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Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto. Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its officers. On 2 December 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. On 22 March 1948, pending action on the articles of incorporation by the aforesaid governmental office, Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case, alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action. After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of Brown, et. al., appointed Pedro A. Capuciong as the receiver of the properties thereof, upon the filing of a P20,000 bond. Hall and Hall offered to file a counter-bond for the discharge of the receiver, but Judge Piccio refused to accept the offer and to discharge the receiver. Whereupon, Hall and Hall instituted the present special civil action with the Supreme Court. Issue: Whether Brown, et. al. may file an action to cause the dissolution of the Far Eastern Lumber and Commercial Co., without State intervention. Held: The Securities and Exchange Commission has not issued the corresponding certificate of incorporation. The personality of a corporation begins to exist only from the moment such certificate is issued not before. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be a corporation. Under the statue it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." This is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.
2 ABS-CBN BROADCASTING CORPORATION VS. COURT OF APPEALS 301 SCRA 572
FACTS: 1. Petitioner ABS-CBN and respondent VIVA executed a Film Exhibition Agreement whereby VIVA gave ABSCBN an exclusive right to exhibit some Viva Films. 2. Viva, through defendant Vicente del Rosario offered ABS-CBN, through its vice-president Charo SantosConcio a list of film packages from which ABS-CBN may exercise its right of first refusal. 3. ABS-CBN did not accept the list of film packages. 4. Del Rosario and Senior Vice President for Finance, Mr. Graciano Gozon, of Republic Broadcasting Corporation discussed the terms and conditions of Viva s offer to sell the 104 films, after the rejection of the same package by ABS-CBN. 5. After the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva s President Teresita Cruz, in consideration of P 60 Million, signed a letter or agreement granting RBS (GMA 7) the exclusive right to air 104 Via-produced and/or acquired films including the 14 films subject of the present case. 6. ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents RBS, VIVA and Vicente del Rosario. 7. The RTC issued the TRO enjoining private respondent from proceeding with the airing, broadcasting, and televising of the 14 VIVA films subject of the controversy. 8. A civil case was filed by ABS-CBN against VIVA et al. 9. The RTC rendered a decision in favor of RBS and VIVA and against ABS-CBN and ordered it to pay: a) 1 Million attorney s fees b) 5 Million moral damages c) 5 million exemplary damages 10. According to the RTC, there was no meeting of minds on the price and terms of the offers because the alleged agreement between Lopez III and del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during a Board Meeting. 11. On appeal to the CA, the Appellate Court agreed with the RTC that the contract between ABS-CBN and VIVA was not perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez. 12. The appellate court did not also believe ABS-CBN s evidence that Lopez III actually wrote down such an agreement on a" napkin", as the same was never produced in court. 13. Respondent Court sustained the award of actual damages there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. 14. As to the award from moral damages, the Ca found reasonable basis therefore, holding that RBS reputation was debased by the filing of the complaint and by the non-showing of the film Maging Sino Ka Man . 15. Respondent Court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner s knowledge the contract with VIVA had not been perfected. 16. The appellate court, however, reduced the awards for moral damages to P 2 Million, exemplary damages to P 2 Million, and attorney s fees to P 500,000.00 17. Motion for reconsideration was denied. 18. Hence this petition.
ISSUE: Was the award of actual and compensatory damages proper? Whether or not the award of moral and exemplary damages proper? Was the award of attorney s fees in favor of RBS proper? HELD: Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the damages recoverable are those which are the natural and probable
3 consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad, faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, of for injury to the plaintiff, business standing or commercial credit. The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi delict. It arose from the fact of filing of the complaint despite ABS-CBN s alleged knowledge of lack of cause of action. Needless to state the ward of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code.
As regards attorney s fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the circumstance provided for in Article 2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney s fees under Article 2208 demands, factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expense to protect his right, still attorney s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party s; persistence is a case other than an erroneous conviction of the righteousness of his cause.
As to moral damages the law is Section 1, chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2210 enumerated the cases where they me be recovered. Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS s claim for moral damages could possibly fall only under item (10) of Article 2219. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balance restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feeling, no emotions, no sense. It cannot, therefore experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.
The basic law on exemplary damages is Section 5, Chapter 3, Tile XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; in quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi delict. Hence the claims for moral and exemplary damages can only be based on Article 19, 20 and 21 of the Civil Code.
PRIME WHITE CEMENT CORPORATION, Petitioner, vs. HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, Respondents. CAMPOS, JR., J.: Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement Corporation seeking the reversal of the decision * of the then Intermediate Appellate Court, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed in toto. library
The facts, as found by the trial court and as adopted by the respondent Court are hereby quoted, to wit: On or about the 16th day of July, 1969, plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years and proving (sic) among others that: a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white cement per month; virtual law library b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports; virtual law library c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of the corporation and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped. Right after the plaintiff entered into the aforesaid dealership agreement, he placed an advertisement in a national, circulating newspaper the fact of his being the exclusive dealer of the defendant corporation's white cement products in Mindanao area, more particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R and R-1) and was even congratulated by his business associates, so much so, he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area.virtualawlibrary virtual law library Relying heavily on the dealership agreement, plaintiff sometime in the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, by September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970 (Exhibit B), looking forward to the defendant corporation's duty to comply with the dealership agreement. In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said defendant decided to impose the following conditions: a. Delivery of white cement shall commence at the end of November, 1970; virtual law library b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered; virtual law library
virtual law library e. The price of white cement is subject to readjustment unilaterally on the part of the defendant.virtualawlibrary virtual law library Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting. Falcon and Justo B. however. E. respectively. therefore. entered into the said transaction they created the impression that they were duly clothed with the authority to do so. The place of delivery of white cement shall be Austurias (sic). the defendant corporation.000. When they. and N) were made by the plaintiff to the defendant. The appellate court affirmed the said decision mainly on the following basis. and We quote: There is no dispute that when Zosimo R. P100. and pursuant to the said dealership agreement. As a matter of fact. entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao (Exhibit T) hence. virtual law library g. II virtual law library THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE. and P10. which were concluded in anticipation of. Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. Neither is the genuineness of the said agreement contested. PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION. 2 virtual law library After trial. 4 I virtual law library THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.302.00 as and for attorney's fees and costs. pp. G. virtual law library f.00 as actual damages. 3 virtual law library In this petition for review. xxx xxx xxx virtual law library Several demands to comply with the dealership agreement (Exhibits D. Trazo signed the dealership agreement Exhibit "A". 86-90). (Exhibit C). virtual law library d. the trial court adjudged the corporation liable to Alejandro Te in the amount of P3. The price of white cement was priced at P13. R. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. III virtual law library . they were the President and Chairman of the Board. and with evident intention not to be bound by the terms and conditions thereof. The letter of credit may be opened only with the Prudential Bank. this suit.30 per bag. of defendant-appellant corporation. Makati Branch.00 as moral damages. and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties. petitioner Prime White Cement Corporation made the following assignment of errors.400.000. defendant refused to comply with the same. I.5 c. (Plaintiff's Record on Appeal. it appears on the face of the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of the corporation. in violation of. L.
