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Rural Bank of Lipa City vs CA Case Digest The Rural Bank of Lipa City Inc., etc. vs.

Court of Appeals [GR 124535, 28 September 2001]

Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment, wherein he assigned his shares, as well as those of 8 other shareholders under his control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they acknowledged their indebtedness to the Bank in the amount of P4,000,000.00, and stipulated that said debt will be paid out of the proceeds of the sale of their real property described in the Agreement. At a meeting of the Board of Directors of the Bank on 15 November 1993, the Villanueva spouses assured the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54.

The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their shares. On 15 January 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter dated 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in favor of the Bank. Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and election of directors and officers on 15 January 1994, with damages and prayer for preliminary injunction (SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.

However, a motion for reconsideration was granted on 16 December 1994, upon finding that since the Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was issued enjoining Bautista, et. al. from acting as directors and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash the writ of preliminary injunction, challenging the propriety of the said writ considering that they had not yet received a copy of the order granting the application for the writ of preliminary injunction. With the impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus Motion praying that the said meeting and election of officers scheduled on 14 January 1995 be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. 1 day before the scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining order preventing Bautista, et al. from holding the stockholders meeting and electing the board of directors and officers of the Bank. A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before the SEC en banc. On 7 June 1995, the SEC en banc denied the petition for certiorari. A subsequent motion for reconsideration was likewise denied by the SEC en banc in a Resolution dated 29 September 1995. A petition for review was filed before the Court of Appeals (CA-GR SP 38861), assailing the Order dated 7 June 1995 and the Resolution dated 29 September 1995 of the SEC en banc in SEC EB 440. The appellate court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration was likewise denied by the Court of Appeals in an Order dated 29 March 1996. The bank, Bautista, et al. filed the instant petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of the corporation. As it is, compliance with any of these requisites has not been clearly and sufficiently shown. Still, while the assignment may be valid and binding on the bank, et al. and the Villanuevas, it does not necessarily make the transfer effective. Consequently, the bank et al., as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the Villanuevas cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with finality.

MR Holdings Ltd. vs. Sheriff Bajar Case Digest

MR Holdings Ltd. vs. Sheriff Bajar [GR 138104, April 11, 2002] Facts: Under a "Principal Loan Agreement" and "Complementary Loan Agreement," both dated 4 November 1992, Asian Development Bank (ADB), a multilateral development finance institution, agreed to extend to Marcopper Mining Corporation (Marcopper) a loan in the aggregate amount of US$40,000,000.00 to finance the latter's mining project at Sta. Cruz, Marinduque. The principal loan of US$15,000,000.00 was sourced from ADB's ordinary capital resources, while the complementary loan of US$25,000,000.00 was funded by the Bank of Nova Scotia, a participating finance institution. On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which owns 40% of Marcopper, executed a "Support and Standby Credit Agreement" whereby the latter. agreed to provide Marcopper with cash flow support for the payment of its obligations to ADB. To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and Chattel Mortgage" dated 11 November 1992, covering substantially all of its (Marcopper's) properties and assets in Marinduque. It was registered with the Register of Deeds on 12 November 1992. When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in fulfillment of its undertaking under the "Support and Standby Credit Agreement," and presumably to preserve its international credit standing, agreed to have its subsidiary corporation, MR Holding, Ltd., assumed Marcopper's obligation to ADB in the amount of US$18,453,450.02. Consequently, in an "Assignment Agreement" dated 20 March 1997 ADB assigned to MR Holdings all its rights, interests and obligations under the principal and complementary loan agreements, ("Deed of Real Estate and Chattel Mortgage," and "Support and Standby Credit Agreement"). On 8 December 1997, Marcopper likewise executed a "Deed of Assignment" in favor of MR Holdings. Under its provisions, Marcopper assigns, transfers, cedes and conveys to MR Holdings, its assigns and/or successors-in-interest all of its (Marcopper's) properties, mining equipment and facilities. Meanwhile, it appeared that on 7 May 1997, Solidbank Corporation (Solidbank) obtained a Partial Judgment against Marcopper from the RTC, Branch 26, Manila, in Civil Case 96-80083, ordering Marcopper to pay Solidbank he amount if PHP 52,970,756.89, plus interest and charges until fully paid; to pay an amount equivalent to 10% of above-stated amount as attorney's fees; and to pay the costs of suit. Upon Solidbank's motion, the RTC of Manila issued a writ of execution pending appeal directing Carlos P. Bajar, sheriff, to require Marcopper "to pay the sums of money to satisfy the Partial Judgment." Thereafter, Bajar issued two notices of levy on Marcopper's personal and real properties, and over all its stocks of scrap iron and unserviceable mining equipment. Together with sheriff Ferdinand M. Jandusay of the RTC, Branch 94, Boac, Marinduque, Bajar issued two notices setting the public auction sale of the levied properties on 27 August 1998 at the Marcopper mine site. Having learned of the scheduled auction sale, MR Holdings served an "Affidavit of Third-Party Claim" upon the sheriffs on 26 August 1998, asserting its ownership over all Marcopper's mining properties, equipment and facilities by virtue of the "Deed of Assignment." Upon the denial of its "Affidavit of Third-Party Claim" by the RTC of Manila, MR Holdings commenced with the RTC of Boac, Marinduque, presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with prayer for preliminary injunction and temporary restraining order against Solidbank, Marcopper, and sheriffs Bajar and Jandusay (Civil Case 98-13). In an Order dated 6 October 1998, Judge Ansaldo denied MR Holdings' application for a writ of preliminary injunction on the ground that (a) MR Holdings has no legal capacity to sue, it being a foreign corporation doing business in the Philippines without license; (b) an injunction will amount "to staying the execution of a final judgment by a court of co-equal and concurrent jurisdiction;" and (c) the validity of the "Assignment Agreement" and the "Deed of Assignment" has been "put into serious question by the timing of their execution and registration." Unsatisfied, MR Holdings elevated the matter to the Court of Appeals on a Petition for Certiorari, Prohibition and Mandamus (CA-GR SP 49226). On 8 January 1999, the Court of Appeals rendered a Decision affirming the trial court's decision. MR Holdings filed the Petition for Review on Certiorari.

