Summary: Ong Yong vs. Tiu (GR 144476, 8 April 2 !

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Ong Yong, #$ al. vs. Tiu, #$ al. [GR 144476, 8 April 2003]; also Tiu, et al. vs. Ong Yong, et al. [GR 144629] Resolution of Special Second i!ision, "orona #$%& 3 concur Facts: 'n 1((4, t)e construction of t)e *asa+ana "iti,all in -asa. "it. /as t)reatened /it) stoppa+e and inco,pletion /)en its o/ner, t)e 0irst 1andlin2 Asia e!elop,ent "orporation #01A "%, /)ic) /as o/ned 3. a!id S4 5iu, "el. 64 5iu, *ol. 6u Go/, 7elen See 6u, 4 5erence 64 5iu, $o)n 6u and 1ourdes "4 5iu #t)e 5ius%, encountered dire financial difficulties4 't /as )ea!il. inde3ted to t)e -)ilippine 8ational 7an2 #-87% for -1(0 ,illion4 5o sta!e off foreclosure of t)e ,ort+a+e on t)e t/o lots /)ere t)e ,all /as 3ein+ 3uilt, t)e 5ius in!ited 9n+ 6on+, $uanita 5an 9n+, :ilson 54 9n+, Anna 14 9n+, :illia, 54 9n+ and $ulia 9n+ Alon;o #t)e 9n+s%, to in!est in 01A "4 <nder t)e -re=Su3scription A+ree,ent t)e. entered into, t)e 9n+s and t)e 5ius a+reed to ,aintain e>ual s)are)oldin+s in 01A "& t)e 9n+s /ere to su3scri3e to 1,000,000 s)ares at a par !alue of -100400 eac) /)ile t)e 5ius /ere to su3scri3e to an additional ?4(,800 s)ares at -100400 eac) in addition to t)eir alread. e@istin+ su3scription of 4?0,200 s)ares4 0urt)er,ore, t)e. a+reed t)at t)e 5ius /ere entitled to no,inate t)e Aice= -resident and t)e 5reasurer plus ? directors /)ile t)e 9n+s /ere entitled to no,inate t)e -resident, t)e Secretar. and 6 directors #includin+ t)e c)air,an% to t)e 3oard of directors of 01A "4 *oreo!er, t)e 9n+s /ere +i!en t)e ri+)t to ,ana+e and operate t)e ,all4 Accordin+l., t)e 9n+s paid -100 ,illion in cas) for t)eir su3scription to 1,000,000 s)ares of stoc2 /)ile t)e 5ius co,,itted to contri3ute to 01A " a four=store. 3uildin+ and t/o parcels of land respecti!el. !alued at -20 ,illion #for 200,000 s)ares%, -30 ,illion #for 300,000 s)ares% and -4(48 ,illion #for 4(,800 s)ares% to co!er t)eir additional ?4(,800 stoc2 su3scription t)erein4 5)e 9n+s paid in anot)er -70 ,illion 3 to 01A " and -20 ,illion to t)e 5ius o!er and a3o!e t)eir -100 ,illion in!est,ent, t)e total su, of /)ic) #-1(0 ,illion% /as used to settle t)e -1(0 ,illion ,ort+a+e inde3tedness of 01A " to -874 5)e 3usiness )ar,on. 3et/een t)e 9n+s and t)e 5ius in 01A ", )o/e!er, /as s)ortli!ed 3ecause t)e 5ius, on 23 0e3ruar. 1((6, rescinded t)e -re=Su3scription A+ree,ent4 5)e 5ius accused t)e 9n+s of #1% refusin+ to credit to t)e, t)e 01A " s)ares co!erin+ t)eir real propert. contri3utions; #2% pre!entin+ a!id S4 5iu and "el. 64 5iu fro, assu,in+ t)e positions of and perfor,in+ t)eir duties as Aice=-resident and 5reasurer, respecti!el., and #3% refusin+ to +i!e t)e, t)e office spaces a+reed upon4 5)e contro!ers. finall. ca,e to a )ead /)en t)e case /as co,,enced 3. t)e 5ius on 27 0e3ruar. 1((6 at t)e Securities and B@c)an+e "o,,ission #SB"%, see2in+ confir,ation of t)eir rescission of t)e -re=Su3scription A+ree,ent4 After )earin+, t)e SB", t)rou+) t)en Cearin+ 9fficer Rolando G4 Anda.a, $r4, issued a decision on 1( *a. 1((7 confir,in+ t)e rescission sou+)t 3. t)e 5ius4 9n ,otion of 3ot) parties, t)e a3o!e decision /as partiall. reconsidered 3ut onl. insofar as t)e 9n+sD -70 ,illion /as declared not as a pre,iu, on capital stoc2 3ut an ad!ance #loan% 3. t)e 9n+s to 01A " and t)at t)e i,position of interest on it /as correct4 7ot) parties appealed to t)e SB" en 3anc /)ic) rendered a decision on 11 Septe,3er 1((8, affir,in+ t)e 1( *a. 1((7 decision of t)e Cearin+ 9fficer4 5)e SB" en 3anc confir,ed t)e rescission of t)e -re= Su3scription A+ree,ent 3ut re!erted to classif.in+ t)e -70 ,illion paid 3. t)e 9n+s as pre,iu,

on capital and not as a loan or ad!ance to 01A ", )ence, not entitled to earn interest4 9n appeal, t)e "ourt of Appeals #"A% rendered a decision on ? 9cto3er 1(((, ,odif.in+ t)e SB" order of 11 Septe,3er 1((84 5)eir ,otions for reconsideration )a!in+ 3een denied, 3ot) parties filed separate petitions for re!ie/ 3efore t)e Supre,e "ourt4 9n 1 0e3ruar. 2002, t)e Supre,e "ourt pro,ul+ated its ecision, affir,in+ t)e assailed decision of t)e "ourt of Appeals 3ut /it) t)e ,odifications t)at t)e -20 ,illion loan e@tended 3. t)e 9n+s to t)e 5ius s)all earn interest at 12E per annu, to 3e co,puted fro, t)e ti,e of Fudicial de,and /)ic) is fro, 23 April 1((6; t)at t)e -70 ,illion ad!anced 3. t)e 9n+s to t)e 01A " s)all earn interest at 10E per annu, to 3e co,puted fro, t)e date of t)e 01A " 7oard Resolution /)ic) is 1( $une 1((6; and t)at t)e 5ius s)all 3e credited /it) 4(,800 s)ares in 01A " for t)eir propert. contri3ution, specificall., t)e 1?1 s>4 ,4 parcel of land4 5)e "ourt affir,ed t)e fact t)at 3ot) t)e 9n+s and t)e 5ius !iolated t)eir respecti!e o3li+ations under t)e -re=Su3scription A+ree,ent4 9n 1? *arc) 2002, t)e 5ius filed 3efore t)e "ourt a *otion for 'ssuance of a :rit of B@ecution4 Aside fro, t)eir opposition to t)e 5iusD *otion for 'ssuance of :rit of B@ecution, t)e 9n+s filed t)eir o/n G*otion for Reconsideration; Alternati!el., *otion for *odification #of t)e 0e3ruar. 1, 2002 ecision%G on 1? *arc) 20024 :illie 9n+ filed a separate G*otion for -artial ReconsiderationG dated 8 *arc) 2002, pointin+ out t)at t)ere /as no !iolation of t)e -re= Su3scription A+ree,ent on t)e part of t)e 9n+s, a,on+ ot)ers4 9n 2( $anuar. 2003, t)e Special Second i!ision of t)is "ourt )eld oral ar+u,ents on t)e respecti!e positions of t)e parties4 9n 27 0e3ruar. 2003, r4 :illie 9n+ and t)e rest of t)e ,o!ants 9n+ filed t)eir respecti!e ,e,oranda4 9n 28 0e3ruar. 2003, t)e 5ius su3,itted t)eir ,e,orandu,4 Issue [1]: :)et)er t)e pre=Su3scription A+ree,ent e@ecuted 3. t)e 9n+s is actuall. a su3scription contract4 Held [1]: 01A " /as ori+inall. incorporated /it) an aut)ori;ed capital stoc2 of ?00,000 s)ares /it) t)e 5ius o/nin+ 4?0,200 s)ares representin+ t)e paid=up capital4 :)en t)e 5ius in!ited t)e 