilful and clearly obdurate. The court found that
the several acts of misuse and misapplication of the funds and/or assets
of the Bisaya Land Transportation Co., Inc. were committed more
particularly by the respondent Dr. Manuel Cuenco with the
cooperation of Jose P. Velez, for the commission of which they may
be personally held liable. There appears to be no reason for us to
disregard the findings of the trial court, which, applying well-settled
doctrines, ought to be given due weight and credit. x x x Besides, the
court a quo found that the controversy between the parties was more
personal than anything else and did not at all affect public interest.
2. Quo warranto; Dissolution; Solicitor General’s motion to dismiss
quo warranto proceedings against private corporation, Purpose of;
When relief by dissolution awarded a party.-
The Solicitor General himself asserts that the only purpose of his
motion for the dismissal of this quo warranto is to take the State out
of an unnecessary court litigation, so that the dismissal of the case
would result in the disposition solely of the quo warranto by and
between petitioner Republic of the Philippines and the respondents
named therein. Other interested parties who might feel aggrieved,
therefore, would not be without their remedies since they can still
maintain whatever claims they may have against each other. It has
been held that relief by dissolution will be awarded only where no
other adequate remedy is available, and is not available where the
rights of the stockholders can be, of are, protected in some other way.
3. Quo warranto; Dissolution; Solicitor General’s power to
discontinue State’s litigation and to have quo warranto against private
corporation dismissed is subject to court approval and exceptions.-
Meeting squarely the issue of whether or not the Solicitor General is
vested with absolute and unlimited power to discontinue the State’s
litigation and, accordingly, to have the quo warranto petition
dismissed, if and when in his opinion this should be done, the general
rule seems to be that the plaintiff may do so with the approval of the
court, subject to well-defined exceptions (such as, for example, where
the answer sets up a counterclaim which cannot stand independently
of the main action).
4. Judgments; Judgment on consent and judgment by confession
distinguished.-
A motion for judgment on consent is not to be equated with a judgment
by confession. The former is one the provisions and terms of which
are settled and agreed upon by the parties to the action, and which is
entered in the record by the consent and sanction of the court. Hence,
there must be an unqualified agreement among the parties to be bound
by the judgment on consent before said judgment may be entered. The
court does not have the power to supply terms, provisions, or essential
details not previously agreed to by the parties. x x x. On the other hand,
a judgment by confession is not a plea but an affirmative and voluntary
act of the defendant himself. Here, the court exercises a certain amount
of supervision over the entry of judgment, as well as equitable
jurisdiction over their subsequent status.
129
5. Actions; Cross-claim; Rules of Court does not prohibit dismissal of
quo warranto petition just because a cross-claim which cannot be
subject of an independent adjudication has been pleaded; Reasons-
Sec. 2. Rule 17 of the Rules of Court governs dismissal of an action
by order of the court, prohibiting such dismissal against defendant’s
objection where a counterclaim which cannot remain pending for
independent adjudication by the court has been pleaded by a defendant
prior to the service upon him of plaintiff’s motion to dismiss. It
advisedly omits reference to a cross-claim as a factor to be considered
by the court in determining whether, considering the circumstances set
forth therein, an action should be dismissed. The reason could be that
the framers of the rules realized that the policy against dismissal of an
action behind the provision involved, while applicable to a
counterclaim, is not so with respect to a cross-claim, which is, to
prevent a defendant from being damaged and put to expense in
preparing for his defense, only to see the case dismissed without
prejudice at the instance of plaintiff, thereby putting the defendant “to
expense literally for nothing.” On the other hand, the dismissal of the
main action would only benefit the cross-claimant and not result in
any prejudice or disadvantage to him.
6. Actions; Cross-claim; Nature of cross-claim; Where cross-claim
proper; Dismissal of main action does not remove a party’s rights
under his cross-claim since he may subsequently bring the
corresponding action based thereon.-
A cross-claim is allowed to be interposed by a party against a co-party
to enable the former to recover from the latter whatever he might be
made liable to pay to the plaintiff. Considering then the nature of a
cross-claim, we fail to grasp the logic in appellant Miguel Cuenco’s
objection to the dismissal of the main action—the quo warranto
proceedings. The withdrawal or dismissal of said action would
effectively prevent him from suffering any prejudice or exonerate him
from any liability, to evade or mitigate which, the rules grant him the
right to file a cross-claim. Moreover, the dismissal of the main action
would not wipe out his rights under his cross-claim, since, if minded
to do so, he may subsequently bring the corresponding action based
thereon. x x x A cross-clam is proper only where the cross-claimant
stands to be prejudiced by the filing of an action against him. Hence,
where such action has been dismissed, his cross-claim would have no
leg to stand on.
Government vs philippine Sugar estate 38 Phil 15
1. "QUO WARKANTO; "FORFEITURE OF FKANCHISE OF
COBPORATION.-
Held: Under the facts stated in the decision, that the defendant and
appellant had, in the management of its business, violated the
provisions of its charter and should, therefore, be dissolved as a
corporation and prohibited from continuing to do business in the
Philippine Islands unless it complies with the conditions mentioned in
the decision
Republic vs Security Credit 19 scra 58
Banks; Nature of a bank; Accepting savings account deposits and
lending the amounts deposited constitute banking —A bank is a
moneyed institute founded to facilitate the borrowing, lending and
safekeeping of money and to deal in notes, bills of exchange and
credits. An investment company, which lends out the money of its
customers, collects the interest and charges a commission to both
lender and borrower, is a bank. Any person engaged in the business
carried on by banks of deposit, of discount, or of circulation is doing
a banking business, although but one of these functions is exercised.
A corporation. which accepted savings account deposits and lent the
money deposited to borrowers, engaged in banking, as the term is used
in Section 2 of the General Banking Act. It violated the law because it
did not secure any administrative authority to engage in banking.
Same; When corporation which engaged in illegal banking, may be
dissolved.—A corporation, which misused its corporate funds and
franchise by engaging in illegal banking, may be dissolved. Its acts
were willful, were repeated 59,463 times and the continuance of its
illegal operations causes public injury owing to the number of persons
affected thereby. A writ of quo warranto for its dissolution is proper,
Courts; Supreme Court has concurrent jurisdiction with Court of First
Instance to issue writ of quo warranto.—This Court is vested with
original jurisdiction, concurrently with the Courts of First Instance, to
hear and decide quo warranto cases. Where in a quo
warranto proceeding to dissolve a corporation there is no dispute as to
the main facts and the principal issue is legal, the Supreme Court may
entertain the quo warranto action, instead of remanding the case to the
proper Court of First Instance, and dispose of the case promptly as
required by the public interest. However, where a quo warranto case
requires the presentation of evidence, it should be filed in the proper
Court of First Instance, which is generally better equipped than an
appellate court for the taking of testimony and the determination of
factual issues (Veraguth vs. Isabela Sugar Co., 57 Phil. 266).
Expiration of Term sec 122
Section 122. Corporate liquidation. - Every corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for
three (3) years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, the corporation is authorized
and empowered to convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs, any asset distributable
to any creditor or stockholder or member who is unknown or cannot
be found shall be escheated to the city or municipality where such
assets are located.
Except by decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and
liabilities.
EXPIRATION OF CORPORATE TERM
General rule: A corporation registered under the Corporation Code is
required to indicate its term of existence in the articles of
incorporation.
Exceptions:
1. Corporations sole; and
2. Religious societies.
A corporation ceases to exist and is automatically dissolved upon the
expiration of the term indicated in its articles of incorporation without
the need of formal proceeding. There is no need to for the institution
of a proceeding for quo warranto to determine the time and date of the
dissolution of a corporation because the period of corporate existence
is provided in the articles of incorporation. (PNB vs. CFI)
Shortening of Corporate term sec 120
130
Section 120. Dissolution by shortening corporate term. - A voluntary
dissolution may be effected by amending the articles of incorporation
to shorten the corporate term pursuant to the provisions of this Code.
A copy of the amended articles of incorporation shall be submitted to
the Securities and Exchange Commission in accordance with this
Code. Upon approval of the amended articles of incorporation of the
expiration of the shortened term, as the case may be, the corporation
shall be deemed dissolved without any further proceedings, subject to
the provisions of this Code on liquidation.
Dissolution by shortening the corporate term
Procedure to shorten the corporate term:
1. Approval by a majority vote of the board or directors or trustees.
2. Written notice of the proposed action and the time and place of
meeting shall be served to each stockholder or member either by mail
or by personal service.
3. Ratification by the stockholders representing at least 2/3 of the
outstanding capital stock or 2/3 of the members in case of non-stock
corporations.
4. Submission of the amended articles of incorporation to the SEC.
5. Approval of the SEC.
In case of a corporation sole, an authorization for the dissolution by
the particular religious denomination, sect or church is necessary.
A vote must cast at a duly constituted meeting. Written assent is
insufficient.
It is only upon the approval of the SEC that the corporation is deemed
dissolved.
Non-Use of Corporate Charter and Continuous Inoperation sec
22
Section 22. Effects on non-use of corporate charter and continuous
inoperation of a corporation. - If a corporation does not formally
organize and commence the transaction of its business or the
construction of its works within two (2) years from the date of its
incorporation, its corporate powers cease and the corporation shall be
deemed dissolved. However, if a corporation has commenced the
transaction of its business but subsequently becomes continuously
inoperative for a period of at least five (5) years, the same shall be a
ground for the suspension or revocation of its corporate franchise or
certificate of incorporation. (19a)
This provision shall not apply if the failure to organize, commence the
transaction of its businesses or the construction of its works, or to
continuously operate is due to causes beyond the control of the
corporation as may be determined by the Securities and Exchange
Commission.
Liquidation of Corporate Assets sec 122
LIQUIDATION AND WINDING UP
Liquidation and winding up – the collection of all corporate assets, the
payments of all its debts and settlement of its obligations and the
ultimate distribution of the corporate assets, if any of it remains, to all
stockholders in accordance with their proportionate stockholdings in
the corporation or in accordance with their respective contracts of
subscription (e.g. preferred stocks).
