BLISS DEVELOPMENT CORP.
EMPLOYEES
UNION SENTRO NG DEMOKRATIKONG
MANGGAGAWA (BDCEU-SDM) vs. HON. PURA
FERRER CALLEJA
G.R. No. 80887 September 30, 1994
FACTS:
Petitoner BDCEU-SDM is a duly registered labor
union. It filed with the Department of Labor, National
Capital Region, a petition for certification election of
private respondent Bliss Development Corporation
(BDC).
Med-Arbiter Fernando dismissed the petition for lack of
jurisdiction stating that the majority of BDC’s stocks is
owned by the Human Settlement Development
Corporation (HSDC), a wholly-owned government
corporation. Therefore, BDC is subject to Civil Service
law, rules and regulations. Its employees therefore, are
prohibited to join or form labor organization.
Petitioner then filed an appeal with Bureau of Labor
Relations.
In the meantime, President Corazon Aquino issued
Executive Order No. 180, extending to government
employees the right to organize and bargain collectively.
Respondent Director Calleja (BLR) issued an order
dismissing the appeal ruling that Bliss Development
Corporation which is under the then Ministry of Human
Settlement, is a government Corporation where the
workers are prohibited from organizing and joining labor
unions.
However, with the issuance of EO 180 (government
employees are now given the right to bargain), the BLR
enjoins the petitioner to register in accordance with the
provisions in said executive order.
ISSUE:
W/N BDC is a government-owned controlled
corporation subject to Civil Service Laws, rules and
regulations. Corollary to this issue is the question of W/N
petitioner is covered by Executive Order No. 180 and
must register as a precondition for filing a petition for
certification election.
RULING:
In determining whether a corporation created under the
Corporation Code is government owned or controlled or
not, the rule applied is the ownership test whereby a
corporation will be deemed owned by the government if
the majority of its voting stocks are owned by the
government.
It appearing that Human Settlement Development
Corporation (HSDC), which is a wholly-owned
government corporation, owns a majority of the stocks of
Bliss Development Corporation (BDC), our conclusion is
that BDC is a government-owned corporation subject
to the coverage of the Civil Service law, rules and
regulations.
Section 1 of Executive Order No. 180 expressly limits its
application to only government-owned or controlled
corporations with original charters. Hence, public
respondent's order dated August 7, 1987 requiring
petitioner to register in accordance with Section 7 of
executive Order No. 180 is without legal basis.
A government-owned corporation could create several
subsidiary corporations. Conceivably, all government-
owned or controlled corporations could be created, no
longer by special charters, but through incorporations
under the general law.
The Civil Service embraces government-owned or
controlled corporations with original charter; and,
therefore, by clear implication, the Civil Service does not
include government-owned or controlled corporations
which are organized as subsidiaries of government-
owned or controlled corporations under the general
corporation law.
A corporation is created by operation of law. It acquires a
judicial personality either by special law or a general law.
The general law under which a private corporation may
be formed or organized is the Corporation Code, the
requirements of which must be complied with by those
wishing to incorporate. Only upon such compliance will
the corporation come into being and acquire a juridical
personality, thus giving rise to its right to exist and act as
a legal entity. On the other hand, a government
corporation is normally created by special law, referred to
often as a charter.
BDC is a government-owned corporation created under
the Corporation Law. It is without a charter hence,
Executive Order No. 180 does not apply to it.
Consequently, public respondent committed grave abuse
of discretion in ordering petition to register under Section
7, of Executive Order No. 180 as a precondition for filing
a petition for certification election.
G.R. No. 111008 November 7, 1994
TRAMAT MERCANTILE, INC. AND DAVID
ONG, petitioners,
vs. HON. COURT OF APPEALS AND MELCHOR
DE LA CUESTA, respondents.
TOPIC: Corporate officers and agents - Authority;
Liability of corporate officers
FACTS:
1. Melchor de la Cuesta, doing business under the name
and style of "Farmers Machineries," sold to Tramat, 1
unit HINOMOTO TRACTOR.
2. David Ong, Tramat's president and manager, issued
check for P33,500 payment (apparently replacing an
earlier postdated check for P33,080.00).
3. Tramat, in turn, sold the tractor, together with an
attached lawn mower fabricated by it, to the
Metropolitan Waterworks and Sewerage System
("NAWASA") for P67,000.
4. David Ong caused a "stop payment" of the check when
NAWASA refused to pay the tractor and lawn mower
after discovering that, aside from some stated defects
of the attached lawn mower, the engine was a
reconditioned unit.
5. De la Cuesta filed an action for the recovery of
P33,500.
6. ONG averred:
- that de la Cuesta had no cause of action; that the
questioned transaction was between plaintiff and
Tramat Mercantile, Inc., and not with Ong in his
personal capacity; and
- that the payment of the check was stopped
because the subject tractor had been priced as a
brand new, not as a reconditioned unit.
7. The trial court ruled in favor of petitioner.
8. CA affirmed. MR was denied.
ISSUE: WON Ong jointly and severally liable with
Tramat? NO!
HELD:
Ong acted, not in his personal capacity, but as an
officer of a corporation, TRAMAT, with a distinct and
separate personality. As such, it should only be the
corporation, not the person acting for and on its behalf,
that properly could be made liable thereon.
Personal liability of a corporate director, trustee
or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only 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.
In the case at bench, there is no indication that
petitioner David Ong could be held personally
accountable under any of the abovementioned cases.
Petition is given due course. Appealed decision is
modified as it holds petitioner Ong jointly and severally
liable with Tramat Mercantile, Inc. In all other respects,
the decision appealed from is affirmed.
LUIS C. CLEMENTE, LEONOR CLEMENTE DE
ELEPAÑO, HEIRS OF ARCADIO C. OCHOA,
represented by FE O. OCHOA-BAYBAY,
CONCEPCION, MARIANO, ARTEMIO, VICENTE,
ANGELITA, ROBERTO, HERNANDO AND
LOURDES, all surnamed ELEPAÑO, petitioners, vs.
THE HON. COURT OF APPEALS, ELVIRA
PANDINCO-CASTRO AND VICTOR CASTRO,
respondents.
G.R. No. 82407 March 27, 1995
VITUG, J.:
FACTS: Petitioners sought to be declared the owners of
a piece of land situated in Calamba, Laguna bought by
"Sociedad Popular Calambeña". The “sociedad” was
organized at the advent of the early American occupation
of the Philippines. It did business and held itself out as a
corporation from 1909 up to 1932. Its principal business
was cockfighting or the operation and management of a
cockpit. The "Sociedad" acquired the subject parcel of
land from the Friar Lands Estate of Calamba. Patent was
issued and the Real Property Tax Register of the Office of
the Treasurer of Calamba, Laguna showed that the lot was
declared and assessed for taxation purposes.