9n+s to in!est in 01A " as stoc2)olders, an increase of t)e aut)ori;ed capital stoc2 3eca,e necessar. to +i!e eac) +roup e>ual #?0=?0% s)are)oldin+s as a+reed upon in t)e -re=Su3scription A+ree,ent4 5)e aut)ori;ed capital stoc2 /as t)us increased fro, ?00,000 s)ares to 2,000,000 s)ares /it) a par !alue of -100 eac), /it) t)e 9n+s su3scri3in+ to 1,000,000 s)ares and t)e 5ius to ?4(,800 ,ore s)ares in addition to t)eir 4?0,200 s)ares to co,plete 1,000,000 s)ares4 5)us, t)e su3Fect ,atter of t)e contract /as t)e 1,000,000 unissued s)ares of 01A " stoc2 allocated to t)e 9n+s4 Since t)ese /ere unissued s)ares, t)e partiesD -re=Su3scription A+ree,ent /as in fact a su3scription contract as defined under Section 60, 5itle A'' of t)e "orporation "ode4 A su3scription contract necessaril. in!ol!es t)e corporation as one of t)e contractin+ parties since t)e su3Fect ,atter of t)e transaction is propert. o/ned 3. t)e corporation H its s)ares of stoc24 5)us, t)e su3scription contract #deno,inated 3. t)e parties as a -re=Su3scription A+ree,ent% /)ere3. t)e 9n+s in!ested -100 ,illion for 1,000,000 s)ares of stoc2 /as, fro, t)e !ie/point of t)e la/, one 3et/een t)e 9n+s and 01A ", not 3et/een t)e 9n+s and t)e 5ius4 9t)er/ise stated, t)e 5ius did not contract in t)eir personal capacities /it) t)e 9n+s since t)e. /ere not sellin+ an. of t)eir o/n s)ares to t)e,4 't /as 01A " t)at did4 "onsiderin+ t)erefore t)at t)e real contractin+ parties to t)e su3scription a+ree,ent /ere 01A " and t)e 9n+s alone, a ci!il case for rescission on t)e +round of 3reac) of contract filed 3. t)e 5ius in t)eir personal capacities /ill not prosper4 Assu,in+ it )ad !alid reasons to do so, onl. 01A " #and certainl.

not t)e 5ius% )ad t)e le+al personalit. to file suit rescindin+ t)e su3scription a+ree,ent /it) t)e 9n+s inas,uc) as it /as t)e real part. in interest t)erein4 Article 1311 of t)e "i!il "ode pro!ides t)at Gcontracts ta2e effect onl. 3et/een t)e parties, t)eir assi+ns and )eirs4 4 4G 5)erefore, a part. /)o )as not ta2en part in t)e transaction cannot sue or 3e sued for perfor,ance or for cancellation t)ereof, unless )e s)o/s t)at )e )as a real interest affected t)ere3.4 Issue [2]: :)et)er t)e rescission of -re=Su3scription A+ree,ent /ould result in unaut)ori;ed li>uidation4 Held [2]: 5)e rescission of t)e -re=Su3scription A+ree,ent /ill effecti!el. result in t)e unaut)ori;ed distri3ution of t)e capital assets and propert. of t)e corporation, t)ere3. !iolatin+ t)e 5rust 0und octrine and t)e "orporation "ode, since rescission of a su3scription a+ree,ent is not one of t)e instances /)en distri3ution of capital assets and propert. of t)e corporation is allo/ed4 Rescission /ill, in t)e final anal.sis, result in t)e pre,ature li>uidation of t)e corporation /it)out t)e 3enefit of prior dissolution in accordance /it) Sections 117, 118, 11( and 120 of t)e "orporation "ode4

5)is /or2 is licensed under a "reati!e "o,,ons Attri3ution=8onco,,ercial