In the absence of such express delegation. this Court quoted with favor from Pepper v. 9 In case his interests conflict with those of the corporation. may still bind the corporation if the board should ratify the same expressly or impliedly. it may be ratified by the stockholders provided a full disclosure of his adverse interest is made." 10 In the case of Gokongwei v. Section 32 of the Corporation Code provides. 6 Although it cannot completely abdicate its power and responsibility to act for the juridical entity. He cannot utilize his inside information and his strategic position for his own preferment. 8 These rules are basic. on behalf of the corporation. all corporate powers shall be exercised by the Board of Directors. . If the contract is fair and reasonable under the circumstances. provided the same is reasonable under the circumstances. . . the President as such may. by acts showing approval or adoption of the contract. i. as a general rule. V virtual law library IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED USUAL. 7 Furthermore. bind the corporation by a contract in the ordinary course of business. 5 as well as under the present Corporation Code. Implied ratification may take various forms . he owes a duty of loyalty to his corporation. except as otherwise provided by law. or advantage of the fiduciary to the exclusion or detriment of the cestuis. . IV virtual law library THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. . is dealing with a third person. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. This trust relationship "is not a matter of statutory or technical law. . the Board may expressly delegate specific powers to its President or any of its officers. We do not agree with the conclusion of the respondent Court that it is.virtualawlibrary virtual law library Under the Corporation Law.virtualawlibrary virtual law library The situation is quite different where a director or officer is dealing with his own corporation. He was what is often referred to as a "self-dealing" director. 11 thus: . They apply where the President or other officer.virtualawlibrary virtual law library A director of a corporation holds a position of trust and as such. but are all general and thus quite flexible. directors are committed to seek the maximum amount of profits for the corporation. As corporate managers. a person outside the corporation. On the other hand. . or by acceptance and retention of benefits flowing therefrom. Litton. he cannot sacrifice the latter to his own advantage and benefit. purportedly acting for the corporation.like silence or acquiescence. e. he was a member of the Board of Directors and Auditor of the corporation as well. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement. There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. In the instant case respondent Te was not an ordinary stockholder. PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL CODE. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. thus: . even in the absence of express or implied authority by ratification. .. a contract entered into by its President. . which was then in force at the time this case arose. preference. Securities and Exchange Commission. COURSE OF JUDICIAL PROCEEDINGS. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. a director's contract with his corporation is not in all instances void or voidable.6 THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE.
this unfairness in the contract is also a basis which renders a contract entered into by the President. Although the old Corporation Law which governs the instant case did not contain a similar provision. . there would be a considerable rise in the price of white cement. We believe that the contract was neither fair nor reasonable.000 bags of white cement per month. 1969. The contract with Henry Wee was on September 15. There is no showing that the . That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. That the contract is fair and reasonable under the circumstances.7 Sec. At the time of the contract. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided. trustees or officers with the corporation. without authority from the Board of Directors. was to sell and supply to respondent Te 20. prices of commodities in general. and that with Gaudencio Galang. In the light of the circumstances of this case. the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes the whole situation. virtual law library 3. 1970.70 per bag. yet the cited provision substantially incorporates well-settled principles in corporate law. Despite this. Fairness on his part as a director of the corporation from whom he was to buy the cement. and virtual law library 4. when he subsequently entered into contracts to resell the cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as follows: The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.50 per bag. it is to Us quite clear that he was guilty of disloyalty to the corporation. petitioner corporation had not even commenced the manufacture of white cement. That in the case of an officer. and white cement in particular. 32. 12 virtual law library Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person other than a director or officer of the corporation. himself.50.00 per bag (94 lbs). respondent Te's own Memorandum shows that in September. Respondent Te is a businessman himself and must have known. 1970. specially since he was the other party in interest.A contract of the corporation with one or more of its directors or trustees or officers is voidable. were not stable and were expected to rise. respondent Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. A similar contract with Prudencio Lim was made on December 29. 1969. The "dealership agreement" entered into in July. at the fixed price of P9. Why did he not protect the corporation in the same manner when he entered into the "dealership agreement"? For that matter. no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. 1967. the contract with the officer has been previously authorized by the Board of Directors.70 per bag for a period of five years was not fair and reasonable. In fact. the price was pegged at P9. He must have known that within that period of six years. in the case of a contract with a director or trustee. First of all. he was attempting in effect.virtualawlibrary virtual law library Where any of the first two conditions set forth in the preceding paragraph is absent. Respondent Te. and by the middle of 1975. to enrich himself at the expense of the corporation. 1970. 1969. virtual law library 2. or at least must be presumed to know. That the vote of such director or trustee was not necessary for the approval of the contract. In fact. why did the President and the Chairman of the Board not do so either? As director. Yet. that at that time. void or voidable. and in each one of them he protected himself from any increase in the market price of white cement. the contracts were for only two years from October. it was already P37. for five years starting September. would require such a provision. the reason why delivery was not to begin until 14 months later. except for the contract with Henry Wee. on October 13.70 per bag for the whole five years of the contract. the price per bag was P14. Instead. Dealings of directors. We believe that the fixed price of P9. at the option of such corporation. That the contract is fair and reasonable under the circumstances. such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided. although it may have been in the ordinary course of business. 15 All of these contracts were entered into soon after his "dealership agreement" with petitioner corporation. however. unless all the following conditions are present: virtual law library 1.
Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20. when the outstanding capital stock of the corporation was only P70. divided into 5. petitioner corporation's reputation and goodwill have been prejudiced.virtualawlibrary virtual law library Gokongwei vs. and that Soriano.00. As additional causes of action. Jr. Emeterio Buñao. Enrique Zobel. it was claimed that prior to the questioned amendment. Antonio Roxas...00 per share and 150. Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in 1961. As a second cause of action.000. Miguel Ortigas. that Andres M. which was avowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business.000 preferred shares at P100. Securities and Exchange Commission Facts: [SEC Case 1375] On 22 October 1976. void. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned. the Board may consider such factors as business and family relationship.043.974 common shares at P10.127. and/or Jose M. Gokogwei had all the qualifications to be a director of the corporation. be made to pay damages. therefore.00 for attorney's fees. hence the amended by-laws are null and void. therefore. cancellation of certificate of filing of amended by-laws. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation. As a first cause of action. there being 6 new directors.740. filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended bylaws. it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963. entered into contracts (specifically a management contract) with the corporation. It was. Soriano. Gokongwei had acquired rights inherent in stock ownership. such as the rights to vote and to be voted upon in the election of directors.virtualawlibrary virtual law library As a result of this action which has been proven to be without legal basis. the questioned act is ultra vires and void. Conde. 1984. to .virtualawlibrary virtual law library In view of the foregoing. with a total par value of P301. which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Jr. As a third cause of action. repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation.00 per share. John Gokongwei Jr. Jose M.139. in specified amounts. is unreasonable and oppressive and. Since the amendment was based on the 1961 authorization. it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and. basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961. that the portion of the amended by-laws which states that in determining whether or not a person is engaged in competitive business. The contract was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.00. as stockholder of San Miguel Corporation. et. respectively. et. al. the outstanding and paid up shares totalled 30. that as a stockholder. the Decision and Resolution of the Intermediate Appellate Court dated March 30. plus the cost of suit and expenses of litigation. Gokongwei alleged that on 18 September 1976. and that in amending the by-laws. and Antonio Prieto amended by bylaws of the corporation.8 stockholders ratified the "dealership agreement" or that they were fully aware of its provisions.270. Soriano. after which the authority of the Board ceased to exist. being a substantial stockholder thereof. therefore. As a fourth cause of action. are hereby SET ASIDE. At the time of the amendment. Andres Soriano. Walthrode B. injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. while representing other corporations. Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. the power to amend. modify. However.513. Soriano. 1984 and August 6. al. there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation. and that the portion of the amended by-laws which requires that "all nominations for election of directors shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. Soriano.430. prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled.
Soriano. Despite the fact that said motions were filed as early as 4 February 1977. al. Issue : Whether the corporation has the power to provide for the (additional) qualifications of its directors. Pending action on the motion." By reason of the foregoing. Soriano. al. et. no action has been taken up to the date of the filing of the instant petition. al. This prompted Gokongwei to ask the SEC for a summary judgment insofar as the first cause of action is concerned. filed their answer. a temporary restraining order be issued. et. a petition seeking to have Andres M. Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain Soriano. et. praying that pending the determination of Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment. restraining Soriano. including in the Agenda thereof. The motion was opposed by Soriano. motions to dismiss were filed by Soriano. et. for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose. on 10 December 1976. in default and an opposition ad abundantiorem cautelam were filed by Gokongwei. al. On 4 February 1977. The Corporation. alleging that the Secretary of the corporation refused to allow him to inspect its records despite request made by Gokongwei for production of certain documents enumerated in the request. and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. requesting that the same be set for hearing on 3 May 1977. The SEC. Soriano. After receipt of the order of denial. Soriano. Cremation issued an order denying the motion for issuance of temporary restraining order. or after the scheduled annual stockholders' meeting. et. 1977. on 28 April 1977. et. respectively. al. Gokongwei filed a petition for petition for certiorari. and that the corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Jr. al. conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified.9 Gokongwei. from holding the special stockholders' meeting as scheduled. and ratification of the investments thereafter made pursuant thereto.'" In this jurisdiction under section 21 of the Corporation Law. al. A motion for reconsideration of the order denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC on 10 March 1977. Held : It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government. The motion for summary judgment was opposed by Soriano. and ordered to account for such investments and to answer for damages. Gokongwei filed an "Urgent Motion for the Issuance of a Temporary Restraining Order". al. This motion was duly opposed by Soriano. the date set for the second hearing of the case on the merits." This must necessarily refer to a qualification in addition to . et. in violation of section 17-1/2 of the Corporation Law. [SEC Case 1423] Gokongwei alleged that. to which a consolidated motion to strike and to declare Soriano. On 14 February 1977. mandamus and injunction. Meanwhile. et. in connection with the same case. on 20 January 1977. with the Supreme Court. On 10 February 1977. Soriano. Gokongwei filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. For the purpose of urging the Commission to act. having discovered that the corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation. al. duties and compensation of directors. admitted the invalidity of the amendments of 18 September 1976. On 28 October 1976. he filed with SEC. et. when it denied Soriano. but this notwithstanding. and Jose M. Soriano. alleging that there appears a deliberate and concerted inability on the part of the SEC to act.'s motions to dismiss and gave them two (2) days within which to file their answer. the "reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting. cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17. officers and employees. et. and their opposition to the petition. issued notices of the annual stockholders' meeting. and set the case for hearing on April 29 and May 3. as well as the corporation declared guilty of such violation. the Commission acted thereon only on 25 April 1977. Gokongwei filed an urgent manifestation on 3 May 1977. al. et. et. 1977. Gokongwei filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents". a corporation may prescribe in its by-laws "the qualifications. al. with prayer for issuance of writ of preliminary injunction. setting such meeting for 10 February 1977. the corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws". however.. while the petition was yet to be heard.