Plaintiffs show that Mariano Elepaño and Pablo
Clemente, now both deceased, were the original
stockholders of the "sociedad." Pablo Clemente's shares
of stocks were later distributed and apportioned to his
heirs. The "sociedad" then issued stock certificates to the
heirs. On the basis of their respective stocks certificates,
they, along with the heirs of Mariano Elepaño jointly
claimed ownership over the subject parcel of land,
asserting that their fathers being the only known
stockholders of the "sociedad" they, to the exclusion of all
others, are entitled to be declared owners of the lot.
Private respondents, in their answer; likewise claimed
ownership of the property by virtue of acquisitive
prescription.
The trial court dismissed the complaint on the grounds of
insufficiency of evidence and absent a corporate
liquidation, it is the corporation, not the stockholders,
which can assert, if at all, any title to the corporate assets.
The CA sustained the dismissal of the complaint.
ISSUE: Whether or not petitioners can be held to have
succeeded in establishing for themselves a firm title to the
property in question.
HELD: NO. Except in showing that they are the
successors-in-interest of Elepaño and Clemente,
petitioners have been unable to come up with any
evidence to substantiate their claim of ownership of the
corporate asset.
If, indeed, the sociedad has long become defunct, it
should behoove petitioners, or anyone else who may have
any interest in the corporation, to take appropriate
measures before a proper forum for a peremptory
settlement of its affairs. We might invite attention to the
various modes provided by the Corporation Code for
dissolving, liquidating or winding up, and terminating the
life of the corporation.
Among the causes for such dissolution are when the
corporate term has expired or when, upon a verified
complaint and after notice and hearing, the SEC orders
the dissolution of a corporation for its continuous
inactivity for at least 5 years. The corporation continues
to be a body corporate for 3 years after its dissolution for
purposes of prosecuting and defending suits by and
against it and for enabling it to settle and close its affairs,
culminating in the disposition and distribution of its
remaining assets. It may, during the 3-year term, appoint
a trustee or a receiver who may act beyond that period. If
the 3-year extended life has expired without a trustee or
receiver having been expressly designated by the
corporation, the board of directors (or trustees) itself may
be permitted to so continue as "trustees" by legal
implication to complete the corporate liquidation. Still in
the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not
only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make
proper representations with the SEC for working out a
final settlement of the corporate concerns.
CHEMPHIL EXPORT & IMPORT CORPORATION vs.
Court of Appeals, December 12, 1995G.R. Nos. 112438-
39
Facts: Dynetics, Inc. and Antonio M. Garcia filed a
complaint for declaratory relief and/or injunction against
the PISO, BPI, LBP, PCIB and RCBC or the consortium
with the Regional Trial Court seeking judicial declaration,
construction and interpretation of the validity of the surety
agreement that Dynetics and Garcia had entered into with
the consortium and to perpetually enjoin the latter from
claiming, collecting and enforcing any purported
obligations which Dynetics and Garcia might have
undertaken in said agreement. The consortium filed their
respective answers with counterclaims alleging that the
surety agreement in question was valid and binding and
that Dynetics and Garcia were liable under the terms of
the said agreement.
A notice of garnishment covering Garcia's shares in
CIP/Chemphil (including the disputed shares) was served
on Chemphil through its then President. The notice of
garnishment was duly annotated in the stock and transfer
books of Chemphil on the same date.
The trial court denied the application of Dynetics and
Garcia for preliminary injunction and instead granted the
consortium's prayer for a consolidated writ of preliminary
attachment. Hence, after the consortium had filed the
required bond, a writ of attachment was issued and
various real and personal properties of Dynetics and
Garcia were garnished, including the disputed shares.
This garnishment, however, was not annotated in
Chemphil's stock and transfer book.
The Court holds that the CONSORTIUM has admitted
that the writ of attachment/garnishment issued on the
shares of stock belonging to plaintiff Antonio M. Garcia
was not annotated and registered in the stock and transfer
books of CHEMPHIL. On the other hand, the prior
attachment issued in favor of SBTC against the same
CHEMPHIL shares of Antonio M. Garcia, was duly
registered and annotated in the stock and transfer books
of CHEMPHIL.
Issue: Whether or not the attachment of shares of stock,
in order to bind third persons, must be recorded in the
stock and transfer book of the corporation?
Held: The Court of Appeals agreed with the consortium's
position that the attachment of shares of stock in a
corporation need not be recorded in the corporation's
stock and transfer book in order to bind third
persons.Section 7(d), Rule 57 of the Rules of Court was
complied with by the consortium (through the Sheriff of
the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president of
Chemphil. Indeed, to bind third persons, no law requires
that an attachment of shares of stock be recorded in the
stock and transfer book of a corporation.
Therefore, ruled the Court of Appeals, the attachment
made over the Chemphil shares in the name of Garcia was
made in accordance with law and the lien created thereby
remained valid and subsisting at the time Garcia sold
those shares to FCI (predecessor-in-interest of appellee
CEIC) in 1988. A secretary's major function is to assist
his or her superior. He/she is in effect an extension of the
latter. Obviously, as such, one of her duties is to receive
letters and notices for and in behalf of her superior, as in
the case at bench.
The notice of garnishment was addressed to and was
actually received by Chemphil's president through his
secretary who formally received it for him. Thus, in one
case, 56 we ruled that the secretary of the president may
be considered an "agent" of the corporation and held that
service of summons on him is binding on the corporation.
Moreover, the service and receipt of the notice of
garnishment was duly acknowledged and confirmed by
the corporate secretary of Chemphil, Rolando Navarro
and his successor Avelino Cruz through their respective
certifications.We rule, therefore, that there was
substantial compliance with Sec. 7 (d), Rule 57 of the
Rules of Court.
First Philippine International Bank vs Court of
Appeals
252 SCRA 259 [GR No. 115849 January 24, 1996]
Facts: In the course of its banking operations, the
defendant Producer Bank of the Philippines acquired 6
parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-
106932 to T-106937. The property used to be owned by
BYME Investment and Development Corporation which
hd them mortgaged with the bank as collateral for a loan.
The plaintiff originals, Demetrio Demetria and Jose
Janolo wanted to purchase the property and thus initiated
negotiations for that purpose. In the early part of August
1987 said plaintiffs, upon the suggestion of BYME
investment’s legal counsel, Fajardo met with defendant
Mercurio Rivera, manager of the property management
department of the defendant bank. The meeting was held
in pursuant to plaintiffs’ plan to buy the property. After
the meeting, plaintiff Janolo, following the advice of
defendant Rivera made a formal purchase offer to the
Bank through a letter dated August 30,1987. Negotiations
took place and an offer price was fixed at P5.5million.