A dissolved corporation continues as a body corporate for a period of
3 years from the time of dissolution for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it
was established.
At any time during said three (3) years, the corporation is authorized
and empowered to convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs, any asset distributable
to any creditor or stockholder or member who is unknown or cannot
be found shall be escheated to the city or municipality where such
assets are located.
General rule: No corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all its
debts and liabilities.
Exceptions:
1. By decrease of capital stock; or
2. As otherwise allowed the Code.
Three methods of liquidation:
1. By the corporation itself though the Board of Directors.
2. By a Trustee appointed by the corporation.
3. By appointment of a receiver.
Mere appointment of a receiver without anything more does not imply
the dissolution of a corporation.
Pending actions by or against a corporation are abated upon expiration
of the period allowed by law for the liquidation of its affairs; but
trustees to whom the corporate assets have been conveyed may sue or
be sued as such in all matters connected with the liquidation. The
effect of conveyance is to make the trustees the legal owners of the
property conveyed, subject to the beneficial interest therein of
creditors and stockholders. (National Abaca Other Fibers Co. vs. Pore)
If the corporation carries out the liquidation of its assets through its
own officers and continues and defends the actions brought by or
against it, its existence shall terminate at the end of three years from
the time of dissolution; but if a receiver or assignee is appointed, as
has been done in the present case, with or without a transfer of its
properties within three years, the legal interest passes to the assignee,
the beneficial interest remaining in the members, stockholders,
creditors and other interested persons; and said assignee may bring an
action, prosecute that which has already been commenced for the
benefit of the corporation, or defend the latter against any other action
already
instituted or which may be instituted even outside of the period of
three years fixed for the offices of the corporation. (Sumera vs.
Valencia)
(Board of Liquidators vs. Kalaw)
The counsel who prosecuted and defended the interest of the
corporation and who appeared in behalf of the corporation may be
considered a trustee of the corporation at least with respect to the
matter in litigation only. The word “trustee” must be understood in its
general concept. (Gelano vs. CA)
A claim established against the corporation may be prosecuted against
the liquidator of such corporation even after the three years from its
dissolution. (Republic vs. Marsman Development Company)
Upon dissolution of the corporation its assets are held for the benefit
of its stockholder after payment of its debts and will be so distributed
131
to the said stockholder in accordance with their proportionate interest
in the corporation or their contracts of subscription.
Holders of preferred shares may be granted certain rights or privileges
upon dissolution.
General rule: The board of directors of a dissolved corporation is not
permitted to undertake any activity outside of the usual liquidation of
the corporation.
Exception: The stockholders of a dissolved corporation may convey
their respective shareholdings toward the creation of a new
corporation to continue the business of the old. Winding up is the sole
activity of a dissolved corporation that does not intend to incorporate
a new. (Chung Ka Bio vs. IAC)
If the three year period of liquidation has elapsed and no effort to
finally settle or close the corporate affairs was undertaken, those
having pecuniary interest in the corporate assets, including not only
the stockholders but likewise the creditors, acting for and its behalf,
may make proper representations with the SEC for working out a final
settlement of the corporate concern. (Clemente vs. CA)
Note: The above decision is an aberrant ruling. Once the three year
period for liquidation and winding up has elapsed without any trustee
or receiver being appointed, the assets of the corporation will be
escheated in favor of the Government thus barring the claims of
stockholders and creditors.
Buenaflor vs Camarines Sur Industry 108 scra 472
1. CERTIFICATE OF PUBLIC CONVENIENCE; EXPIRATION
OF CORPORATE LIFE OF GRANTEE.-
A corporation-grantee of a certificate of public convenience to operate
ice plant can not lawfully continue to sell ice after the expiration of its
corporate life. Neither can it apply for a new, certificate for it is
incapable of receiving a grant. It can only continue to exist for three
years for the purpose of winding up its affairs.
National Abaca vs Pore 2 scra 989
Corporations; Dissolution; Status of pending actions by or against
dissolved corporations.—In the absence of statutory provision to the
contrary, pending actions by or against a corporation are abated upon
expiration of the period allowed by law for the liquidation of its
affairs.
Same; Absence of authority to continue in its corporate name actions
instituted by a dissolved corporation within three years from
dissolution.—The Corporation Law contains no provision authorizing
a corporation, after three years from the expiration of its lifetime, to
continue in its corporate name actions instituted by it within said
period of three years. In fact, section 77 of said law provides that the
corporation shall “be continued as a body corporate for three (3) years
after the time when it would have been x x x dissolved, for the purpose
of prosecuting and defending suits by or against it x x x,” so that,
thereafter, it shall no longer enjoy corporate existence for such
purpose. For this reason, section 78 of the same law authorizes the
corporation, “at any time during said three years x x x to convey all of
its property to trustees for the benefit of members, stockholders,
creditors and others in interest”, evidently for the purpose, among
others, of enabling said trustees to prosecute and defend suits by or
against the corporation begun before the expiration of said period.
Tan tiong Bio vs CIR 100 Phil 86
1. PRIVATE CORPORATIONS; TAX LlABILITY OF A
DEFUNCT CORPORATION.-
The government can not insist on making a tax assessment against a
corporation that no longer exists and then turn around and oppose the
appeal questioning the legality of the assessment precisely on the
ground that the corporation isnon-existent, and has no longer capacity
to sue. The government can not adopt inconsistent stands and thereby
deprive the officers and directors of the defunct corporation of the
remedy to question the validity and correctness of the assessment for
which, if sustained, they would be held personally liable as
successors-in-interest to the corporate property.
2. PRIVATE CORPORATIONS; UNPAID DEFICIENCY
ASSESSMENTS; PROPER PARTIES IN INTEREST.-
The officers and directors of a defunct corporation are proper parties
in interest in so far as they may be held personally liable for the unpaid
deficiency assessments made against the defunct corporation.
Gelano vs CA 103 scra 90
1. Corporation Law; Attorneys; Trustee; A corporation with a
pending court action may still continue prosecuting or defending the
same for three years after its dissolution. Its legal counsel may be
considered its trustee for that case only.-
However, a corporation that has a pending action and which cannot be
terminated within the three-year period after its dissolution is
authorized under Section 78 to convey all its property to trustees to
enable it to prosecute and de fend suits by or against the corporation
beyond the three-year period. Although private respondent did not
appoint any trustee, yet the counsel who prosecuted and defended the
interest of the corporation in the instant case and who in fact in behalf
of the corporation may be considered a trustee of the corporation at
least with respect to the matter in litigation only. Said counsel had
been handling the case when the same was pending before the trial
court until it was appealed before the Court of Appeals and finally to
this Court. We therefore hold that there was a substantial compliance
with Section 78 of the Corporation Law and as such, private
respondent Insular Sawmill, Inc. could still continue prosecuting the
present case even beyond the period of three (3) years from the time
of its dissolution.
2. Corporation Law; Attorneys; Same.-
The word “trustee” as used in the corporation statute must be
understood in its general concept which could include the counsel to
whom was entrusted in the instant case, the prosecution of the suit
filed by the corporation. The purpose in the transfer of the assets of
the corporation to a trustee upon its dissolution is more for the
protection of its creditor and stockholders. Debtors like the petitioners
herein may not take advantage of the failure of the corporation to
transfer its assets to a trustee, assuming it has any to transfer which
petitioner has failed to show, in the first place. To sustain petitioners’
contention would be to allow them to enrich themselves at the expense
of another, which all enlighted legal systems condemn.
3. Husband and Wife; Obligations; The conjugal partnership is liable
for debts contracted by the husband.-
Petitioners contend that the obligations contracted by petitioner Carlos
Gelano from November 19, 1947 until August 18, 1950 (before the
effectivity of the New Civil Code) and from December 26, 1950 until
July 14, 1952 (during the effectivity of the New Civil Code) were his
personal obligations, hence, petitioners should not be held jointly and
severally liable. As regards the said issues, suffice it to say that with
the findings of the Court of Appeals that the obligation contracted by
petitioner-husband Carlos Gelano redounded to the benefit of the
family, the inevitable conclusion is that the conjugal property is liable
for his debt, pursuant to paragraph 1, Article 1408, Civil Code of 1889
which provision incidentally can still be found in paragraph 1, Article
161 of the New Civil Code. Only the conjugal partnership is liable,
not joint and several as erroneously described by the Court of Appeals,
the conjugal partnership being only a single entity.
Methods of Liquidation
Board of Liquidators vs Kalaw 20 scra 987
132
1. Courts; Judgment; Appeals.-
An appellate court may base its decision of affirmance of the judgment
below on a point or points ignored by the trial court on which said
court was in error.
2. Corporations; Three methods of winding up corporate affairs.-
Accepted in this jurisdiction are three methods by which a corporation
may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of
Court (which superseded Section 66 of the Corporation Law),
whereby, upon voluntary dissolution of a corporation, the court may
direct "such disposi- tion of its assets as justice requires, and may
appoint a receiver to collect such assets and pay the debts of the
corporation"; (2) under Section 77 of the Corporation Law, whereby a
corporation whose corporate existence is terminated, "shall
nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it
gradually to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established"; and (3) under
Section 78 of the Corporation Law, by virtue of which the corporation,
within the three-year period just mentioned, "is authorized and
empowered to convey all of its property to trustees for the benefit of
members, stockholders, creditors, and others interested,"
3. Board of Liquidators; Trustee for government.-
By Executive Order No. 372, the government, the sole stockholder,
abolished the National Coconut Corporation (NACOCO) and placed
its assets in the hands of the Board of Liquidators. The Board thus
became the trustee on behalf of the government. It was an express
trust. The legal interest became vested in the trustee, the Board of
Liquidators. The beneficial interest remained with the sole
stockholder, the government. The Board took the place of the
dissolved government corporations after the expiration of the statutory
three-year period for the liquidation of their affairs.
4. Board of Liquidators; No term for life of Board.-
No time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of various
government corporations. Its term of life is not fixed.
5. Board of Liquidators; Right of Board of Liquidators to proceed as
partyplaintiff; Case at bar.-
At no time had the government withdrawn the property. or the
authority to continue the present suit, from the Board of Liquidators.