Issue: Whether MR Holdings' participation under the "Assignment Agreement" and the "Deed of Assignment" constitutes doing business. Held: Batas Pambansa 68, otherwise known as "The Corporation Code of the Philippines," is silent as to what constitutes doing" or "transacting" business in the Philippines. Fortunately, jurisprudence has supplied the deficiency and has 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, and in progressive prosecution of, the purpose and object for which the corporation was organized." The traditional case law definition has metamorphosed into a statutory definition, having been adopted with some qualifications in various pieces of legislation in Philippine jurisdiction, such as Republic Act 7042 (Foreign Investment Act of 1991), and Republic Act 5455. There are other statutes defining the term "doing business," and as may be observed, one common denominator among them all is the concept of "continuity." The expression "doing business" should not be given such a strict and literal construction as to make it apply to any corporate dealing whatever. At this early stage and with MR Holdings' acts or transactions limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for which it was organized. Herein, at this early stage and with MR Holdings' acts or transactions limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for which it was organized. It may not be amiss to point out that the purpose or business for which MR Holdings was organized is not discernible in the records. No effort was exerted by the Court of Appeals to establish the nexus between MR Holdings' business and the acts supposed to constitute "doing business." Thus, whether the assignment contracts were incidental to MR Holdings' business or were continuation thereof is beyond determination. The Court of Appeals' holding that MR Holdings was determined to be "doing business" in the Philippines is based mainly on conjectures and speculation. In concluding that the "unmistakable intention" of MR Holdings is to continue Marcopper's business, the Court of Appeals hangs on the wobbly premise that "there is no other way for petitioner to recover its huge financial investments which it poured into Marcopper's rehabilitation without it (petitioner) continuing Marcopper's business in the country." Absent overt acts of MR Holdings from which we may directly infer its intention to continue Marcopper's business, the Supreme Court cannot give its concurrence. Significantly, a view subscribed upon by many authorities is that the mere ownership by a foreign corporation of a property in a certain state, unaccompanied by its active use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing business. Further, long before MR Holdings assumed Marcopper's debt to ADB and became their assignee under the two assignment contracts, there already existed a "Support and Standby Credit Agreement" between ADB and Placer Dome whereby the latter bound itself to provide cash flow support for Marcopper's payment of its obligations to ADB. Plainly, MR Holdings' payment of US$18,453,450.12 to ADB was more of a fulfillment of an obligation under the "Support and Standby Credit Agreement" rather than an investment. That MR Holdings had to step into the shoes of ADB as Marcopper's creditor was just a necessary legal consequence of the transactions that transpired. Also, the "Support and Standby Credit Agreement" was executed 4 years prior to Marcopper's insolvency, hence, the alleged "intention of MR Holdings to continue Marcopper's business" could have no basis for at that time, Marcopper's fate cannot yet be determined. In the final analysis, MR Holdings was engaged only in isolated acts or transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or carrying on of business. Typical examples of these are the making of a single contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor, purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any other business within the country.