During the course of the negotiations, the defendant bank
was placed under conservatorship and a new conservator
was appointed to which the name has been refused to
recognize. A derivative suit has been filed against Rivera
for the damages suffered from the alleged perfect contract
of sale involving the 6 parcels of land.
Issue: Whether or not a derivative suit may lie involving
the bank and its stockholders.
Held: No. An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation
wherein he hold 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 face of the damaging admissions taken from the
complaint in the second case, petitioners, quite strangely,
sought to deny that the second case was a derivative suit,
reasoning that it was brought not by the minority
shareholders, but by Henry Co. etal. who not only hold or
control over 80% of the outstanding capital stock, but also
constitute the majority in the board of directors of
petitioners bank. That being so, then they really represent
the bank, so whether they sued derivatively or directly,
there is undeniably an identity of interest/entity
represented.
In addition to the many cases, where the corporate fiction
has been regarded, we now add the instant case, and
declare herewith that the corporate veil cannot be used to
shield an otherwise blatant violation of the prohibition
against forum shopping. Shareholders, whether suing as
the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court
processes particularly where, as in this case, the
corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using
and applying remedies available to it. To rule otherwise
would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules
against forum shopping.
From the facts, the official bank price, at any rte, the bank
placed its official, Rivera is a position of authority to
accept offers to buy and negotiate the sale by having the
offer officially acted upon by the bank. The bank cannot
turn around and say, as it now does, that what Rivera
states as the bank’s action on the matter is not in fact so.
It is a familiar doctrine, the doctrine of ostensible
authority, that if a corporation on knowingly permits one
of its officers, or any other agent, to do acts within the
scope of apparent authority, and thus holds him out to the
public as possessing power to do those acts, the
corporation will, as against any one who has in good faith
dealt with the corporation through such agent, he
estopped from denying his authority.
A bank is liable for wrongful acts of its officers done in
the interest of the bank or in he course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority. A bank holding out
its officers and agents as worthy of confidence will not be
permitted to profit by the frauds they my thus be enabled
to perpetrate in the apparent scope of their employment;
nor will it be permitted to shrink its responsibility for such
fraud even through no benefit may accrue to the bank
therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made
in the course of its business by an agent acting within the
general scope of its authority even though, in the
particular case, the agent is secretly abusing his authority
and attempting to perpetrate fraud upon his principal or
some other person, for his own ultimate benefit.
Section 28-A of BP 68 merely gives the conservator
power to revoke contracts that are, under existing law,
deemed not to be effective – i.e void, voidable,
unenforceable or rescissible. Hence, the conservator
merely takes the place of a bank’s board of directors.
What the said board cannot do – such as repudiating a
contract validly entered into under the doctrine of implied
authority – the conservator cannot do either.
Santos vs. National Labor Relations Commission
[GR 101699, 13 March 1996]
First Division, Vitug (J): 4 concur
Facts: Melvin D. Millena, on 1 October 1985, was hired
to be the project accountant for Mana Mining and
Development Corporation's (MMDC) mining operations
in Gatbo, Bacon, Sorsogon. On 12 August 1986, Millena
sent to Mr. Gil Abaño, the MMDC corporate treasurer, a
memorandum calling the latter's attention to the failure of
the company to comply with the withholding tax
requirements of, and to make the corresponding monthly
remittances to, the Bureau of Internal Revenue (BIR) on
account of delayed payments of accrued salaries to the
company's laborers and employees. In a letter, dated 8
September 1986, Abaño advised Millena that it was the
board's decision that it stop porduction (operation) in
Sorsogon due to the upcoming rainy seasons and the
deterioration of the peace and order in the said area; that
the corporation will undertake only necessary
maintenance and repair work and will keep overhead
down to the minimum manageable level; and that the
corporation will not need a project accountant until the
corporaton resumes full-scale operations. Millena
expressed "shock" over the termination of his
employment. He complained that he would not have
resigned from the Sycip, Gores & Velayo accounting
firm, where he was already a senior staff auditor, had it
not been for the assurance of a "continuous job" by
MMDC's Eng. Rodillano E. Velasquez. Millena requested
that he be reimbursed the "advances" he had made for the
company and be paid his "accrued salaries/claims." The
claim was not heeded. On October 1986, Millena filed
with the NLRC Regional Arbitration, Branch No. V, in
Legazpi City, a complaint for illegal dismissal, unpaid
salaries, 13th month pay, overtime pay, separation pay
and incentive leave pay against MMDC and its two top
officials, namely, Benjamin A Santos (the President) and
Rodillano A. Velasquez (the executive vice-president). In
his complaint-affidavit (position paper), submitted on 27
October 1986, Millena alleged, among other things, that
his dismissal was merely an offshoot of his letter of 12
August 1986 to Abaño about the company's inability to
pay its workers and to remit withholding taxes to the BIR.
On 27 July 1988, Labor Arbiter Fructouso T. Aurellano,
finding no valid cause for terminating complaint's
employment, ruledthat a partial closure of an
establishment due to losses was a retrenchment measure
that rendered the employer liable for unpaid salaries and
other monetary claims. The Labor Arbiter ordered Santos,
et. al. to pay Millena the amount of P37,132.25
corresponding to the latter's unpaid salaries and advances:
P5,400.00 for petitioner's 13th month pay; P3,340.95 as
service incentive leave pay; and P5, 400.00 as separation
pay. Santos, et. al. were further ordered to pay Millena
10% of the monetary awards as attorney's fees. Alleging
abuse of discretion by the Labor Arbiter, the company and
its co-respondents filed a "motion for reconsideration and
/or appeal." 8 The motion/appeal was forthwith indorsed
to the Executive Director of the NLRC in Manila. In a
resolution, dated 04 September 1989, the NLRC affirmed
the decision of the Labor Arbiter. A writ of execution
correspondingly issued; however, it was returned
unsatisfied for the failure of the sheriff to locate the
offices of the corporation in the addressed indicated.
Another writ of execution and an order of garnishment
was thereupon served on Santos at his residence.
Contending that he had been denied due process, Santos
filed a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal of the writ
of execution and order of garnishment. He averred that he
had never received any notice, summons or even a copy
of the complaint; hence, he said, the Labor Arbiter at no
time had acquired jurisdiction over him. On 16 August
1991, the NLRC dismissed the motion for
reconsideration. Santos filed the petition for certiorari.
Issue: Whether Santos should be made solidarily liable
with MMDC.
Held: A corporation is a judicial entity with legal
personality separated 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 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. 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 (b) 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. The case of Santos is way of these exceptional
instances. It is not even shown that Santos has had a direct
hand in the dismissal of Millena enough to attribute to
Santos a patently unlawful act while acting for the
corporation. Neither can Article 289 of the Labor Code be
applied since this specifically refers only to the imposition
of penalties under the Code. It is undisputed that the
termination of Millena's employment has, instead, been
due, collectively, to the need for a further mitigation of
losses, the onset of the rainy season, the insurgency
problem, in Sorsogon and the lack of funds to further
support the mining operation in Gatbo. It is basic that a
corporation is invested by law with a personally 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 nearly all of the capital stock of
a corporation is not of itself sufficient ground for
disregarding the separate corporate personally. Similar to
the case of Sunio vs. National Labor Relations
Commission, Santos should not have been made
personally answerable for the payment of Millena's back
salaries.