Hence, the Board can prosecute this case to its final conclusion. The
provisions of Section 78 of the Corporation Law, the third method of
winding up corporate affairs, find application. The Board has
personality to proceed as party-plaintiff in this case.
6. Settlement of decedent's estate; Actions; Actions that
survive; Executors and administrators.-
The actions that survive against a decedent's executors or
administrators are: (1) actions to recover real and personal property
from the estate; (2) actions to enforce a lien thereon; and (3) actions
to recover damages for an injury to person or property. A suit to
recover damages, based on the alleged tortious acts of the manager of
a government corporation, survives. It is not a mere money claim that
is extinguished upon the death of a party.
7. Corporations; Implied authority of corporate officer to enter into
contracts.-
A corporate officer, entrusted with the general management and
control of its business, has implied authority to make any contract or
do any other act which is necessary or appropriate to the conduct of
the ordinary business of the corporation. As such officer, he may,
without any special authority from the Board of Directors, perform all
acts of an ordinary nature, which by usage or necessity are incident to
his office, and may bind the corporation by contracts in matters arising
in the usual course of business.
8. Corporations; Where similar acts of manager were approved by
directors.-
Where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind
the company without formal authorization of the board of directors. In
varying language, existence of such authority is established by proof
of the course of business, the usages and practices of the company and
by the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and about
the affairs of the corporation. Where the practice of the corporation
has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in Nacoco's behalf
without prior board approval, and the board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of
prior approval, the contracts of the general manager, under the given
circumstances, are valid corporate acts.
9. Corporations; Ratification by corporation of unauthorized contract
of its officers.-
Ratification by a corporation of an unauthorized act or contract by its
officers or others relates back to the time of the act or contract ratified
and is equivalent to original authority. The corporation and the other
party to the transaction are in precisely the same position as if the act
or contract had been authorized at the time. The adoption or ratif
ication of a contract by a corporation is nothing more nor less than the
making of an original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any ratification
or adoption is equivalent to a grant of prior authority.
10. Contracts; Bad faith.-
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive
or interest or ill-will; it partakes of the nature of fraud.
11. Damages; Damnum absque injuria.-
The present case is one of damnum absque injuria. Conjunction of
damage and wrong is here absent. There cannot be an actionable
wrong if either one or the other is wanting.
China Banking vs Michelin 58 Phil 261
1. CORPORATIONS; RECEIVERSHIP; PROCEDURE BY
COURT IN APPROVING CLAIMS.-
Claims against a corporation in the hands of a receiver should not be
approved and paid without some formal and regular proceeding
whereby their justice and correctness may be inquired into after a
reasonable opportunity has been given to all the parties in interest to
present objections and submit evidence in support of such objections.
(Whalen vs. Pasig Iron Works, 13 Phil., 417.)
2. CORPORATIONS; VOLUNTARY
DISSOLUTION ; APPOINTMENT OF RECEIVER.-
Section 176 of the Code of Civil Procedure dealing with the
appointment of receiver upon decree of dissolution of a corporation
provides that the court "may * * * appoint a receiver to take charge"
of the estate and effects of the corporation, "and to pay the outstanding
debts thereof, and to divide the money and other properties that shall
remain over among the stockholders or members," and consistent with
said provision section 66 of the Corporation Law provides with
respect to decrees of dissolution rendered upon voluntary application
that the court "may appoint receivers to collect and take charge of the
assets of the corporation." Such language found in both statutes on the
subject is permissive rather than mandatory and tends to recognize that
in cases of voluntary dissolution there is no occasion for the
appointment of a receiver except under special circumstances and
upon proper showing. There can be no doubt that when enacting the
Corporation Law the Legislature intended to let the shareholders have
the control of the assets of the corporation upon dissolution in winding
up its affairs. The normal method of procedure is for the directors and
executive officers to have charge of the winding up operations, though
there is the alternative method of assigning the property of the
corporation to trustees for the benefit of its creditors and shareholders.
3. CORPORATIONS; VOLUNTARY DISSOLUTION ; ID.-
Statutes authorizing voluntary dissolutions are generally held to apply
only to a dissolution brought about by the stockholders themselves,
133
and while the appointment of a receiver rests within the sound judicial
discretion of the court, such discretion must, however, always be
exercised with cautionand governed by legal and equitable principles,
the violation of which will amount to its abuse, and in making such
appointment the court should take into consideration all the facts and
weigh the relative advantages and disadvantages of appointing a
receiver to wind up the corporate business. The court should only act
on facts which have been proved by competent legal evidence. (8
Thompson on Corp. [2d ed.], pages 693, 701, 727, and 738.)
4. CORPORATIONS; VOLUNTARY DISSOLUTION ; WHEN
CLAIMS CAN BE REVIEWED BY COURTS.-
The decree of dissolution in the case at bar having been entered on
August 22, 1930, and the motion of the appellant, China Banking
Corporation, appearing to have been filed on September 30, 1931, or
about thirteen months later, it follows that the motion was filed on time
to have the appellee's claim reviewed by the court under the provisions
of the Corporation Law, and the trial court, therefore, erred in finding
that the order of November 8, 1930, allowing appellee's claim was
final and unappealable under the provisions of section 113 of the Code
of Civil Procedure.
Pepublic vs Marsman 44 scra 418
1. Taxation; Tax Assessment; Motion for reconsideration thereof not
suspend running of period for collection of tax; Assessment
considered final and executory.-
The appellant corporation, by its own omission, made it impossible
for the Bureau of Internal Revenue to act on its motion for
reconsideration. It has been held that the mere filing of such a motion
does not suspend the running of the period for the collection of the tax
and this implies that any assessment made by the Bureau is supposed
to be final and executory, insofar as the taxpayer is concerned, unless
revised by the Bureau in accordance with law and regulations, but it is
to be emphasized that a taxpayer can- not delay the collection of taxes
by the simple expedient of barely asking for clarification or
reconsideration, very often unnecessary and unwarranted, without
doing anything to comply with the statutory and reglementary
requirements for the reconsideration of the assessment made against
him.
2. Taxation; Tax Assessment; Prescription; Where taxpayer failed to
file return.-
Section 231 of the Revenue Code requires the Collector of Internal
Revenue to assess the tax within the period of five years. Section 231
is not applicable inasmuch as defendant corporation did not file returns
for the taxes in question. The pertinent provision applicable is section
332 (a) which provides that “in case of a false or fraudulent return or
of a failure to file a return, the tax may be assessed . . . at any time
within ten years after the discovery of the falsity, fraud or omission.”
3. Taxation; Tax Assessment; Filing of complete returns.-
In order that the filing of a return may serve as the starting point of the
period for the making of an assessment, the return must be as
substantially complete as to include the needed details on which the
full assessment may be made.
4. Pleading and practice; Amendments; Admission retroacts to date of
actual filing.-
An amended complaint must be considered as filed, for the purposes
of such a substantive matter as prescription, on the date it is actually
filed with the court, regardless of when it is ultimately formally
admitted by the court.
5. Corporation Law; Corporate for three years after its
dissolution; Where action for tax collection filed after expiration of
three years.-
While section 77 of the Corporation Law provides for a three year
period for the continuation of the corporate existence of the
corporation for purposes of liquidation, there is nothing in said
provision which bars an action for the recovery of the debts of the
corporation against the liquidator thereof, after the lapse of the said
three-year period.
6. Corporation Law; Corporate for three years after its
dissolution; Case at bar.-
It is immaterial that the present action was filed after the expiration of
three years after the extra-judicial dissolution of the corporation, for
at the very least, and assuming that judicial enforcement of taxes may
not be initiated after said three years despite the fact that the actual
liquidation has not been terminated and the one in charge thereof is
still holding the assets of the corporation, obviously for the benefit of
all the creditors thereof, the assessment, made within the three years,
definitely established the Govern- ment as a creditor of the corporation
for whom the liquidator is supposed to hold assets of the corporation.
Alhambra Sugar vs SEC 24 scra 269
1. Corporation law; Term of existence; Amendment of articles of
incorporation after expiration of its corporate life.-
A corporation cannot extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for
liquidation when its original term of existence had already expired.
Rules for non-stock Corporations
Rules on Foundations sec 94, 95
Section 94. Rules of distribution. - In case dissolution of a non-stock
corporation in accordance with the provisions of this Code, its assets
shall be applied and distributed as follows:
1. All liabilities and obligations of the corporation shall be paid,
satisfied and discharged, or adequate provision shall be made
therefore;
2. Assets held by the corporation upon a condition requiring return,
transfer or conveyance, and which condition occurs by reason of the
dissolution, shall be returned, transferred or conveyed in accordance
with such requirements;
3. Assets received and held by the corporation subject to limitations
permitting their use only for charitable, religious, benevolent,
educational or similar purposes, but not held upon a condition
requiring return, transfer or conveyance by reason of the dissolution,
shall be transferred or conveyed to one or more corporations, societies
or organizations engaged in activities in the Philippines substantially
similar to those of the dissolving corporation according to a plan of
distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding paragraphs, if
any, shall be distributed in accordance with the provisions of the
articles of incorporation or the by-laws, to the extent that the articles
of incorporation or the by-laws, determine the distributive rights of
members, or any class or classes of members, or provide for
distribution; and
5. In any other case, assets may be distributed to such persons,
societies, organizations or corporations, whether or not organized for
profit, as may be specified in a plan of distribution adopted pursuant
to this Chapter.
Section 95. Plan of distribution of assets. - A plan providing for the
distribution of assets, not inconsistent with the provisions of this Title,
may be adopted by a non-stock corporation in the process of
dissolution in the following manner:
The board of trustees shall, by majority vote, adopt a resolution
recommending a plan of distribution and directing the submission
thereof to a vote at a regular or special meeting of members having
voting rights. Written notice setting forth the proposed plan of
distribution or a summary thereof and the date, time and place of such
meeting shall be given to each member entitled to vote, within the time
and in the manner provided in this Code for the giving of notice of
meetings to members. Such plan of distribution shall be adopted upon
approval of at least two-thirds (2/3) of the members having voting
rights present or represented by proxy at such meeting.