" "The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. (c) research and development. Held: Although in the strict and technical sense. He cannot utilize his inside information and strategic position for his own preferment. directors of a private corporation are not regarded as trustees. alteration and modification." Under section 22 of the same law. Their powers are powers in trust. then the dissenting minority has only one right. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. As agents entrusted with the management of the corporation for the collective benefit of the stockholders. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation. and (d) sources of funding. the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. or advantage of the fiduciary to the exclusion or detriment of the cestuis. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation. that Gokongwei has a vested right to be elected director. Issue : Whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority." Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement." To this extent. it would seem improbable. that the questioned amendment of the by-laws was made." A director is a fiduciary. therefore. Certainly. This doctrine rests fundamentally on the unfairness. "they occupy a fiduciary relation. who is also the officer or owner of a competing corporation. If the amendment changes. which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director. availability of personnel. between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority. He who is in such fiduciary position cannot serve himself first and his cestuis second. such as: (a) marketing strategies and pricing structure. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. diminishes or restricts the rights of the existing shareholders. from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders. therefore.10 that specified by section 30 of the Corporation Law. any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. preference. there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. and surrendered it to the will of the majority of his fellow incorporators. in particular circumstances. The offer and assurance of Gokongwei that to avoid any possibility of his . express or implied. proposals of mergers or tie-ups with other firms. of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. viz. for the director. where two corporations are competitive in a substantial sense. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. It can not therefore be justly said that the contract." Pursuant to section 18 of the Corporation Law. if he were to discharge effectively his duty. It cannot be said. if not impossible. (b) budget for expansion and diversification.: "to object thereto in writing and demand payment for his share. and in this sense the relation is one of trust. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters.
like an individual. then San Miguel Brewery." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. Issue : Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of the records of San Miguel International. and has to be proper and lawful in character and not inimical to the interest of the corporation. purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery. Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment. a beneficial ownership. "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director. which is to manufacture and market beer." While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law. and generally take an account of the stewardship of the officers and directors. therefore. a fully owned subsidiary of San Miguel Corporation. member or stockholder of the corporation at reasonable hours. good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are in the corporation's possession and control. and to inspection to obtain such information. Held : Pursuant to the second paragraph of section 51 of the Corporation Law. there is no question that a corporation. herein. In other words. for the policy of the law is to encourage and enforce responsible corporate management. under Its control. Stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management. or a quasi-ownership. If the investment is made in pursuance of the corporate purpose. considering that the foreign subsidiary is wholly owned by San Miguel Corporation and. Held : Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. This right is predicated upon the necessity of self-protection. It appears that the original investment was made in 1947-1948. especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others. morals. This is true because the questioned investment is neither contrary to law. Inc. it would be more in accord with equity.11 taking unfair advantage of his position as director of San Miguel Corporation. the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation. It is generally held by majority of the courts that where the right is granted by statute to the stockholder. it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. It is a corporate transaction or contract which is within the corporate powers. More important. therefore. would not detract from the validity and reasonableness of the by-laws involved. It is. public order or public policy. it does not need the approval of the stockholders. when SMC. he would absent himself from meetings at which confidential matters would be discussed. Issue : Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel Corporation to ratify the investment of corporate funds in a foreign corporation. an incident of ownership of the corporate property. but . Inc.. may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. the inspection has to be germane to the petitioner's interest as a stockholder. it would be inconsistent with Gokongwei's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. determine the financial condition of the corporation.. Apart from the impractical results that would ensue from such arrangement. the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.) for the manufacture and marketing of San Miguel beer thereat. such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation. whether this ownership or interest be termed an equitable ownership. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. The "general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds. As stated by the corporation. Ltd.
. BACOLOD-MURCIA MILLING CO. The mere fact that the corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of 10 May 1977 cannot be construed as an admission that the corporation had committed an ultra vires act. officers and managers. and WON it will cause losses or decrease the profits of the central. HELD: The resolution in question was passed in GF by the BOD. INC. INC.DEFENSE: The stipulations contained in the resolution were made w/o consideration.. therefore.. for the same share invoking P(9) of the BACOLOD-MURCIA MILLING CO. the court has no authority to review them.5% share to the planters. INC. INC. the B is the business manager of the C and so long as it acts in GF its orders are not reviewable by the courts. 4) The planters asked the BACOLOD-MURCIA MILLING CO. adopted a resolution (as a supplement to the Amended Milling Contract) P(9) of which states that whatever concessions other millers grant to the said planters will also be matched by it.12 which is defective from a purported failure to observe in its execution the requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. INC. and wherein it was proposed that they amend their milling contract so that they share 60%(planter) and 40%(miller) and extending their original contract from 30 to 45 years. the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose.. Besides. The BOD of BACOLOD-MURCIA MILLING CO. 3) 3 millers granted a 62. INC. therefore the resolution is null and void being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.resolution. 5) BACOLOD-MURCIA MILLING CO. 2) BACOLOD-MURCIA MILLING CO. ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. considering the common practice of corporations of periodically submitting for the ratification of their stockholders the acts of their directors. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may. Montelibano et al. v. . INC.. it is valid and binding.. are sugar planters who had an existing milling contract w/ BACOLOD-MURCIA MILLING CO.(1962) 1) Montelibano et al. RATIO: 1) It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a C and the court is w/o authority to substitute its judgment of the BOD. had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties..