Concept Builders Inc. vs. National Labor Relations
Commission (NLRC, First Division)
[GR 108734, 29 May 1996]
First Division, Hermosisima Jr. (J): 4 concur
Facts: Concept Builders, Inc., (CBI) a domestic
corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction
business while Norberto Marabe; Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos,
Pedro Aboigar, Norberto Comendador, Rogelio Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo
Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio,
Moreno Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos were employed by said company as
laborers, carpenters and riggers. On November 1981,
Marabe, et. al. were served individual written notices of
termination of employment by CBI, effective on 30
November 1981. It was stated in the individual notices
that their contracts of employment had expired and the
project in which they were hired had been completed. The
National Labor Relations Commission (NLRC) found it
to be, the fact, however, that at the time of the termination
of Marabe, et.al.'s employment, the project in which they
were hired had not yet been finished and completed. CBI
had to engage the services of sub-contractors whose
workers performed the functions of Marabe, et. al.
Aggrieved, Marabe, et. al. filed a complaint for illegal
dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and thirteenth-month pay
against CBI. On 19 December 1984, the Labor Arbiter
rendered judgment ordering CBI to reinstate Marabe et.
al. and to pay them back wages equivalent to 1 year or 300
working days. On 27 November 1985, the NLRC
dismissed the motion for reconsideration filed by CBI on
the ground that the said decision had already become final
and executory.
On 16 October 1986, the NLRC Research and
Information Department made the finding that Marabe, et.
al.'s back wages amounted to P199,800.00. On 29 October
1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, dated 19
December 1984. The writ was partially satisfied through
garnishment of sums from CBI's debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier
of the NLRC. On 1 February 1989, an Alias Writ of
Execution was issued by the Labor Arbiter directing the
sheriff to collect from CBI the sum of P117,414.76,
representing the balance of the judgment award, and to
reinstate Marabe, et. al. to their former positions. On 13
July 1989, the sheriff issued a report stating that he tried
to serve the alias writ of execution on petitioner through
the security guard on duty but the service was refused on
the ground that CBI no longer occupied the premises. On
26 September 1986, upon motion of Marabe, et. al., the
Labor Arbiter issued a second alias writ of execution. The
said writ had not been enforced by the special sheriff
because, as stated in his progress report dated 2 November
1989, that all the employees inside CBI's premises
claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by CBI; that levy was
made upon personal properties he found in the premises;
and that security guards with high-powered guns
prevented him from removing the properties he had levied
upon. The said special sheriff recommended that a "break-
open order" be issued to enable him to enter CBI's
premises so that he could proceed with the public auction
sale of the aforesaid personal properties on 7 November
1989. On 6 November 1989, a certain Dennis Cuyegkeng
filed a third-party claim with the Labor Arbiter alleging
that the properties sought to be levied upon by the sheriff
were owned by HPPI, of which he is the Vice-President.
On 23 November 1989, Marabe, et. al. filed a "Motion for
Issuance of a Break-Open Order," alleging that HPPI and
CBI were owned by the same incorporator/stockholders.
They also alleged that petitioner temporarily suspended
its business operations in order to evade its legal
obligations to them and that Marabe, et. al. were willing
to post an indemnity bond to answer for any damages
which CBI and HPPI may suffer because of the issuance
of the break-open order. On 2 March 1990, the Labor
Arbiter issued an Order which denied Marabe, et. al.'s
motion for break-open order.
Marabe, et. al. then appealed to the NLRC. On 23 April
1992, the NLRC set aside the order of the Labor Arbiter,
issued a break-open order and directed Marabe, et. al. to
file a bond. Thereafter, it directed the sheriff to proceed
with the auction sale of the properties already levied upon.
It dismissed the third-party claim for lack of merit. CBI
moved for reconsideration but the motion was denied by
the NLRC in a Resolution, dated 3 December 1992.
Hence, the petition.
Issue: Whether the NLRC was correct in issuing the
break-open order to levy the “HPPI properties” located at
CBI amd/or HPPI’s premises at 355 Maysan Road,
Valenzuela, Metro Manila.
Held: 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. 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;
and (4) Methods of conducting the business. The SEC en
banc explained the "instrumentality rule" which the courts
have applied in disregarding the separate juridical
personality of corporations as "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 instances,
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." The test in determining the
applicability of the doctrine of piercing the veil of
corporate fiction is as (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. 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. Here, while CBI claimed that it
ceased its business operations on 29 April 1986, it filed
an Information Sheet with the Securities and Exchange
Commission on 15 May 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro
Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet
stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. Further, both information
sheets were filed by the same Virgilio O. Casiño as the
corporate secretary of both corporations. Both
corporations had the same president, the same board of
directors, the same corporate officers, and substantially
the same subscribers. From the foregoing, it appears that,
among other things, the CBI and the HPPI shared the
same address and/or premises. Under these
circumstances, it cannot be said that the property levied
upon by the sheriff were not of CBI's. Clearly, CBI ceased
its business operations in order to evade the payment to
Marabe, et. al. of back wages and to bar their
reinstatement to their former positions. HPPI is obviously
a business conduit of CBI and its emergence was skillfully
orchestrated to avoid the financial liability that already
attached to CBI.
COMMUNICATION MATERIALS AND DESIGN,
INC et al vs.CA et al. G.R. No. 102223 August 22, 1996
FACTS:
Petitioners COMMUNICATION MATERIALS AND
DESIGN, INC., (CMDI) and ASPAC MULTI-TRADE
INC., (ASPAC) are both domestic corporations.. Private
Respondents ITEC, INC. and/or ITEC,
INTERNATIONAL, INC. (ITEC) are corporations duly
organized and existing under the laws of the State of
Alabama, USA. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines.
ITEC entered into a contract with ASPAC referred to as
“Representative Agreement”. Pursuant to the contract,
ITEC engaged ASPAC as its “exclusive representative”
in the Philippines for the sale of ITEC’s products, in
consideration of which, ASPAC was paid a stipulated
commission. Through a “License Agreement” entered
into by the same parties later on, ASPAC was able to
incorporate and use the name “ITEC” in its own name.