134
Right to proportionate share of remaining assets upon dissolution
V. FOREIGN CORPORATION
Definition sec 123
Section 123. Definition and rights of foreign corporations. - For the
purposes of this Code, a foreign corporation is one formed, organized
or existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in
its own country or state. It shall have the right to transact business in
the Philippines after it shall have obtained a license to transact
business in this country in accordance with this Code and a certificate
of authority from the appropriate government agency.
Avon Insurance PLC vs CA GR 97642 1997
Remedial Law; Courts; Jurisdiction; A single act or transaction made
in the Philippines could qualify a foreign corporation to be doing
business in the Philippines, if such singular act is not merely incidental
or casual, but indicates the foreign corporation’s intention to do
business in the Philippines.—The term ordinarily implies a continuity
of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of the
functions normally incident to and in progressive prosecution of the
purpose and object of its organization. A single act or transaction made
in the Philippines, however, could qualify a foreign corporation to be
doing business in the Philippines, if such singular act is not merely
incidental or casual, but indicates the foreign corporation’s intention
to do business in the Philippines.
Same; Same; Same; There is authority to the effect that a reinsurance
company is not doing business in a certain state merely because the
property or lives which are insured by the original insurer company
are located in that state.—As it is, private respondent has made no
allegation or demonstration of the existence of petitioners’ domestic
agent, but avers simply that they are doing business not only abroad
but in the Philippines as well. It does not appear at all that the
petitioners had performed any act which would give the general public
the impression that it had been engaging, or intends to engage in its
ordinary and usual business undertakings in the country. The
reinsurance treaties between the petitioners and Worldwide Surety and
Insurance were made through an international insurance broker, and
not through any entity or means remotely connected with the
Philippines. Moreover, there is authority to the effect that a
reinsurance company is not doing business in a certain state merely
because the property or lives which are insured by the original insurer
company are located in that state. The reason for this is that a contract
of reinsurance is generally a separate and distinct arrangement from
the original contract of insurance, whose contracted risk is insured in
the reinsurance agreement. Hence, the original insured has generally
no interest in the contract of reinsurance.
Same; Same; Same; There is no showing that petitioners had
performed any act in the country that would place it within the sphere
of the court’s jurisdiction.—As we have found, there is no showing
that petitioners had performed any act in the country that would place
it within the sphere of the court’s jurisdiction. A general allegation
standing alone, that a party is doing business in the Philippines does
not make it so. A conclusion of fact or law cannot be derived from the
unsubstantiated assertions of parties, notwithstanding the demands of
convenience or dispatch in legal actions, otherwise, the Court would
be guilty of sorcery; extracting substance out of nothingness. In
addition, the assertion that a resident of the Philippines will be
inconvenienced by an out-of-town suit against a foreign entity, is
irrelevant and unavailing to sustain the continuance of a local action,
for jurisdiction is not dependent upon the convenience or
inconvenience of a party.
Same; Same; Same; Summons; Jurisdiction over the person of the
defendant in civil cases is acquired either by his voluntary appearance
in court and his submission to its authority or by service of
summons.—In civil cases, jurisdiction over the person of the
defendant is acquired either by his voluntary appearance in court and
his submission to its authority or by service of summons.
Same; Same; Same; Same; The service of summons upon the
defendant becomes an important element in the operation of a court’s
jurisdiction upon a party to a suit, as service of summons upon the
defendant is the means by which the court acquires jurisdiction over
his person.—Fundamentally, the service of summons is intended to
give official notice to the defendant or respondent that an action has
been commenced against it. The defendant or respondent is thus put
on guard as to the demands of the plaintiff as stated in the complaint.
The service of summons upon the defendant becomes an important
element in the operation of a court’s jurisdiction upon a party to a suit,
as service of summons upon the defendant is the means by which the
court acquires jurisdiction over his person. Without service of
summons, or when summons are improperly made, both the trial and
the judgment, being in violation of due process, are null and void,
unless the defendant waives the service of summons by voluntarily
appearing and answering the suit.
Same; Same; Same; The action of a court in refusing to rule or
deferring its ruling on a motion to dismiss for lack or excess of
jurisdiction is correctable by a writ of prohibition or certiorari sued out
in the appellate court even before trial on the merits is had.—When a
defendant voluntarily appears, he is deemed to have submitted himself
to the jurisdiction of the court. This is not, however, always the case.
Admittedly, and without subjecting himself to the court’s jurisdiction,
the defendant in an action can, by special appearance object to the
court’s assumption on the ground of lack of jurisdiction. If he so
wishes to assert this defense, he must do so seasonably by motion for
the purpose of objecting to the jurisdiction of the court, otherwise, he
shall be deemed to have submitted himself to that jurisdiction. In the
case of foreign corporations, it has been held that they may seek relief
against the wrongful assumption of jurisdiction by local courts. In
Time, Inc. vs. Reyes, it was held that the action of a court in refusing
to rule or deferring its ruling on a motion to dismiss for lack or excess
of jurisdiction is correctable by a writ of prohibition or certiorari sued
out in the appellate court even before trial on the merits is had. The
same remedy is available should the motion to dismiss be denied, and
the court, over the foreign corporation’s objections, threatens to
impose its jurisdiction upon the same.
Same; Same; Same; If besides his objection to the jurisdiction of the
court defendant alleges in his motion to dismiss any other ground for
dismissing the action or seeks an affirmative relief in the motion, he is
deemed to have submitted himself to the jurisdiction of the court.—If
the defendant, besides setting up in a motion to dismiss his objection
to the jurisdiction of the court, alleges at the same time any other
ground for dismissing the action, or seeks an affirmative relief in the
motion, he is deemed to have submitted himself to the jurisdiction of
the court.
Same; Same; Same; If the appearance of a party in a suit is precisely
to question the jurisdiction of the said tribunal over the person of the
defendant, then this appearance is not equivalent to service of
summons, nor does it constitute an acquiescence to the court’s
jurisdiction.—As we have consistently held, if the appearance of a
party in a suit is precisely to question the jurisdiction of the said
tribunal over the person of the defendant, then this appearance is not
equivalent to service of summons, nor does it constitute an
acquiescence to the court’s jurisdiction. Thus, it cannot be argued that
the petitioners had abandoned their objections to the jurisdiction of the
court, as their motions to dismiss in the trial court, and all their
subsequent posturings, were all in protest of the private respondent’s
insistence on holding them to answer a charge in a forum where they
believe they are not subject to. Clearly, to continue the proceedings in
a case such as those before Us would just “be useless and a waste of
time.”
135
Concept of “Doing Business”
DOING BUSINESS WITHOUT A LICENSE
General rule: No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines
Exception: Such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of
action recognized under Philippine laws.
A foreign corporation cannot transact business in the Philippines
without the requisite license. If it does so, the responsible officers may
be subjected to the penal provisions of Sec. 144.
General rules regarding whether or not a foreign corporation may sue
or be sued in the Philippines:
1. As to whether or not it can sue.
a. A foreign corporation transacting or doing business in the
Philippines with a license can sue before Philippine Courts.
b. Subject to certain exceptions, a foreign corporation doing business
in the country without a license can not sue in Philippine Courts.
c. If it is not transacting business in the Philippines, even without a
license, it can sue before the Philippine Courts.
2. As to whether it can be sued or not.
a. A foreign corporation transacting business in the Philippines with
the requisite license can be sued in the Philippines.
b. A foreign corporation transacting business in the Philippines
without a license can be sued in Philippine courts.
c. If it is doing business in the Philippines, it cannot be sued in
Philippine courts for lack of jurisdiction.
It is not the lack of required license but doing business without a
license which bars a foreign corporation from access to our courts.
(Universal Shipping vs. IAC)
General rule: A foreign corporation must have the requisite license to
sue before the Philippine courts.
Exceptions:
1. The act or transaction involved is an “isolated transaction;”
2. The foreign corporation is not seeking to enforce any legal or
contractual rights arising from, or growing out of any business which
it has transacted in the Philippines;
3. The purpose of the suit is to protect its trademark, tradename,
corporate name, reputation or goodwill;
4. The suit is based on a violation of the Revised Penal Code;
5. The foreign corporation is merely defending a suit filed against it;
6. The party is estopped to challenge the personality of the corporation
by entering into a contract with it.
Exception to an exception: Where a single act or transaction however,
is not merely incidental or casual but indicates the foreign
corporation‟s intention to do other business in the Philippines, said
single act or transaction constitutes „doing‟ or „engaging in‟ or
„transacting‟ business in the Philippines.
The true test regarding “doing” or “engaging in” or “transacting”
business is whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to
another. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object
of its organization. (Mentholatum Co., Inc. vs. Mangaliman)
The object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object
of the statute was not to prevent the foreign corporation from
performing single acts, but to prevent is from acquiring domicile for
the purpose of business without taking the steps necessary to render it
amenable to suit in the local courts. The law simply means that no
foreign corporation shall be permitted “to transact business in the
Philippine Islands” unless it shall have the license required by law,
and until it complies with the law, shall not be permitted to maintain
any suit in the local courts. (Marshall-Wells Co. vs. Henry W. Elser &
Co.)
A foreign corporation not engaged in business in the Philippines may
not be denied the right to file an action in Philippine courts for isolated
transactions. (Bulakhidas vs. Navarro)
If A foreign corporation not engaged in business in the Philippines has
the right to sue on an isolated transaction, more so may it sue based on
a mistake. (Swedish East Asia Co., Ltd. vs. Manila Port Service)
There was only one agreement between petitioners and the
respondent. The three seemingly different transactions were entered
into by the parties only in an effort to fulfill the basic agreement and
in no way indicate an intent on the part of the respondent to engage in
a continuity of transactions with petitioners which will categorize it as
a foreign corporation doing business in the Philippines. The
respondent, being a foreign corporation not doing business in the
Philippines, does not need to obtain a license to do business in order
to have the capacity to sue. (Atnam Consolidated, Inc. vs. CA)
Under the rules of the BOI, the phrase „doing business‟ has been
exemplified with illustrations, among them being as follows:
1. Soliciting orders, purchase (sales) or service contracts. Concrete
and specific solicitations by a foreign firm, not acting independently
of the foreign firm amounting to negotiation or fixing of the terms and
conditions of sales or service contract, regardless of whether the
contracts are actually reduced to writing, shall constitute doing
business even in the enterprise has no office or fixed place of business
in the Philippines.