1996. Inc.. On February 8. vs. 1996. dated June 27.20% of PALI. and all other duties assigned to it by pertinent laws. Inc. Respondents. delaying or interfering in any manner by or any means with the consideration. in each case of the logical relation of the act to the corporate purpose expressed in the charter. PALI was requested to comment upon the said letter. who are grantees or primary franchise and/or a license or permit issued by the government to operate in the Philippines. PALI wrote a letter to the SEC addressed to the then Acting Chairman. and one of the most important. 1996. and are hereby restated in sum. entities distinct from PALI. among others. the resort is actually owned by Fantasia Filipina Resort. PHILIPPINE STOCK EXCHANGE. On February 20. for which purpose it filed with the said stock exchange an application to list its shares. Among its inumerable functions. INC. Inc. 65561. thus paving the way for the public offering of PALIs shares. the Board of Governors of the PSE reached its decision to reject PALIs application. to be listed in its stock market. particularly. with regard to the Petitioner Philippine Stock Exchange. Jr. (PALI). If so he C has the power to do it. Yasay. under the direct general supervision of the Office of the President. 1996. the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments on the letter of the PALI and the Marcoses. 1996. petitioner assails the resolution of the respondent Court of Appeals. pending in Branch 69 thereof. is the issue in the case at bar. Marcos. To facilitate the trading of its shares among investors. had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. Villarama. and the Puerto Azul Country Club. is the supervision of all corporations. On February 14. partnerships or associations. THE HONORABLE COURT OF APPEALS. the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date. thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI. . which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange.2 Just how far this regulatory authority extends. On April 11. PALI sought to course the trading of its shares through the Philippine Stock Exchange. The TRO was issued by Judge Martin S. (PSE). Perfecto R. bringing to the SECs attention the action taken by the PSE in the application of PALI for the listing of its . The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex.13 2) It is a question. upon a perusal of PALIs application. the Ternate Development Corporation owns only 1. The test to be applied is whether the act in question is in direct and immediate furtherance of the C s business. PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. and requested PALIs application to be deferred. Inc. The Securities and Exchange Commission is the government agency. SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND. enjoining the Marcoses from. fairly incident to the express powers and reasonably necessary to their exercise. PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). In January. INC. claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation. the Listing Committee of the PSE. further impeding. issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. to allow the private respondent Puerto Azul Land. processing and approval by the PSE of the initial public offering of PALI. Petitioner. On March 4. Inc. 1995. otherwise not. effectively for his estate. likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now. recommended to the PSEs Board of Governors the approval of PALIs listing application. the Board of Governors of PSE received a letter from the heirs of Ferdinand E. therefore. before it could act upon PALIs application. obstructing. In its regular meeting held on March 27. 1996. which is among the stockholders of PALI. citing the existence of serious claims. In this Petition for Review of Certiorari. On the contrary. Inc. 1996.. with supporting documents attached. Furthermore. The facts of the case are undisputed.1 with the immense task of enforcing the Revised Securities Act. Executive Judge of the RTC of Pasig City in Civil Case No. The Puerto Azul Land. a domestic real estate corporation..
1996 Order which states: WHEREFORE. and for the purpose of ensuring fair administration of the exchange.. Hence. PSE filed a motion for reconsideration of the said order on April 29. On April 22. the SEC rendered its Order. and in the light of recent developments on the adverse claim against the PALI properties. In this regard. 1996 letter of PALI. in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION. without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investing public. reversing the PSEs decision. SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS. assailing the above mentioned orders of the SEC. premises considered. and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange. pursuant to Section 33 of the Revised Securities Act in relation to Section 6(j) and 6(m)4 of P. submitting the following as errors of the SEC: I. 902A. IV. and requesting that the SEC. premises considered. in conjunction with Section 3. AND THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION. 1996. SO ORDERED. the Commission finds no compelling reason to consider its order dated April 24. attaching thereto the letter of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the matter. and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities Act. 902-A. On April 24. PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE. No. III. JURISDICTION. II. and Section 38(b)5 of the Revised Securities Act. Inc. Both as a corporation and as a stock exchange.14 shares with the PSE. 1996. 1996. 6(j) and 6(m) of the Presidential Decree No. No. a Comment and Motion to Dismiss. the SEC wrote to the PSE. or on April 11. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER. 1996. the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land. On June 27. V. is hereby set aside. the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. this Petition by the PSE. 1996. On June 4. The dispositive portion of the said order reads: WHEREFORE. the petitioner is subject to public . Dissatisfied with this ruling.D. review the PSEs action on PALIs listing application and institute such measures as are just and proper and under the circumstances. On June 10. PSE filed its Reply to Comment and Opposition to Motion to Dismiss. This Order shall take effect immediately. PALI filed its Comment to the Petition for Review and subsequently.D. 1996. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION. the PSE submitted a letter to the SEC containing its comments to the April 11. 902-A. 1996. On the same date. 1996 a Petition for Review (with application for Writ of Preliminary Injunction and Temporary Restraining Order). however denied by the Commission in its May 9. PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information. OR AUTHORITY. which was. the PSE filed with the Court of Appeals on May 17. 1996.
the power to authorize the establishment of stock exchanges. PALI filed its Rejoinder to the said consolidated reply of PSE. 1997. the court held that PALI complied with all the requirements for public listing. taking exception to the rulings of the SEC and the Court of Appeals. the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17. the PCGG filed a Motion for Leave to file a Petition for Intervention. 902-A. On February 25. the right to supervise and regulate the same. and these do not include the power to reverse the decisions of the stock exchange. as compared to the IPOs of other companies similarly that were allowed listing in the Exchange. Accepting the argument that the public respondent has the authority merely to supervise or regulate. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties. Lastly. As a matter of fact. should be addressed to the Securities Commission. whereas the PSE filed its own Comment on January 20. would amount to serious consequences. the PSE. which in turn are given more lee-way in making the decision whether or not to allow corporations to offer their stock to the public through the stock exchange. In applying its clear and reasonable standards on the suitability for listing of shares. after it was granted an extension. to the effect of giving the Securities Commission less control over stock exchanges. representing the SEC and the Court of Appeals. 1996. This was followed up by the PCGGs Petition for Intervention on October 21. PSE has failed to justify why it acted differently on the application of PALI. filed an instant Petition for Review on Certiorari. 1997. likewise filed its Comment on December 26. The Office of the Solicitor General. On August 15. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of the other companies in that. 1996. 1996). Respondent PALI filed its Comment to the petition on October 17. 1996) and the Solicitor General (December 26. In answer to the PCGGs motion for leave to file petition for intervention. PALI filed its Comment thereto on January 17. 1996. Under presidential decree No. the determination of what standard to apply in allowing PALIs application for listing. 4. The point is. that must go to court to prove the legality of its ownership on these properties before its shares can be listed. A property losses its public character the moment it is covered by a title. In connection with this. considering that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof. 1997. A supplemental Comment was filed by PALI on October 25. whether the discretion method or the system of public disclosure adhered to by the SEC. Yet the import of PSEs decision in denying PALIs application is that it would be PALI. In addition. affirming the SECs ruling to the effect that: x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the following considerations: 1.15 respondents jurisdiction. neither has the government instituted recovery proceedings against these properties. and the power of review necessarily comes within its authority. the titles have long been settled by a final judgment. 1996. On the same date. and the power to alter and supplement rules of the exchange in the listing or delisting of securities. it being the government agency that exercises both supervisory and regulatory authority over all corporations. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange. 4. the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. This is in accord with the business judgment rule whereby the SEC and the courts are barred from intruding . regulation and control. they can no longer be re-opened considering that the one year period has already passed. the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. and the final decree having been registered. If the securities act vested the public respondent with jurisdiction and control over all corporations. Authorities are in abundance even in the United States. PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. All in all. not the Marcoses. then the law certainly granted to the public respondent the plenary authority over the petitioner. On may 16. from which the countrys security policies are patterned. 3. 1996. the PALI properties are now titled. 1997. 2. the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated.