Thus , ASPAC Multi-Trade, Inc. became legally and
publicly known as ASPAC-ITEC (Philippines). One year
into the second term of the parties’ Representative
Agreement, ITEC decided to terminate the same, because
petitioner ASPAC allegedly violated its contractual
commitment as stipulated in their agreements. ITEC
charges the petitioners and another Philippine
Corporation, DIGITAL BASE COMMUNICATIONS,
INC. (DIGITAL), the President of which is likewise
petitioner Aguirre, of using knowledge and information
of ITEC’s products specifications to develop their own
line of equipment and product support, which are similar,
if not identical to ITEC’s own, and offering them to
ITEC’s former customer.
The complaint was filed with the RTC-Makati by ITEC,
INC. Defendants filed a MTD the complaint on the
following grounds: (1) That plaintiff has no legal capacity
to sue as it is a foreign corporation doing business in the
Philippines without the required BOI authority and SEC
license, and (2) that plaintiff is simply engaged in forum
shopping which justifies the application against it of the
principle of “forum non conveniens”. The MTD was
denied.
Petitioners elevated the case to the respondent CA on a
Petition for Certiorari and Prohibition under Rule 65 of
the Revised ROC. It was dismissed as well. MR denied,
hence this Petition for Review on Certiorari under Rule
45.
ISSUE: 1. Did the Philippine court acquire jurisdiction
over the person of the petitioner corp, despite allegations
of lack of capacity to sue because of non-registration?
2. Can the Philippine court give due course to the suit or
dismiss it, on the principle of forum non convenience?
HELD: petition dismissed. 1. YES; We are persuaded to
conclude that ITEC had been “engaged in” or “doing
business” in the Philippines for some time now. This is
the inevitable result after a scrutiny of the different
contracts and agreements entered into by ITEC with its
various business contacts in the country. Its arrangements,
with these entities indicate convincingly that ITEC is
actively engaging in business in the country.
A foreign corporation doing business in the Philippines
may sue in Philippine Courts although not authorized to
do business here against a Philippine citizen or entity who
had contracted with and benefited by said corporation. To
put it in 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. And 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.
In Antam Consolidated Inc. vs. CA et al. we expressed
our chagrin over this commonly used scheme of
defaulting local companies which are being sued by
unlicensed foreign companies not engaged in business in
the Philippines to invoke the lack of capacity to sue of
such foreign companies. Obviously, the same ploy is
resorted to by ASPAC to prevent the injunctive action
filed by ITEC to enjoin petitioner from using knowledge
possibly acquired in violation of fiduciary arrangements
between the parties.
2. YES; Petitioner’s insistence on the dismissal of this
action due to the application, or non application, of the
private international law rule of forum non conveniens
defies well-settled rules of fair play. According to
petitioner, the Philippine Court has no venue to apply its
discretion whether to give cognizance or not to the present
action, because it has not acquired jurisdiction over the
person of the plaintiff in the case, the latter allegedly
having no personality to sue before Philippine Courts.
This argument is misplaced because the court has already
acquired jurisdiction over the plaintiff in the suit, by
virtue of his filing the original complaint. And as we have
already observed, petitioner is not at liberty to question
plaintiff’s standing to sue, having already acceded to the
same by virtue of its entry into the Representative
Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the
Philippine Court, based on the facts of the case, whether
to give due course to the suit or dismiss it, on the principle
of forum non convenience. Hence, the Philippine Court
may refuse to assume jurisdiction in spite of its having
acquired jurisdiction. Conversely, the court may assume
jurisdiction over the case it it chooses to do so; provided,
that the following requisites are met:
1) That the Philippine Court is one to which the parties
may conveniently resort to;
2) That the Philippine Court is in a position to make an
intelligent decision as to the law and the facts; and,
3) That the Philippine Court has or is likely to have power
to enforce its decision. The aforesaid requirements having
been met, and in view of the court’s disposition to give
due course to the questioned action, the matter of the
present forum not being the “most convenient” as a
ground for the suit’s dismissal, deserves scant
consideration.
Acme Shoe, Rubber and Plastic Corp.
V.
Court of Appeals
G.R. No. 103576. August 22, 1996
Ponente: Vitug, J.
Digest Maker: J. Ragragio
FACTS: Acme Shoe entered into a loan agreement with
Producer’s Bank for P3M. This loan was secured by
chattel mortgage (the subject property of the chattel
mortgage is never mentioned), with a provision as
follows:
"In case the MORTGAGOR executes subsequent
promissory note or notes either as a renewal of the former
note, as an extension thereof, or as a new loan, or is given
any other kind of accommodations such as overdrafts,
letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of
the said promissory note or notes and/or accommodations
without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the
said promissory note or notes and/or accommodations
were existing on the date thereof. This mortgage shall also
stand as security for said obligations and any and all other
obligations of the MORTGAGOR to the MORTGAGEE
of whatever kind and nature, whether such obligations
have been contracted before, during or after the
constitution of this mortgage."
Acme Shoe eventually paid the P3M loan. Acme Shoe
later took out another loan for P2.7M, which was also
eventually fully paid. Some time later, Acme Shoe took
out another loan, this time for P1M. However, due to
financial constraints, they were unable to settle the loan.
Producer’s Bank applied for extrajudicial foreclosure of
the chattel mortgage. In response, Acme Shoe filed a
petition for injunction at the RTC. The RTC dismissed
Acme Shoe’s petition, and ordered the foreclosure of the
chattel mortgage. On appeal, the Court of Appeals upheld
the RTC in toto.
ISSUES/HELD: Is the foreclosure valid? (No)
RATIO: The Supreme Court discussed real securities
(pledge, mortgage or antichresis), and gave the general
rule that real securities may secure after-incurred
obligations, or future obligations not yet existing at the
time the security agreement is entered into. However, the
Court pointed out that chattel mortgage is the exception
to this rule, being covered by a special law (Act No. 1508)
that provides in the prescribed form:
"x x x (the) mortgage is made for the purpose of securing
the obligation specified in the conditions thereof, and for
no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of
fraud."
The Court interpreted this provision in the prescribed
form of a chattel mortgage to refer to an existing
obligation, and not a future obligation. As applied in this
case, the chattel mortgage only applied to the P3M loan
and was terminated when that loan was fully paid. Being
merely accessory in nature, the chattel mortgage could not
have existed independently of the principal obligation of
P3M. Therefore, at the time that Producer’s Bank applied
for extrajudicial foreclosure, there was no longer anything
to foreclose, since the chattel mortgage already ceased to
exist.
As to future obligations, the Court ruled that a chattel
mortgage may, at best, include a promise to include debts
that are yet to be contracted, and this promise can be a
binding commitment that can be compelled upon. To
implement this, once a new debt is contracted, the parties
must either execute a new chattel mortgage agreement
including the new debt, or must amend the old contract
according to the form provided by law. Refusal on the part
of the borrower to do so under such a promise may be
considered an act of default. Nevertheless, a foreclosure
can only cover the debts extant at the time of constitution
and during the life of the chattel mortgage sought to be
foreclosed.