2. Appointing a representative or distributor who is domiciled in the
Philippines unless said representative or distributor has an
independent status, i.e., it transacts business in its name and for its own
account, and not in the name or for the account of the pricipal.
3. Opening offices, whether called „liaison‟ offices, agencies or
branches, unless provided otherwise.
4. Any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, or in the progressive prosecution of, commercial gain or
of the purpose and objective of the business organization. (Facilities
Management Corp. vs. De La Rosa)
A single act may bring the corporation within the purview of the
statute where it is an act of the ordinary business of the corporation.
In such a case, the single act of transaction is not merely incidental or
casual, but is of such character as distinctly to indicate a purpose on
the part of the operations for the conduct of a part of the corporation‟s
ordinary business. (Far East Int‟l Import vs. Nankai)
ITEC‟s arrangement with its various business contacts in the country
indicate its purpose to bring about the situation among its customers
and the general public that they are dealing directly with ITEC and
that ITEC is actively engage in business in the country. In determining
whether a corporation does business in the Philippines or not, aside
from their activities within the forum, reference may be made to the
contractual agreements entered into by it with other entities in the
country. (Communication Materials and Design, Inc. vs. CA)
A foreign corporation doing business in the Philippines may sue in
Philippine courts although no authorized to do business here against a
136
Philippine citizen or entity who had contracted with and benefited by
said corporation. To put it another way, a party is estopped to
challenge the personality of a corporation after having acknowledged
the same by entering into a contract with it. An the doctrine of estoppel
to deny corporate existence applies to a foreign as well as to domestic
corporations. One who has dealt with a corporation of foreign origin
as a corporate entity is estopped to deny its corporate existence and
capacity. The principle will be applied to prevent a person contracting
with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person
has received the benefits of the contract. (Communication Materials
and Design, Inc. vs. CA)
The right of a corporation to use its corporate and trade name is a
property right, a right in rem, which it may assert and protect against
all the world, in any of the courts of the world – even in jurisdictions
where it does not transact business – just the same as it may protect its
tangible property, real or personal, against trespass, or conversion.
Since it is the trade and not the make that is to be protected, a
trademark acknowledges no territorial boundaries or municipalities or
states or nations, but extends to every market where the trader‟s goods
have become known and identified by the use of the mark. (Western
Equipment and Supply Co. vs. Reyes)
A foreign corporation which has never done business in the Philippine
Islands and which is unlicensed and unregistered to do business here,
but is widely and favorably known in the Islands through the use
therein of its products bearing its corporate and trade name has a legal
right to maintain an action in the Islands. Parenthetically the
Trademark Law allows a foreign corporation or juristic person to bring
an action in Philippine courts for infringement of a mark or trade-
name, for unfair competition, or false designation of origin and false
description, whether or not it has been licensed to do business in the
Philippines. (General Garments Corporation vs. Director of Patents)
Article 8 of the Paris Convention to which the Philippines became a
party provides that a trade name shall be protected in all the countries
of the Union without the obligation of filing or registration, whether
or not it forms part of the trademark. (Puma vs. IAC)
A foreign corporation not doing business not doing business in the
Philippines needs no license to sue before Philippine courts for
infringement of trademark and unfair competition. (Le Chemise
Lacoste vs. Fernandez)
In a suit involving the violation of the Revised Penal Code the
complainant foreign corporation‟s capacity to sue is not significant.
(Le Chemise Lacoste vs. Fernandez)
Art 44 of the Omnibus Investments Code
Article 44. Definition of terms. As used in this Book, the term
"investment" shall mean equity participation in any enterprise
formed, organized or existing under the laws of the Philippines; and
the phrase "doing business" shall include soliciting orders, purchases,
service contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors who are
domiciled in the Philippines for a period or periods totalling one
hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business firm, entity or
corporation in the Philippines, and any other act or acts that imply a
continuity of commercial dealings or arrangements and contemplate
to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization.
Sec 1(f) of the Implementing rules of the Omnibus Investments
Code
"Doing business" shall be any act or combination of acts, enumerated
in Article 44 of the Code. In particular, "doing business" includes:
1) Soliciting orders, purchases (sales) or service contracts. Concrete
and specific solicitations by a foreign firm or by an agent of such
foreign firm, not acting independently of the foreign firm, amounting
to negotiations or fixing of the terms and conditions of sales or
service contracts, regardless of where the contracts are actually
reduced to writing, shall constitute doing business even if the
enterprise has no office or fixed place of business in the Philippines.
The arrangements agreed upon as to manner, time and terms of
delivery of the goods or the transfer of title thereto is immaterial. A
foreign firm which does business through middlemen acting in their
own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines.
But such indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the Philippines.
2) Appointing a representative or distributor who is domiciled in the
Philippines, unless said representative or distributor has an
independent status, i.e., it transacts business in its name and for its
own account, and not in the name or for the account of a principal.
Thus, where a foreign firm is represented in the Philippines by a
person or local company which does not act in its name but in the
name of the foreign firm, the latter is doing business in the
Philippines.
3) Appointing as representative or distributor an alien who entered
the Philippines as a non-immigrant solely or principally to act as
representative or distributor staying in the Philippines continuously
for 180 days or more, or for a total period of 180 days or more in any
calendar year although the stay is not continuous. To be deemed
doing business in the Philippines, said representative or distributor
need not maintain a stock of goods produced by the enterprise whom
he represents.
4) Opening offices, whether called "liaison" offices, agencies or
branches, unless proven otherwise.
5) Establishing a factory, workshop or processing plant.
6) Undertaking building construction or erection project.
7) Opening a store, whether wholesale or retail, without prejudice to
the provisions of the Retail Trade Act.
8) Maintaining or operating a warehouse for business purposes,
including the storage, display or delivery of its own products.
9) Participating in the management, supervision or control of any
domestic business firm, entity or corporation in the Philippines. This
includes an individual or entity which acts as manager of a domestic
enterprise pursuant to a management contract. An individual serving
as director or officer of a domestic enterprise by virtue of occupying
such position shall not be deemed doing business in the Philippines.
Mere investment in a domestic enterprise which has a distinct legal
personality and duly licensed to transact business in the Philippines
and/or the exercise of the rights as such investor, shall not constitute
doing business therein.
10)Any other act or acts which imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the
functions normally incident to, or in the progressive prosecution of,
commercial gain or of the purpose and object of the business
organization.
The following acts by themselves shall not be deemed doing
business in the Philippines: 1) The publication of a general
advertisement through newspapers, brochures, or other publication
media or through radio or television.
2) Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in the
Philippines.
137
3) Collecting information in the Philippines. Thus, sending a roving
correspondent to gather news in the Philippines does not of itself
constitute doing business therein.
4) Performing services auxiliary to an existing isolated contract of
sale which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to operate
it, and similar incidental services.
Application for license sec 124, 125, Art 48 of the Omnibus
Investments Code
Section 124. Application to existing foreign corporations. - Every
foreign corporation which on the date of the effectivity of this Code is
authorized to do business in the Philippines under a license therefore
issued to it, shall continue to have such authority under the terms and
condition of its license, subject to the provisions of this Code and other
special laws. (n)
Section 125. Application for a license. - A foreign corporation
applying for a license to transact business in the Philippines shall
submit to the Securities and Exchange Commission a copy of its
articles of incorporation and by-laws, certified in accordance with law,
and their translation to an official language of the Philippines, if
necessary. The application shall be under oath and, unless already
stated in its articles of incorporation, shall specifically set forth the
following:
1. The date and term of incorporation;
2. The address, including the street number, of the principal office of
the corporation in the country or state of incorporation;
3. The name and address of its resident agent authorized to accept
summons and process in all legal proceedings and, pending the
establishment of a local office, all notices affecting the corporation;
4. The place in the Philippines where the corporation intends to
operate;
5. The specific purpose or purposes which the corporation intends to
pursue in the transaction of its business in the Philippines: Provided,
That said purpose or purposes are those specifically stated in the
certificate of authority issued by the appropriate government agency;
6. The names and addresses of the present directors and officers of the
corporation;
7. A statement of its authorized capital stock and the aggregate number
of shares which the corporation has authority to issue, itemized by
classes, par value of shares, shares without par value, and series, if
any;
8. A statement of its outstanding capital stock and the aggregate
number of shares which the corporation has issued, itemized by
classes, par value of shares, shares without par value, and series, if
any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or appropriate in
order to enable the Securities and Exchange Commission to determine
whether such corporation is entitled to a license to transact business in
the Philippines, and to determine and assess the fees payable.
Attached to the application for license shall be a duly executed
certificate under oath by the authorized official or officials of the
jurisdiction of its incorporation, attesting to the fact that the laws of
the country or state of the applicant allow Filipino citizens and
corporations to do business therein, and that the applicant is an
existing corporation in good standing. If such certificate is in a foreign
language, a translation thereof in English under oath of the translator
shall be attached thereto.
The application for a license to transact business in the Philippines
shall likewise be accompanied by a statement under oath of the
president or any other person authorized by the corporation, showing
to the satisfaction of the Securities and Exchange Commission and
other governmental agency in the proper cases that the applicant is
solvent and in sound financial condition, and setting forth the assets
and liabilities of the corporation as of the date not exceeding one (1)
year immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations shall, in
addition to the above requirements, comply with the provisions of
existing laws applicable to them. In the case of all other foreign
corporations, no application for license to transact business in the
Philippines shall be accepted by the Securities and Exchange
Commission without previous authority from the appropriate
government agency, whenever required by law.