when a title covers a forest reserve or a government reservation. No. A reading of Republic of the Philippines vs. which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC). when the same are made in good faith. G. are under sequestration by the PCGG. Due to this special nature of stock exchanges. Indeed. partnerships or associations. likewise. 1986 and April 4. the countrys lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges. is erroneous and ignores well settled jurisprudence on land titles. intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned. standing alone. As it is. It is undeniable that the petitioner PSE is not an ordinary corporation. would reveal that the properties of PALI. observed that the principal function of the SEC is the supervision and control over corporations. likewise. 1988.16 into business judgments of corporations. Thus. nor with corporations whose properties are under sequestration. such title is void. Under the listing rule of the PSE. The said rule precludes the reversal of the decision of the PSE to deny PALIs listing application. and right of supervision and control over all corporations under Sec. since certificates of title have been issued to PALI and more than one year has since lapsed. as the only operational stock exchange in the country today. its functions as the primary channel through which the vessels of capital trade ply. it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the private respondent PALI.6chanroblesvirtuallawlibrary These provisions. In fact.R. It categorically declares that the assets of these corporations were sequestered by the PCGG on March 10. is enough authority to uphold the SECs challenged control authority over the petitioner PSE even as it provides that the Commission shall have absolute jurisdiction. This ruling of the Court is the law of the case between the Republic and the TDC and MSDC. if not necessary. Section 3 of Presidential Decree 902-A. Thus.8chanroblesvirtuallawlibrary Thus. likewise. The matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application. and the subject of forfeiture proceedings in the Sandiganbayan. PSE retains the discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. the PSE enjoys a monopoly of securities transactions. to which PALI had previously agreed to comply. and their activities pursued for the promotion of economic development. PSE. The SECs power to look into the subject ruling of the PSE. Sandiganbayan. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. therefore. even if an issuer has complied with the PSE listing rules and requirements. PALIs documents supporting its application contained misrepresentations and misleading statements. in the absence of a clear mandate for the effectivity of such policy. and concealed material information. and as such. 3 of P. who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas. give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguarded. partnerships and associations with the end in view that investment in these entities may be encouraged and protected. . The PSEs relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified. 240 SCRA 376. It is. supervision. assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the PALIs shares with the PSE. touching nearly all of a corporations concerns. It is fundamental that forest lands or military reservations are non-alienable. 902-A. PSE argues that the SEC has no jurisdiction over sequestered corporations. Moreover.D. it yields an immense influence upon the countrys economy. read together with the general grant of jurisdiction. and control over all corporations. absent a showing a bad faith on the part of the PSE. may be implied from or be considered as necessary or incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange. The SECs action was affirmed by the Court of Appeals. 105205. the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. in that although it is clothed with the marking of a corporate entity.7 It is. the PSE retains the discretion to accept or reject applications for listing.
through the Revised Securities Act. if allowed to interpret its own rules liberally as it may please. the PCGG confirmed this claim. In time. but also to protect legitimate business seeking to obtain capital through honest presentation against competition form crooked promoters and to prevent fraud in the sale of securities. The purpose of the Revised Securities Act. that the PSEs management prerogatives are under the absolute control of the SEC. Moreover. U. its orders are not reviewable by the courts. has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office. the state will generally not interfere with the same. During the time for receiving objections to the application. By its economic power.S. despite the sequestration order. then it should be subject to government regulation. the PSE heard from the representative of the late President Ferdinand E. In reaching its decision to deny the application for listing of PALI. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. partaking of the nature of fraud. and suit for reconveyance to the state has been filed in the Sandiganbayan Court. To repeat. Securities and Exchange Commission. which in the general scheme. hence. (Tenth Annual Report. was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities. including shares of stock of a corporation. and to the private respondent PALI. 14). as such. but it is clear that such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. or false promises. Petitioner can either allow or deny the entry to the market of securities. Presidential Decree No. How the properties were effectively transferred. thus: The Securities Act. p. The board is the business manager of the corporation. considering public interest. The PSE is. As a matter of fact. an order of sequestration has been issued covering the properties of PALI. The legislature. A corporation is but an association of individuals. as the business is affected with public interest. is to give adequate and effective protection to the investing public against fraudulent representations. notwithstanding the regulatory power of the SEC over the PSE.9 As the appellate court explains: Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. One of the PSEs main concerns. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. The petitioner was in the right when it refused application of PALI. after all. a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. including the right to sue and be sued. from the TDC and MSDC to Rebecco Panlilio. and the imposition of worthless ventures. it has often been said that the economy moves on the basis of the rise and fall of stocks being traded.11 As to its corporate and management decisions. after all. and the resultant authority to reverse the PSEs decision in matters of application for listing in the market. Securities Act emphasized its avowed protection to acts detrimental to legitimate business.13 it was held that bad faith does not simply connote bad judgment or negligence. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation.14chanroblesvirtuallawlibrary It is to be observed that the U. in only a short span of time. it waives no constitutional immunities and perquisites appropriate to such body. may be traded or not in the stock exchange. the monopoly. Kalaw. . In organizing itself as a collective body.10chanroblesvirtuallawlibrary This is not to say. is still the generation of profit for its stockholders. Being a stock exchange. and other pertinent laws.12chanroblesvirtuallawlibrary Thus. the PSE has all the rights pertaining to corporations. however. often referred to as the truth in securities Act.S. to enter (or not to enter) into contracts with third persons. and so long as it acts in good faith. This is in line with the SECs mission to ensure proper compliance with the laws. The role of the SEC in our national economy cannot be minimized. to hold property in its own name. and the courts are without authority to substitute their judgment for the judgment of the board of directors. the SEC may exercise such power only if the PSEs judgment is attended by bad faith. the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange. the petitioner performs a function that is vital to the national economy. In board of Liquidators v. In fact. becomes subject to abuse. It means a breach of a known duty through some motive or interest of ill will. unless accompanied by control. for a contrary ruling was not to the best interest of the general public.17 We affirm that the SEC is the entity with the primary say as to whether or not securities. 902-A. are not yet explained to the Court. and to perform all other legal acts within its allocated express or implied powers. allowed to transact under an assumed corporate name. therefore. the PSE considered important facts. and with a distinct legal personality.