DISPOSITIVE: Appealed decisions set aside, without
prejudice to to the appropriate legal recourse by
private respondent as may still be warranted as an
unsecured creditor.
Columbia Pictures vs CA, 261 SCRA 144
Facts: The National Bureau of Investigation has engaged
in an anti-film piracy drive by investigating various video
establishments in Metro Manila involving cases violating
PD No. 49, as amended, including Sunshine Home Video
Inc. (“Sunshine”), owned and operated by Danilo A.
Pelindario with address at No. 6 Mayfair Center,
Magallanes, Makati, Metro Manila. On
November 14, 1987, NBI Senior Agent Lauro C. Reyes
applied for a search warrant with the court a quo against
Sunshine seeking the seizure, among others, of pirated
video tapes of copyrighted films, which the court granted.
In the course of the search of the premises indicated in the
search warrant, the NBI Agents found and seized various
video tapes of duly copyrighted motion pictures/films
owned or exclusively distributed by Columbia Pictures,
Inc. et al (Columbia et al.)
Thereafter, the court has lifted the search warrant which
it had therefore issued after a series of motions, up until
the CA. In the SC, Sunshine challenged Columbia et al’s
legal standing in our courts, they being foreign
corporations not licensed to do business in the
Philippines.
Issue: Whether or not Columbia et al were “doing
business” in the Philippines, thus, needs to be licensed
before having a legal standing in Philippine courts.
Sunshine’s contention:
Columbia et al, being foreign corporations, should have
such license to be able to maintain an action in Philippine
courts.
Sunshine point to the fact that Columbia et al are the
copyright owners or owners of exclusive rights of
distribution in the Philippines of copyrighted motion
pictures or films, and also to the appointment of Atty.
Rico V. Domingo as their attorney-in-fact, as being
constitutive of “doing business in the Philippines” under
Section 1(f) (1) and (2), Rule 1 of the Rules of the Board
of Investments. As foreign corporations doing business in
the Philippines, Section 133 of Batas Pambansa Blg. 68,
or the Corporation Code of the Philippines, denies them
the right to maintain a suit in Philippine courts in the
absence of a license to do business. Consequently, they
have no right to ask for the issuance of a search warrant.
Columbia et al’s contention:
Columbia et al denied that they are doing business in the
Philippines and contend that Sunshine have not adduced
evidence to prove that petitioners are doing such business
here, as would require them to be licensed by the
Securities and Exchange Commission.
Moreover, an exclusive right to distribute a product or the
ownership of such exclusive right does not conclusively
prove the act of doing business nor establish the
presumption of doing business.
Ruling: No, foreign film corporations do not transact or
do business in the Philippines and, therefore, do not need
to be licensed in order to take recourse to our courts.
As acts constitutive of “doing business,” the fact that
Columbia et al are admittedly copyright owners or owners
of exclusive distribution rights in the Philippines of
motion pictures or films does not convert such ownership
into an indicium of doing business which would require
them to obtain a license before they can sue upon a cause
of action in local courts.
Neither is the appointment of Atty. Rico V. Domingo as
attorney-in-fact of Columbia et al., with express authority
pursuant to a special power of attorney
Held: Based on Article 133 of the Corporation Code and
gauged by such statutory standards, Columbia et al are not
barred from maintaining the present action. There is no
showing that, under our statutory or case law, Columbia
et al 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.
Article 125 and Article 133 of the Corporation Code of
the Philippines, as interpreted, says that 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.
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.
Authorities agrees that a foreign corporation is “doing,”
“transacting,” “engaging in,” or “carrying on” business in
the State when, and ordinarily only when, it has entered
the State by its agents and is there engaged in carrying on
and transacting through them some substantial part of its
ordinary or customary business, usually continuous in the
sense that it may be distinguished from merely casual,
sporadic, or occasional transactions and isolated acts.
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.
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 interests 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.
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.
Merely engaging in litigation has been considered as not
a sufficient minimum contact to warrant the exercise of
jurisdiction over a foreign corporation.
Esguerra v. CA
G.R. No. 119310, February 3, 1997
FACTS: Julieta Esguerra filed a complaint for
administration of conjugal partnership or separation of
property against her husband Vicente Esguerra Jr. before
the trial court. Said complaint was later amended
impleading V. Esguerra Construction Co. Inc. (VECCI)
and other family corporations as defendants. The parties
entered into a compromise agreement.
The compromise agreement provided that VECCI shall
sell/alienate/transfer or dispose of in any lawful and
convenient manner, and under the terms and conditions in
the resolutions of its Board of Directors and stockholders
the following properties: (a) two (2) real estate and
buildings in Makati, (b) two (2) real estate and
improvements located in Antipolo, Rizal, (c) real estate
and improvements located in Cainta, Rizal, and (d) real
estate and improvements in San Mateo, Rizal. After said
properties have been sold or disposed of and after all the
financial obligations of VECCI are completely paid,
VECCI shall pay to Julieta the sum equivalent to fifty
percent (50%) of the net resulting balance of such funds.
When Makati building II was sold to Sureste Properties
Inc., Julieta filed a motion for nullification of the sale
before the trial court on the ground that VECCI is not the
absolute owner of the property and that VECCI violated
the condition in the compromise agreement requiring that
the sale be made under the terms and conditions in the
enabling resolutions of its Board of Directors and
stockholders. The trial court resolved in favor of Julieta
but on appeal, the Court of Appeals reversed the lower
court’s decision. Hence, this appeal.
ISSUE: Was the sale of Makati building II a valid exercise
of corporate power?
RULING: Yes. The trial courts partial decision dated
January 11, 1990 approving the compromise agreement
clearly showed that the enabling resolutions of its
(VECCIs) board of directors and stockholders referred to
were those then already existing; to wit: (1) the resolution
of the stockholders of VECCI dated November 9, 1989,
(where) the stockholders authorized VECCI to sell and/or
disposed all or substantially all its property and assets
upon such terms and conditions and for such
consideration as the board of directors may deem
expedient.i (2) the resolution dated 9 November 1989,
(where) the board of directors of VECCI authorized
VECCI to sell and/or dispose all or substantially all the
property and assets of the corporation, at the highest
available price/s they could be sold or disposed of in cash,
and in such manner as may be held convenient under the
circumstances, and authorized the President Vicente B.
Esguerra, Jr. to negotiate, contract, execute and sign such
sale for and in behalf of the corporation.ii VECCIs sale of
all the properties mentioned in the judicially-approved
compromise agreement was done on the basis of its
Corporate Secretarys Certification of these two
resolutions. The partial decision did not require any
further board or stockholder resolutions to make VECCIs
sale of these properties valid. Being regular on its face,
the Secretarys Certification was sufficient for private
respondent Sureste Properties, Inc. to rely on. It did not
have to investigate the truth of the facts contained in such
certification. Otherwise, business transactions of
corporations would become tortuously slow and
unnecessarily hampered. Ineluctably, VECCIs sale of
Esguerra Building II to private respondent was not ultra
vires but a valid execution of the trial courts partial
decision. Based on the foregoing, the sale is also deemed
to have satisfied the requirements of Section 40 of the
Corporation Code.