Issuance of license sec 126, Art 49 of the Omnibus Investments
Code
Section 126. Issuance of a license. - If the Securities and Exchange
Commission is satisfied that the applicant has complied with all the
requirements of this Code and other special laws, rules and
regulations, the Commission shall issue a license to the applicant to
transact business in the Philippines for the purpose or purposes
specified in such license. Upon issuance of the license, such foreign
corporation may commence to transact business in the Philippines and
continue to do so for as long as it retains its authority to act as a
corporation under the laws of the country or state of its incorporation,
unless such license is sooner surrendered, revoked, suspended or
annulled in accordance with this Code or other special laws.
Within sixty (60) days after the issuance of the license to transact
business in the Philippines, the license, except foreign banking or
insurance corporation, shall deposit with the Securities and Exchange
Commission for the benefit of present and future creditors of the
licensee in the Philippines, securities satisfactory to the Securities and
Exchange Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, its political
subdivisions and instrumentalities, or of government-owned or
controlled corporations and entities, shares of stock in "registered
enterprises" as this term is defined in Republic Act No. 5186, shares
of stock in domestic corporations registered in the stock exchange, or
shares of stock in domestic insurance companies and banks, or any
combination of these kinds of securities, with an actual market value
of at least one hundred thousand (P100,000.) pesos; Provided,
however, That within six (6) months after each fiscal year of the
licensee, the Securities and Exchange Commission shall require the
licensee to deposit additional securities equivalent in actual market
value to two (2%) percent of the amount by which the licensee's gross
income for that fiscal year exceeds five million (P5,000,000.00) pesos.
The Securities and Exchange Commission shall also require deposit
of additional securities if the actual market value of the securities on
deposit has decreased by at least ten (10%) percent of their actual
market value at the time they were deposited. The Securities and
Exchange Commission may at its discretion release part of the
additional securities deposited with it if the gross income of the
licensee has decreased, or if the actual market value of the total
securities on deposit has increased, by more than ten (10%) percent of
the actual market value of the securities at the time they were
deposited. The Securities and Exchange Commission may, from time
to time, allow the licensee to substitute other securities for those
already on deposit as long as the licensee is solvent. Such licensee
shall be entitled to collect the interest or dividends on the securities
deposited. In the event the licensee ceases to do business in the
Philippines, the securities deposited as aforesaid shall be returned,
upon the licensee's application therefor and upon proof to the
satisfaction of the Securities and Exchange Commission that the
licensee has no liability to Philippine residents, including the
Government of the Republic of the Philippines.
138
Foreign corporations already issued a license to transact business in
the Philippines prior to the effectivity of the Code continue to have
such authority under the terms and conditions of its license, subject to
the provisions of the Code and other special laws.
Upon compliance with the provisions of Sec. 125, other special laws
and the rules and regulations implementing them, the SEC shall
thereafter issue the license.
Upon issuance of the license, such foreign corporation may commence
to transact business in the Philippines and continue to do so for as long
as it retains its authority to act as a corporation under the laws of the
country or state of its incorporation, unless such license is sooner
surrendered, revoked, suspended or annulled in accordance with this
Code or other special laws.
Within 60 days after the issuance of the license, a foreign corporation,
except those engaged in foreign banking or insurance, shall deposit
with the SEC, for the benefit of creditors, securities consisting of
bonds or other evidence of indebtedness of the Philippine government
or its political subdivisions or instrumentalities, or of government
owned or controlled corporations and entities, shares of stock in
“registered enterprises,” shares of stock in domestic insurance
companies and
Foreign corporations already issued a license to transact business in
the Philippines prior to the effectivity of the Code continue to have
such authority under the terms and conditions of its license, subject to
the provisions of the Code and other special laws.
Upon compliance with the provisions of Sec. 125, other special laws
and the rules and regulations implementing them, the SEC shall
thereafter issue the license.
Upon issuance of the license, such foreign corporation may commence
to transact business in the Philippines and continue to do so for as long
as it retains its authority to act as a corporation under the laws of the
country or state of its incorporation, unless such license is sooner
surrendered, revoked, suspended or annulled in accordance with this
Code or other special laws.
Within 60 days after the issuance of the license, a foreign corporation,
except those engaged in foreign banking or insurance, shall deposit
with the SEC, for the benefit of creditors, securities consisting of
bonds or other evidence of indebtedness of the Philippine government
or its political subdivisions or instrumentalities, or of government
owned or controlled corporations and entities, shares of stock in
“registered enterprises,” shares of stock in domestic insurance
companies and
Amendment of license sec 131
Section 131. Amended license. - A foreign corporation authorized to
transact business in the Philippines shall obtain an amended license in
the event it changes its corporate name, or desires to pursue in the
Philippines other or additional purposes, by submitting an application
therefor to the Securities and Exchange Commission, favorably
endorsed by the appropriate government agency in the proper cases.
Columbia Pictures, Inc. vs CA GR 110318 1996
1. Corporation Law; Actions; It is not the absence of the prescribed
license but “doing business” in the Philippines without such license
which debars the foreign corporation from access to our courts.-
The obtainment of a license prescribed by Section 125 of the
Corporation Code is not a condition precedent to the maintenance of
any kind of action in Philippine courts by a foreign corporation,
However, under the aforequoted provision, no foreign corporation
shall be permitted to transact business in the Philippines, as this phrase
is understood under the Corporation Code, unless it shall have the
license required by law, and until it complies with the law in
transacting business here, it shall not be permitted to maintain any suit
in local courts. As thus interpreted, any foreign corporation not doing
business in the Philippines may maintain an action in our courts upon
any cause of action, provided that the subject matter and the defendant
are within the jurisdiction of the court. It is not the absence of the
prescribed license but “doing business” in the Philippines without
such license which debars the foreign corporation from access to our
courts. In other words, although a foreign corporation is without
license to transact business in the Philippines, it does not follow that
it has no capacity to bring an action. Such license is not necessary if it
is not engaged in business in the Philippines.
2. Corporation Law; Actions; No general rule or governing principles
can be laid down as to what constitutes “doing” or “engaging in” or
“transacting” business.-
No general rule or governing principles can be laid down as to what
constitutes “doing” or “engaging in” or “transacting” business. Each
case must be judged in the light of its own peculiar environmental
circumstances. The true tests, however, seem to be whether the foreign
corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another.
3. Corporation Law; Actions; Jurisprudence has, however, held that
the term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
incident to or in progressive prosecution of the purpose and subject of
its organization.-
The Corporation Code does not itself define or categorize what acts
constitute doing or transacting business in the Philippines.
Jurisprudence has, however, held that the term implies a continuity of
commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the
functions normally incident to or in progressive prosecution of the
purpose and subject of its organization.
4. Corporation Law; Actions; There is no showing that, under our
statutory or case law, petitioners are doing, transacting, engaging in or
carrying on business in the Philippines as would require obtention of
a license before they can seek redress from our courts.-
Based on Article 133 of the Corporation Code and gauged by such
statutory standards, petitioners are not barred from maintaining the
present action. There is no showing that, under our statutory or case
law, petitioners are doing, transacting, engaging in or carrying on
business in the Philippines as would require obtention of a license
before they can seek redress from our courts. No evidence has been
offered to show that petitioners have performed any of the enumerated
acts or any other specific act indicative of an intention to conduct or
transact business in the Philippines.
5. Corporation Law; Actions; A foreign corporation will not be
regarded as doing business in the State simply because it enters into
contracts with residents of the State, where such contracts are
consummated outside the State.-
As a general rule, a foreign corporation will not be regarded as doing
business in the State simply because it enters into contracts with
residents of the State, where such contracts are consummated outside
the State. In fact, a view is taken that a foreign corporation is not doing
business in the State merely because sales of its product are made there
or other business furthering its inter- ests is transacted there by an
alleged agent, whether a corporation or a natural person where such
activities are not under the direction and control of the foreign
corporation but are engaged in by the alleged agent as an independent
business.
6. Corporation Law; Actions; Sales made to customers in the State by
an independent dealer who has purchased and obtained title from the
corporation to the products sold are not a doing of business by the
corporation.-
139
It is generally held that sales made to customers in the State by an
independent dealer who has purchased and obtained title from the
corporation to the products sold are not a doing of business by the
corporation. Likewise, a foreign corporation which sells its products
to persons styled “distributing agents” in the State, for distribution by
them, is not doing business in the State so as to render it subject to
service of process therein, where the contract with these purchasers is
that they shall buy exclusively from the foreign corporation such
goods as it manufactures and shall sell them at trade prices established
by it.
7. Corporation Law; Actions; The act of a foreign corporation in
engaging an attorney to represent it in a Federal court sitting in a
particular State is not doing business within the scope of the minimum
contract test.-
It has moreover been held that the act of a foreign corporation in
engaging an attorney to represent it in a Federal court sitting in a
particular State is not doing business within the scope of the minimum
contact test. With much more reason should this doctrine apply to the
mere retainer of Atty. Domingo for legal protection against contingent
acts of intellectual piracy.
8. Corporation Law; Actions; The mere institution and prosecution or
defense of a suit, do not amount to the doing of business in the State.-
In accordance with the rule that “doing business” imports only acts in
furtherance of the purposes for which a foreign corporation organized,
it is held that the mere institution and prosecution or defense of a suit,
particularly if the transaction which is the basis of the suit took place
out of the State, do not amount to the doing of business in the State.
The institution of a suit or the removal thereof is neither the making
of a contract nor the doing of business within a constitutional
provision placing foreign corporation’s licensed to do business in the
State under the same regulations, limitations and liabilities with
respect to such acts as domestic corporations. Merely engaging in
litigation has been considered as not a sufficient minimum contact to
warrant the exercise of jurisdiction over a foreign corporation.
9. Corporation Law; Actions; Remedial Law; Among the grounds for
a motion to dismiss under the Rules of Court are lack of legal capacity
to sue and that the complaint states no cause of action.-
Among the grounds for a motion to dismiss under the Rules of Court
are lack of legal capacity to sue and that the complaint states no cause
of action. Lack of legal capacity to sue means that the plaintiff is not
in the exercise of his civil rights, or does not have the necessary
qualification to appear in the case, or does not have the character or
representation he claims. On the other hand, a case is dismissible for
lack of personality to sue upon proof that the plaintiff is not the real
party in interest, hence grounded on failure to state a cause of action.