. are required to divulge truthfully and accurately.The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that . provides that no security. and should remain so. and therefore beyond private dominion. all material information about themselves and the securities they sell. to exercise its judgment in the manner it deems appropriate for its business identity.15 While the employment of this policy is recognized and sanctioned by laws. What is material is that the uncertainty of the properties ownership and alienability exists. for the protection of the investing public. The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw. is given ample authority in determining appropriate policies. there is the claim that the properties were owned by the TDC and MSDC and were transferred in violation of sequestration orders. or should be relied upon in approving the registration and sale of securities in the SEC is not for the Court to determine. and in performing its other functions under pertinent laws. the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI. merely by requirement of that details be revealed. At this juncture. x x x. It is also alleged by the petitioner that these properties belong to naval and forest reserves.18 As has been pointed out. the PSE has established its name and goodwill. whose business judgments are respected in the absence of bad faith. 902-A. In sum. Thus. and it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. has supervision and control over all corporations and over the securities market as a whole. The second paragraph of Section 4 of the said law. Presidential Decree No. sold. therefore. on the other hand. and were held only in trust by Rebecco Panlilio. as the primary market for securities. The inscription in the registry.16 Pertinently. and this puts to question the qualification of PALIs public offering. If any of these claims is established to be true. it is proper to observe that the concept of government absolutism in a thing of the past. The question as to what policy is. transferred or in any other manner conveyed to the public. and as such. In connection with this. the SEC has manifested that it has adopted the policy of full material disclosure where all companies. unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. since this is a matter addressed to the sound discretion of the PSE. and public welfare is safeguarded. It was reasonable for PSE. (2) placing the market during the early stages of the offering of a security a body of information. to be effective. a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities. will tend to produce a more accurate appraisal of a security. and under pain of administrative. as long as no rights are trampled upon. shall be issued. under Section 3 thereof. but is left to the sound discretion of the Securities and Exchange Commission. besides the claim of the Marcoses that such properties belong to Marcos estate. on the other hand. Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security: . In mandating the SEC to administer the Revised Securities Act. Pursuant to this regulatory authority. as regulatory agency. the Revised Securities Act. for the purpose of determining whether PSE acted correctly in refusing the application of PALI. which operating indirectly through investment services and expert investors. In any case. a corporate entity. listed or applying for listing. must be made in good faith. and empower the Commission to issue a stop order suspending the effectiveness of any registration statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.- . criminal and civil sanctions. endorsed. In this connection. nonetheless. provides that the SEC. to Rebecco Panlilio and later on to PALI. gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the said laws. as it is an established rule that a registration of a certificate of title does not confer ownership over the properties described therein to the person named as owner. Also. the certificates of title over the subject properties now held by PALI may be disregarded. the true ownership of the properties of PALI need not be determined as an absolute fact. (Idem). unless exempt by law. the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions. the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete or inaccurate in any material respect.
in view of the foregoing considerations. and of the issuer. and the SEC is mandated by law to safeguard these interests. to be determined by the Securities and Exchange Commission.19 (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not misleading. (iv) had been engaged or is engaged or is about to engaged in fraudulent transactions. The decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27. or (5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice to the public interest or as a fraud upon the purchaser or investors. 1996. However. director or principal stockholder. or the rules promulgated pursuant thereto. . In resum. chooses in setting the standard for public offerings of corporations wishing to do so. (iii) has failed to comply with any of the applicable requirements and conditions that the Commission may. following the policies and rules therefore provided. discounting. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity. (ii) has violated or has not complied with the provisions of this Act. member of the board of directors. the Court finds that the private respondent PALI. therefore. At it is. therefore. (Emphasis Ours) A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent. This measure was meant to protect the interest of the investing public against fraudulent and worthless securities. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case. the provisions of which cannot be amended or supplanted my mere administrative issuance. This does not discount the effectivity of whatever method the SEC. to a certain extent. the Court finds that the PSE has acted with justified circumspection. affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land. or any order of the Commission. on at least two points (nos. in the exercise of its vested authority. the SEC must recognize and implement the mandate of the law.(i) is not solvent or not is sound financial condition. and a new Judgment is hereby ENTERED. or (2) The issuer or registrant . Inc. or principal stockholder of the issuer is disqualified to such officer. untenable. (v) is in any was dishonest of is not of good repute. The absolute reliance on the full disclosure method in the registration of securities is. impose before the security can be registered. any imputation of arbitrariness and whimsical animation on its part. or (vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and regulations. (4) An officer. 1996 and April 24. are hereby REVERSED and SET ASIDE. particularly the Revised Securities Act. on the merits of the securities themselves. thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. respectively. (3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles. ACCORDINGLY. in the public interest and for the protection of investors. the Court hereby GRANTS the Petition for Review on Certiorari.