Republic Planters Bank vs. Agana
[GR 51765, 3 March 1997]
Facts: On 18 September 1961, the Robes-Francisco
Realty & Development Corporation (RFRDC) secured a
loan from the Republic Planters Bank in the amount of
P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC through
its officers then, Adalia F. Robes and one Carlos F. Robes.
In other words, instead of giving the legal tender totaling
to the full amount of the loan, which is P120,000.00, the
Bank lent such amount partially in the form of money and
partially in the form of stock certificates numbered 3204
and 3205, each for 400 shares with a par value of P10.00
per share, or for P4,000.00 each, for a total of P8,000.00.
Said stock certificates were in the name of Adalia F.
Robes and Carlos F. Robes, who subsequently, however,
endorsed his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and
conditions: "The Preferred Stock shall have the following
rights, preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred
shares may be redeemed, by the system of drawing lots,
at any time after 2 years from the date of issue at the
option of the Corporation." On 31 January 1979, RFRDC
and Robes proceeded against the Bank and filed a
complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to
have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a
Motion to Dismiss 3 private respondents' Complaint on
the following grounds: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2) that
the action was unenforceable under substantive law; and
(3) that the action was barred by the statute of limitations
and/or laches. The bank's Motion to Dismiss was denied
by the trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979. Thereafter, the
trial court gave the parties 10 days from 30 July 1979 to
submit their respective memoranda after the submission
of which the case would be deemed submitted for
resolution. On 7 September 1979, the trial court rendered
the decision in favor of RFRDC and Robes; ordering the
bank to pay RFRDC and Robes the face value of the stock
certificates as redemption price, plus 1% quarterly interest
thereon until full payment. The bank filed the petition for
certiorari with the Supreme Court, essentially on pure
questions of law.
Issue: Docketed as Civil Case No. 83-17966 in the Regional
1. Whether the bank can be compelled to Trial Court of Manila, Branch 32, the action was
redeem the preferred shares issued to RFRDC originally filed as a Petition for Mandamus 5 under Rule
and Robes. 65 of the Rules of Court, to compel the Central Bank of
2. Whether RFRDC and Robes are entitled the Philippines to register the transfer of the subject CBCI
to the payment of certain rate of interest on the to petitioner Traders Royal Bank (TRB).
stocks as a matter of right without necessity of a
prior declaration of dividend. DECISION OF LOWER COURTS: * RTC: transfer is
null and void. * CA: The appellate court ruled that the
Held:
subject CBCI is not a negotiable instrument. Philfinance
acquired no title or rights under CBCI No. D891 which it
1. While the stock certificate does allow redemption, the
could assign or transfer to Traders Royal Bank and which
option to do so was clearly vested in the bank. The
the latter can register with the Central Bank. Thus, the
redemption therefore is clearly the type known as
transfer of the instrument from Philfinance to TRB was
"optional". Thus, except as otherwise provided in the
merely an assignment, and is not governed by the
stock certificate, the redemption rests entirely with the
negotiable instruments law.
corporation and the stockholder is without right to either
compel or refuse the redemption of its stock. Furthermore,
APPLICABLE LAWS:
the terms and conditions set forth therein use the word
"may". It is a settled doctrine in statutory construction that
Under section 1 of Act no. 2031 an instrument to be
the word "may" denotes discretion, and cannot be
negotiable must conform to the following requirements:
construed as having a mandatory effect. The redemption
(a) It must be in writing and signed by the maker or
of said shares cannot be allowed. The Central Bank made
drawer; (b) Must contain an unconditional promise or
a finding that the Bank has been suffering from chronic
order to pay a sum certain in money; (c) Must be payable
reserve deficiency, and that such finding resulted in a
on demand, or at a fixed or determinable future time; (d)
directive, issued on 31 January 1973 by then Gov. G. S.
Must be payable to order or to bearer; and (e) Where the
Licaros of the Central Bank, to the President and Acting
instrument is addressed to a drawee, he must be named or
Chairman of the Board of the bank prohibiting the latter
otherwise indicated therein with reasonable certainty.
from redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank to
Under section 3, Article V of Rules and Regulations
the prejudice of its depositors and creditors. Redemption
Governing Central Bank Certificates of Indebtedness
of preferred shares was prohibited for a just and valid
states that the assignment of registered certificates shall
reason. The directive issued by the Central Bank
not be valid unless made at the office where the same have
Governor was obviously meant to preserve the status quo,
been issued and registered or at the Securities Servicing
and to prevent the financial ruin of a banking institution
Department, Central Bank of the Philippines, and by the
that would have resulted in adverse repercussions, not
registered owner thereof, in person or by his
only to its depositors and creditors, but also to the banking
representative, duly authorized in writing. For this
industry as a whole. The directive, in limiting the exercise
purpose, the transferee may be designated as the
of a right granted by law to a corporate entity, may thus
representative of the registered owner. ISSUES &
be considered as an exercise of police power.
RULING: 1. Whether the CBCI is negotiable instrument
or not.
2. Both Section 16 of the Corporation Law and Section 43
of the present Corporation Code prohibit the issuance of
The pertinent portions of the subject CBCI read:
any stock dividend without the approval of stockholders,
representing not less than two-thirds (2/3) of the
xxx xxx xxx
outstanding capital stock at a regular or special meeting
duly called for the purpose. These provisions underscore
The Central Bank of the Philippines (the Bank) for value
the fact that payment of dividends to a stockholder is not
received, hereby promises to pay bearer, of if this
a matter of right but a matter of consensus. Furthermore,
Certificate of indebtedness be registered, to FILRITERS
"interest bearing stocks", on which the corporation agrees
GUARANTY ASSURANCE CORPORATION, the
absolutely to pay interest before dividends are paid to
registered owner hereof, the principal sum of FIVE
common stockholders, is legal only when construed as
HUNDRED THOUSAND PESOS.
requiring payment of interest as dividends from net
earnings or surplus only. In compelling the bank to
NO. The CBCI is not a negotiable instrument, since the
redeem the shares and to pay the corresponding
instrument clearly stated that it was payable to
dividends, the Trial committed grave abuse of discretion
Filriters, and the certificate lacked the words of
amounting to lack or excess of jurisdiction in ignoring
negotiability which serve as an expression of consent that
both the terms and conditions specified in the stock
the instrument may be transferred by negotiation.
certificate, as well as the clear mandate of the law.