10. Corporation Law; Actions; Remedial Law; “Lack of capacity to
sue” should not be confused with the term “lack of personality to
sue."-
The term “lack of capacity to sue” should not be confused with the
term “lack of personality to sue.” While the former refers to a
plaintiff’s general disability to sue, such as on account of minority,
insanity, incompetence, lack of juridical personality or any other
general disqualifications of a party, the latter refers to the fact that the
plaintiff is not the real party in interest. Correspondingly, the first can
be a ground for a motion to dismiss based on the ground of lack of
legal capacity to sue; whereas the second can be used as a ground for
a motion to dismiss based on the fact that the complaint, on the face
thereof, evidently states no cause of action.
11. Corporation Law; Actions; Remedial Law; The ground available
for barring recourse to our courts by an unlicensed foreign corporation
doing or transacting business in the Philippines should properly be
“lack of capacity to sue,” not “lack of personality to sue."-
Applying the above discussion to the instant petition, the ground
available for barring recourse to our courts by an unlicensed foreign
corporation doing or transacting business in the Philippines should
properly be “lack of capacity to sue,” not “lack of personality to sue.”
Certainly, a corporation whose legal rights have been violated is
undeniably such, if not the only, real party in interest to bring suit
thereon although, for failure to comply with the licensing requirement,
it is not capacitated to maintain any suit before our courts.
12. Constitutional Law; Search Warrant; The 20th Century Fox ruling
cannot be retroactively applied to the instant case to justify the quashal
of Search Warrant No. 87–053.-
Mindful as we are of the ramifications of the doctrine of stare decisis
and the rudiments of fair play, it is our considered view that the 20th
Century Fox ruling cannot be retroactively applied to the instant case
to justify the quashal of Search Warrant No. 87–053. Herein
petitioners’ consistent position that the order of the lower court of
September 5, 1988 denying therein defendant’s motion to lift the order
of search warrant was properly issued, there having been satisfactory
compliance with the then prevailing standards under the law for
determination of probable cause, is indeed well taken. The lower court
could not possibly have expected more evidence from petitioners in
their application for a search warrant other than what the law and
jurisprudence, then existing and judicially accepted, required with
respect to the finding of probable cause.
13. Constitutional Law; Search Warrant; Judicial decisions, though
not laws, are nonetheless evidence of what the laws mean, and it is for
this reason that they are part of the legal system of the Philippines.-
Jurisprudence, in our system of government, cannot be considered as
an independent source of law; it cannot create law. While it is true that
judicial decisions which apply or interpret the Constitution or the laws
are part of the legal system of the Philippines, still they are not laws.
Judicial decisions, though not laws, are nonetheless evidence of what
the laws mean, and it is for this reason that they are part of the legal
system of the Philippines. Judicial decisions of the Supreme Court
assume the same authority as the statute itself.
14. Constitutional Law; Search Warrant; The principle of
prospectivity applies not only to original or amendatory statutes and
administrative rulings and circulars, but also, and properly so to
judicial decisions.-
Interpreting the aforequoted correlated provisions of the Civil Code
and in light of the above disquisition, this Court emphatically declared
in Co vs. Court of Appeals, et al. that the principle of prospectivity
applies not only to original or amendatory statutes and administrative
rulings and circulars, but also, and properly so, to judicial decisions.
15. Constitutional Law; Search Warrant; A search warrant not based
on probable cause is a nullity, or is void, and the issuance thereof is,
in legal contemplation, arbitrary.-
The constitutional and statutory provisions of various jurisdictions
requiring a showing of probable cause before a search warrant can be
issued are mandatory and must be complied with, and such a showing
has been held to be an unqualified condition precedent to the issuance
of a warrant. A search warrant not based on probable cause is a nullity,
or is void, and the issuance thereof is, in legal contemplation, arbitrary.
16. Constitutional Law; Search Warrant; As to what acts constitute
probable cause seem incapable of definition.-
Although the term “probable cause” has been said to have a well-
defined meaning in the law, the term is exceedingly difficult to define,
in this case, with any degree of precision; indeed, no definition of it
which would justify the issuance of a search warrant can be formulated
which would cover every state of facts which might arise, and no
formula or standard, or hard and fast rule, may be laid down which
may be applied to the facts of every situation. As to what acts
constitute probable cause seem incapable of definition. There is, of
necessity, no exact test.
17. Criminal Law; Infringement; To constitute infringement, it is not
necessary that the whole or even a large portion of the work shall have
been copied.-
In determining the question of infringement, the amount of matter
copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a
large portion of the work shall have been copied. If so much is taken
that the value of the original is sensibly diminished, or the labors of
the original author are substantially and to an injurious extent
140
appropriated by another, that is sufficient in point of law to constitute
a piracy.
Granger Associates vs Microwave Systems 189 scra 631
Corporations; Foreign Corporations; The term “doing business”
implies a continuity of commercial dealings and arrangements and the
performance of acts or works or the exercise of some of the functions
normally incident to the purpose and object of its organization.—This
Court interpreted the same phrase in the old case of Mentholatum v.
Mangaliman as follows: The true test, however, seems to be whether
the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int. Revenue [C.C.A. Ohio], 223 F. 984, 987.)
The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object
of its organization.
Same; Same; A single actor transaction, if not merely incidental or
casual but indicates the foreign corporation’s intention to do other
business in the Philippines, also constitutes doing business in the
Philippines.—We have amplified on that discussion in subsequent
cases, among them Top-Weld Manufacturing, Inc. v. ECED, S.A.,
where we said: There is no general rule or governing principle laid
down as to what constitutes “doing” or “engaging in” or “transacting”
business in the Philippines. Each case must be judged in the light of
its peculiar circumstances. Thus, a foreign corporation with a settling
agent in the Philippines which issued twelve marine policies covering
different shipments to the Philippines and a foreign corporation which
had been collecting premiums on outstanding policies were regarded
as doing business here. The acts of these corporations should be
distinguished from a single or isolated business transaction or
occasional, incidental and casual transactions which do not come
within the meaning of the law. Where a single act or transaction,
however, is not merely incidental or casual but indicates the foreign
corporation’s intention to do other business in the Philippines, said
single act or transaction constitutes “doing” or “engaging in” or
“transacting” business in the Philippines.
Same; Same; Same; A foreign corporation operating in the
Philippines without submitting to our laws, should not be allowed to
invoke the minour courts when it should need them for its own
protection.—The purpose of the rule requiring foreign corporations to
secure a license to do business in the Philippines is to enable us to
exercise jurisdiction over them for the regulation of their activities in
this country. If a foreign corporation operates in the Philippines
without submitting to our laws, it is only just that it not be allowed to
invoke them in our courts when it should need them later for its own
protection. While foreign investors are always welcome in this land to
collaborate with us for our mutual benefit, they must be prepared as
an indispensable condition to respect and be bound by Philippine law
in proper cases, as in the one at bar.
Marubeni vs Tensuan 190 scra 105
1. Jurisdiction; Corporations; Actions; Solicitation of business
contracts constitutes doing business in the Philippines.-
Even assuming for the sake of argument that Marubeni Nederland B.
V. is a different and separate business entity from Marubeni Japan and
its Manila branch, in this particular transaction, at least, Marubeni
Nederland B. V. through the foregoing acts, had effectively solicited
"orders, purchases (sales) or service contracts" as well as constituted
Marubeni Corporation, Tokyo, Japan and its Manila Branch as its
representative in the Philippines to transact business for its account as
principal. These circumstances, taken singly or in combination,
constitute "doing business in the Philippines" within the
contemplation of the law.
2. Jurisdiction; Corporations; Actions; Lack of license not excuse for
invoking nonsuability of foreign corporation.-
At this juncture it must be emphasized that a foreign corporation doing
business in the Philippines with or without license is subject to process
and jurisdiction of the local courts. If such corporation is properly
licensed, well and good. But it shall not be allowed, under any
circumstances, to invoke its lack of license to impugn the jurisdiction
of our courts.
3. Motions; Due Process; Dismissal of Actions; A court need not
conduct a hearing where a motion to dismiss is denied.-
In the case at bar, assuming there was no formal hearing on the motion
to dismiss prior to its rejection, such did not unduly prejudice the
rights of petitioner. Respondent court still had to conduct trial on the
merits during which time it could grant the motion after sufficient
evidence has been presented showing without any question the want
of jurisdiction over the person of the movant. It would have been
different had respondent court sustained petitioner's motion to dismiss
without the required hearing in which case, the corrective writ of
certiorari would have issued against said court. In the absence of a
hearing, the appellate court, in an appeal from an order of dismissal,
would have had no means of determining or resolving the legality of
the proceedings and the sufficiency of the proofs on which the order
was based.
Facilities management vs Dela Osa 89 scra 131
1. Corporations; A foreign corporation not doing business in the
Philippines may be sued here for acts done against persons in the
Philippine.-
Indeed, if a foreign corporation, not engaged in business in the
Philippines, is not barred from seeking redress from courts in the
Philippines, a fortiori that same corporation cannot claim exemption
from being sued in Philippine courts for acts done against a person
or persons in the Philippines.
Top-Weld vs ECER 138 scra 118 GR 44944 1985
Corporations; Words and Phrases; Test to determine what
constitutes “doing” or “engaging in” business in the Philippines.—
There is no general rule or governing principle laid down as to what
constitutes “doing” or engaging in” or “transacting” business in the
Philippines. Each case must be judged in the light of its peculiar
circumstances. (Mentholatum Co. v. Mangaliman, 72 Phil. 524).
Thus, a foreign corporation with a settling agent in the Philippines
which issued twelve marine policies covering different shipments to
the Philippines (General Corporation of the Philippines v. Union
Insurance Society of Canton, Ltd., 87 Phil. 313) and a foreign
corporation which had been collecting premiums on outstanding
policies (Manufacturing Life Insurance Co. v. Meer, 89 Phil. 351)
were regarded as doing business here. The acts of these corporations
should be distinguished from a single or isolated business transaction
or occasional, incidental and casual transactions which do not come
within the meaning of the law. Where a single act or transaction,
however, is not merely incidental or casual but indicates the foreign
corporation’s intention to do other business in the Philippines, said
single act or transaction constitutes “doing” or “engaging in” or
“transacting” business in the Philippines. (Far East International
Import and Export Corporation v. Nankai Kogyo, Co., 6 SCRA 725).
Same; Same; Respondents are “doing business in the Philippines”
having entered into contracts for the manufacture and distribution of
welding products and equipments.—Judged by the foregoing
standards, we agree with the Court of Appeals in considering the
respondents as “doing business” in the Philippines. When the
respondents entered into the disputed contracts with the petitioner,
they were carrying out the purposes for which they were created, i.e.
to manufacture and market welding products and equipment. The
terms and conditions of the contracts as well as the respondents’
conduct indicate that they established within our country a
141
continuous business, and not merely one of a temporary character.
This fact is even more strengthened by the admission of the
respondents that they are negotiating with another group for the
transfer of the distributorship and franchising rights from the
petitioner.
Same; Same; A foreign corporation doing business in the Philippines
must secure a prior license from the BOI under R.A. 5455.—The
respondent court, however, erred in holding that “IRTI and ECED
have not secured such written certificate in consequence of which
there is no occasion for the Board of Investments to impose the
requirements prescribed in the aforequoted provisions of Sec 4, R.A.
No. 5455 x x x.” To accept this view would open the way for an
interpretation that by doing business in the country without first
securing the required written certificate from the Board of
Investments, a foreign corporation may violate or disregard the
safeguards which the law, by its provisions, seeks to establish.
Same; Contracts; A contract entered into by a Philippine corporation
with a foreign corporation for manufacture and marketing of the
latter’s product is illegal if the same was not previously licensed with
the BOI under R.A. 5455. For being in pari delicto, the Philippine
corporation cannot ask our courts to prohibit the foreign corporation
from terminating their contract and giving the license to produce and
market its products to another.—The parties are charged with
knowledge of the existing law at the time they enter into the contract
and at the time it is to become operative. (Twiehaus v. Rosner, 245
SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is
presumed to be more knowledgeable about his own state law than his
alien or foreign contemporary. In this case, the record shows that, at
least, petitioner had actual knowledge of the applicability of R.A. No.
5455 at the time the contract was executed and at all times thereafter.
This conclusion is compelled by the fact that the same statute is now
being propounded by the petitioner to bolster its claim. We, therefore,
sustain the appellate court’s view that “it was incumbent upon TOP-
WELD to know whether or not IRTI and ECED were properly
authorized to engage in business in the Philippines when they entered
into the licensing and distributorship agreements.” The very purpose
of the law was circumvented and evaded when the petitioner entered
into said agreements despite the prohibition of R.A. No. 5455. The
parties in this case being equally guilty of violating R.A. No. 5455,
they are in pari delicto, in which case it follows as a consequence that
petitioner is not entitled to the relief prayed for in this case.
Same; Evidence; He who alleges must produce the evidence to prove
it and hearsay evidence once admitted shall be given the credence it
deserves.—The burden of overcoming the responsive effect of the
answer is upon the petitioner. He who alleges a fact has the burden of
proving it and a mere allegation is not evidence. (Legasca v. De Vera,
79 Phil. 376) Hearsay evidence alone may be insufficient to establish
a fact in an injunction suit (Parker v. Furlong, 62 P. 490) but, when no
objection is made thereto, it is, like any other evidence, to be
considered and given the importance it deserves. (Smith v. Delaware
& Atlantic Telegraph & Telephone Co., 51 A 464).
Same; Same; Judgments; Judgments may be rendered on the basis of
affidavits where they are overwhelming, uncontroverted, and not
inherently improbable.—Although we should warn of the
undesirability of issuing judgments solely on the basis of the affidavits
submitted, where as here, said affidavits are overwhelming,
uncontroverted by competent evidence and not inherently improbable,
we are constrained to uphold the allegations of the respondents
regarding the multifarious violations of the contracts made by the
petitioner. Accordingly, we rule that there exists a just cause for
respondents to move for the termination of their contracts with the
petitioner.
Contracts; Moot and Academic; Injunction; An injunction suit to
prevent a contracting party from licensing another for its products
becomes moot after the expiration of the term of the agreement.—
Moreover, the facts on record show that the “License and Technical
Assistance Agreement” between petitioner and respondent IRTI was
extended only for a period of one year or to be precise, from January
1, 1975 to December 31, 1975. The original injunction suit was
brought in the court a quo in June 1975, the purpose being to stop the
respondent from terminating the contract. This purpose was realized
when the court granted the injunction. By the time respondents’ appeal
was decided by the Court of Appeals, it was already past the extended
period. The dispute between the parties had been rendered moot and
academic. It should be stated that the courts be it the original trial court
or the appellate court have no power to make contracts for the parties.
No court would be justified in extending the life of the contracts,
subject of this controversy, since that would do violence to the basic
principle that contracts must be the voluntary agreements of parties.
Schmid vs Oberly 116 scra 186
1. Sales; Contract; Essence of Contract of Sale.-
At the outset, it must be understood that a contract is what the law
defines it to be, considering its essential elements, and not what it is
called by the contracting parties [Quiroga v. Parsons Hardware Co.,
38 Phil. 501 (1918).] The Civil Code defines a contract of sale, thus:
ART. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent. It has been said that the essence of the
contract of sale is the transfer of title or agreement to transfer it for
a price paid or promised [Commissioner of Internal Revenue v.
Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779,
785, citing Salisbury v. Brooks, 94 SE 117; 118-19.] “If such
transfer puts the transferee in the attitude or position of an owner
and makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the proceeds
of a resale, the transaction is a sale.” [Ibid.]
2. Sales; Contract; Corporation Law; “Indentor,” defined under
P.D. No. 1789 (the Omnibus Investment Code); Broker, defined.-
On the other hand, there is no statutory definition of “indent” in this
jurisdiction. However, the Rules and Regulations to Implement
Presidential Decree No. 1789 (the Omnibus Investments Code)
lumps “inden-tors” together with “commercial brokers” and
“commission merchants” in this manner: . . . A foreign firm which
does business through the middlemen acting in their own names,
such as indentors, commercial brokers or commission merchants,
shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the
ones deemed to be doing business in the Philippines [Part I, Rule I,
Section 1, par. g(1).] Therefore, an indentor is a middleman in the
same class as commercial brokers and commission merchants. To
get an idea of what an indentor is, a look at the definition of those in
his class may prove helpful. A broker is generally defined as one who
is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own name but
in the name of those who employed him; he is strictly a middleman
and for some purpose the agent of both parties. (19 Cyc., 186;
Henderson vs. The State, 50 Ind., 234; Black’s Law Dictionary.) A
broker is one whose occupation it is to bring parties together to
bargain, or to bargain for them, in matters of trade, commerce or
navigation. (Mechem on Agency, sec. 13; Wharton on Agency, sec.
695.) Judge Storey, in his work on Agency, defines a broker as an
agent employed to make bargains and contracts between other
persons, in matters of trade, commerce or navigation; for
compensation commonly called brokerage. (Storey on Agency, sec.
28.) [Behn, Meyer and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274,
279-80 (1916).] A commission merchant is one engaged in the
purchase or sale for another of personal property which, for this
purpose, is placed in his possession and at his disposal. He
maintains a relation not only with his principal and the purchasers
or vendors, but also with the property which is subject matter of the
transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401
(1939).]
142
3. Sales; Contract; Corporation Law; Parties to an “indent”
transaction.-
Webster defines an indent as “a purchase order for goods especially
when sent from a foreign country.” [Webster’s Ninth New Collegiate
Dictionary 612 (1986).] It would appear that there are three parties
to an indent transaction, namely, the buyer, the indentor, and the
supplier who is usually a non-resident manufacturer residing in the
country where the goods are to be bought [Commissioner of Internal
Revenue v. Cadwallader Pacific Company, G.R. No. L-20343,
September 29, 1976, 73 SCRA 59.] An indentor may therefore be
best described as one who, for compensation, acts as a middleman in
bringing about a purchase and sale of goods between a foreign
supplier and a local purchaser.
4. Sales; Contract; Corporation Law; Sec. 69 of the Corporation
Code finds no application to SCHMID and its officers and
employees relative to the transactions in the case at bar; When a
foreign corporation does business through such indentor, the foreign
corporation is not deemed doing business in the Philippines.-
Finally, the afore-quoted penal provision in the Corporation Law
finds no application to SCHMID and its officers and employees
relative to the transactions in the instant case. What the law seeks to
prevent, through said provision, is the circumvention by foreign
corporations of licensing requirements through the device of
employing local representatives. An indentor, acting in his own
name, is not, however, covered by the above-quoted provision. In
fact, the provision of the Rules and Regulations implementing the
Omnibus Investments Code quoted above, which was copied from the
Rules implementing Republic Act No. 5455, recognizes the distinct
role of an indentor, such that when a foreign corporation does
business through such indentor, the foreign corporation is not
deemed doing business in the Philippines.
5. Sales; Contract; Corporation Law; Not being a vendor, SCHMID
cannot be held liable for implied warranty for hidden defects; an
indentor is to some extent an agent of both the vendor and the
vendee.-
In view of the above considerations, this Court rules that SCHMID
was merely acting as an indentor in the purchase and sale of the
twelve (12) generators subject of the second transaction. Not being
the vendor, SCHMIB cannot be held liable for the implied warranty
for hidden defects under the Civil Code [Art. 1561, et seq.].
However, even as SCHMID was merely an indentor, there was
nothing to prevent it from voluntarily warranting that the twelve (12)
generators subject of the second transaction are free from any
hidden defects. In other words, SCHMID may be held answerable for
some other contractual obligation, if indeed it had so bound itself. As
stated above, an indentor is to some extent an agent of both the
vendor and the vendee. As such agent, therefore, he may expressly
obligate himself to undertake the obligations of his principal [See
Art. 1897, Civil Code.]