Before the instruments become negotiable instruments,
TRADERS ROYAL BANK V CA G.R. No. 93397 the instrument must conform to the requirements under
March 3, 1997 the Negotiable Instrument Law. Otherwise instrument
shall not bind the parties.
FACTS:
2. Whether the Assignment of registered certificate is
Filriters registered owner of Central Bank Certificate of valid or null and void.
Indebtedness (CBCI). Filriters transferred it to
Philfinance by one of its officers without authorization IT'S NULL AND VOID. Obviously the Assignment of
from the company. Subsequently, Philfinance transferred certificate from Filriters to Philfinance was null and void.
same CBCI to Traders Royal Bank (TRB) under a One of officers who signed the deed of assignment in
repurchase agreement. When Philfinance failed to do so, behalf of Filriters did not have the necessary written
The TRB tried to register in its name in the CBCI. The authorization from the Board of Directors of Filriters. For
Central Bank did not want to recognize the transfer.
lack of such authority the assignment is considered null
and void.
Clearly shown in the record is the fact that
Philfinance's title over CBCI is defective since it ac
quired the instrument from Filriters fictitiously. Under
1409 of the Civil Code those contracts which are
absolutely simulated or fictitious are considered void and
inexistent from the beginning.
Petitioner knew that Philfinance is not registered owner
of the CBCI No. D891. The fact that a non-owner was
disposing of the registered CBCI owned by another entity
was a good reason for petitioner to verify of inquire as to
the title Philfinance to dispose to the CBCI.
OTHER NOTES:
The 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 a sufficient reason for
disregarding the fiction of separate corporate
personalities.
_____________________________________________
CHINA BANKING CORPORATION, petitioner, vs. COURT
OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC.,
respondents.
Facts: On 21 August 1974, Galicano Calapatia, Jr. a
stockholder of private respondent Valley Golf & Country
Club, Inc., pledged his Stock Certificate No. 1219 to
petitioner China Banking Corporation. Petitioner wrote
VGCCI requesting that the aforementioned pledge
agreement be recorded in its books which the latter
approved and noted in its corporate books. On 3 August
1983, Calapatia obtained a loan of P20,000.00 from
petitioner, payment of which was secured by the
aforestated pledge agreement.
Due to Calapatia's failure to pay his obligation,
petitioner, on 12 April 1985, filed a petition for
extrajudicial foreclosure of the pledged stock.
On 14 May 1985, petitioner informed VGCCI of the
abovementioned foreclosure proceedings and requested
that the pledged stock be transferred to its name and the
same be recorded in the corporate books. However,
VGCCI wrote petitioner expressing its inability to accede
to petitioner's request in view of Calapatia's unsettled
accounts with the club.
VGCCI sent Calapatia a notice demanding full payment of
his overdue account. Subsequently, VGCCI caused to be
published in the newspaper a notice of auction sale of a
number of its stock certificates, included therein was
Calapatia's own share of stock.
Through a letter dated 15 December 1986, VGCCI
informed Calapatia of the termination of his membership
due to the sale of his share of stock in the 10 December
1986 auction.
On 5 May 1989, petitioner advised VGCCI that it is the
new owner of Calapatia's Stock Certificate No. 1219 by
virtue of being the highest bidder in the 17 September
1985 auction and requested that a new certificate of
stock be issued in its name. On
9 March 1990, petitioner protested the sale by VGCCI of
the subject share of stock and thereafter filed a case with
the Regional Trial Court of Makati for the nullification of
the 10 December 1986 auction and for the issuance of a
new stock certificate in its name.
The Regional Trial Court of Makati dismissed the
complaint for lack of jurisdiction over the subject matter
on the theory that it involves an intra-corporate dispute.
On 20 September 1990, petitioner filed a complaint with
the Securities and Exchange Commission (SEC) for the
nullification of the sale of Calapatia's stock by VGCCI; the
cancellation of any new stock certificate issued pursuant
thereto; for the issuance of a new certificate in
petitioner's name; and for damages, attorney's fees and
costs of litigation.
SEC Hearing Officer rendered a decision in favor of
VGCCI, stating in the main that "(c)onsidering that the
said share is delinquent, (VGCCI) had valid reason not to
transfer the share in the name of the petitioner in the
books of (VGCCI) until liquidation of delinquency."
Petitioner appealed to the SEC en banc and the
Commission issued an order reversing the decision of its
hearing officer. Because that appellant-petitioner has a
prior right over the pledged share and because of
pledgor's failure to pay the principal debt upon maturity,
appellant-petitioner can proceed with the foreclosure of
the pledged share.
VGCCI to seek redress from the Court of Appeals and the
later rendered its decision nullifying and setting aside the
orders of the SEC on the ground of lack of jurisdiction
over the subject matter .The Court of Appeals declared
that the controversy between CBC and VGCCI is not intra-
corporate. Hence, this petition.
ISSUES 1. Who has the Jurisdiction?
2. Who Has a better right over Calapatia’s Stock?
Ruling: P.D. No. 902-A conferred upon the SEC
jurisdiction over controversies arising out of intra-
corporate or partnership relations, between and among
stockholders, members, or associates; between any or all
of them and the corporation, partnership or association
of which they are stockholders, members or associates,
respectively; and between such corporation, partnership
or association and the State insofar as it concerns their
individual franchise or right to exist as such entity.
The aforecited law was expounded upon in Viray v. CA
and in Mainland Construction Co., Inc. v. Movilla[23] and
Bernardo v. CA:
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.
Applying the foregoing principles in the case at bar, We
have to determine therefore whether or not petitioner is
a stockholder of VGCCI and whether or not the nature of
the controversy between petitioner and private
respondent corporation is intra-corporate.
As to the first query, there is no question that the
purchase of the subject share or membership certificate
at public auction by petitioner 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 in fact it 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. By virtue of the afore-
mentioned sale, petitioner became a bona fide
stockholder of VGCCI and, therefore, the conflict that
arose between petitioner and VGCCI aptly exemplies an
intra-corporate controversy between a corporation and
its stockholder.
VGCCI assails the validity of the pledge agreement. It
contends that 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.[34]
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 may procure from petitioner:
Moreover, petitioner explained that the promissory note
of 3 August 1983 was just a renewal of the first
promissory note covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to
settle his delinquent accounts, it had the right to sell the
share in question in accordance with the express
provision found in its by-laws. Likewise, VGCCI maintains
that petitioner is bound by its by-laws. The general rule
really is that third persons are not bound by the bylaws
of a corporation since they are not privy thereto. The
exception to this is when third persons have actual or
constructive knowledge of the same.
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. The pledgee is entitled to
retain possession of the stock until the pledgor pays or
tenders to him the amount due on the debt secured. In
other words, the pledgee has the right to resort to its
collateral for the payment of the debts.
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.