vs.20 ISLAMIC DIRECTORATE OF THE PHILIPPINES. that is. the Libyan government donated money to the IDP to purchase land at Culiat. The subject of this petition for review is the Decision of the public respondent Court of Appeals. RT-26520 (176616)3 and RT-26521 (170567). Firdaussi Abbas. Ahmad Alonto. was covered by two titles: Transfer Certificate of Title Nos. two Muslim groups sprung. Zorayda Tamano and Atty. and the Abbas Group. the Carpizo Group. for short). Petitioner IDP-Tamano Group alleges that sometime in 1971. Salipada Pendatun. Quezon City. Carpizo Group. on .2chanroblesvirtuallawlibrary Towards this end. the Board of Trustees of the IDP was composed of the following per Article 6 of its Articles of Incorporation: Senator Mamintal Tamano5chanroblesvirtuallawlibrary Congressman Ali Dimaporo Congressman Salipada Pendatun Dean Cesar Adib Majul Sultan Harun Al-Rashid Lucman Delegate Ahmad Alonto Commissioner Datu Mama Sinsuat Mayor Aminkadra Abubakar6chanroblesvirtuallawlibrary According to the petitioner. Both groups claimed to be the legitimate IDP. Thereafter. Respondents. Petitioners. It appears that in 1971. led by Mrs. COURT OF APPEALS and IGLESIA NI CRISTO. Tandang Sora. The land. Madrasah (Arabic School). Inc. for short) in SEC Case No.4 both registered in the name of IDP. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni Cristo (INC. setting aside the portion of the Decision of the Securities and Exchange Commission (SEC. (IDP. with an area of 49. in 1972. after the purchase of the land by the Libyan government in the name of IDP. Significantly.1 dated October 28. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano. Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP).652 square meters. The following facts appear of record. 1994.. and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution. in the same year. the primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a Mosque (prayer place). to be used as a Center for the Islamic populace. Martial Law was declared by the late President Ferdinand Marcos. MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION. for short) and the Islamic Directorate of the Philippines. headed by Engineer Farouk Carpizo. and other religious infrastructures so as to facilitate the effective practice of Islamic faith in the area.
so that the sale in INCs favor may be registered and new titles issued in the name of INC. the members of the petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the Commission. 3. 1986 Decision. which sale was evidenced by a Deed of Absolute Sale12 dated April 20. Musib Buat. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R. Meanwhile. The dispositive portion of the SEC Decision reads: WHEREFORE. seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Farouk Carpizo. through false schemes and machinations. before any election of the members of the Board of Trustees could be conducted. in a suit between these two contending groups. filed a petition before the SEC. judgment is hereby rendered declaring the elections of both the petitioners7 and respondents8 as null and void for being violative of the Articles of Incorporation of petitioner corporation. the main issue of which is whether or not the aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void. Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic Directorate of the Philippines. who. the approved by-laws which they certified to this Commission as members of the Board of Trustees must necessarily be likewise declared null and void. 1989. authorizing the sale of the subject two parcels of land to the private respondent INC for a consideration of P22. RT-26521 and RT-26520 covering the aforementioned two parcels of land. thus rendering the adoption of the by-laws likewise null and void. the Carpizo Group caused to be signed an alleged Board Resolution11 of the IDP. And since the election of both petitioners and respondents have been declared null and void. hence. Carpizo Group. sought to intervene in Civil Case No.00. Once approved. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. However. Ligon to produce and surrender to the Register of Deeds of Quezon City the owners duplicate copy of TCT Nos. to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. on June 11. With the nullification of the election of the respondents. 04012.13chanroblesvirtuallawlibrary . Neither group.21 October 3. and. aside from Engineer Farouk Carpizo and Atty. 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. On May 30. 4012. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. succeeded in executing the Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the subject of the case at bar. Likewise. xxx xxx xxx. A copy of the said case is hereto attached as Annex A. docketed as Civil Case No. inter alia: xxx xxx xxx 2. took the necessary steps prescribed by the SEC in its October 3. Leticia P. 4.T. those who prepared and adopted the by-laws were not bona fide members of the IDP. came out with a Decision in SEC Case No. INC filed a motion in the same case to compel one Mrs. before Branch 81 of the Regional Trial Court of Quezon City. That the said case before the SEC is docketed as Case No. 1991. The IDP-Tamano Group. no valid election of the members of the Board of Trustees of IDP was ever called. docketed as SEC Case No. the SEC. Q-90-6937 averring. To remedy this unfortunate situation that the association has found itself in.. Intervenors legal interest in the instant case. filed an action for Specific Performance with Damages against the vendor. an election of the members of the Board of Trustees shall immediately be called pursuant to the approved by-laws. the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano. 1989. Q-90-6937. Although the Carpizo Group10 attempted to submit a set of by-laws. furthermore. or the Tamano Group. al. Mrs. et. however. 1986. On April 20. private respondent INC. pursuant to the Deed of Absolute Sale executed in its favor. 1991. without having been properly elected as new members of the Board of Trustees of IDP.400. a vacuum is created as to who should adopt the by-laws and certify its adoption. there must be an approved by-laws to govern the internal government of the association including the conduct of election. That. thus. the SEC found that.343.
Regional Trial Court of Quezon City. 4012 in this wise: 1. In the meantime. No. Ligon is hereby ordered to produce and/or surrender to plaintiff17 the owners copy of RT-26521 (170567) and RT-26520 (176616) in open court for the registration of the Deed of Absolute Sale in the latters name and the annotation of the mortgage executed in her favor by herein defendant Islamic Directorate of the Philippines on the new transfer certificate of title to be issued to plaintiff. 1993. 1992. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2. 1993. 3. The portion of the SEC Decision in SEC Case No. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said case. that the issue sought to be litigated by way of intervention is an intra-corporate dispute which falls under the jurisdiction of the SEC.22 Private respondent INC opposed the motion arguing. Declaring the acceptance of the respondents. thru a petition for certiorari. denied petitioners motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in nature.22 null and void. the above Order was amended by Judge Reyes directing Ligon to deliver the owners duplicate copies of TCT Nos. 1994.R. in SEC Case No. . No. submitting that the Court of Appeals gravely erred in: 1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale. The appellate court dismissed her petition on October 28. Judge Reyes.R. Thus.R. the IDP-Tamano Group brought the instant petition for review. Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC. null and void.14chanroblesvirtuallawlibrary Judge Celia Lipana-Reyes of Branch 81. Declaring the election of the Board of Directors23 of the corporation from 1986 to 1991 as null and void. rendered Partial Judgment in Civil Case No. Declaring the by-laws submitted by the respondents21 as unauthorized.20chanroblesvirtuallawlibrary Undaunted.R. SP-27973. Q-90-6937. inter alia. docketed as CA-G. dated March 2. but the same was denied on account of the fact that the decision of the case had become final and executory.18chanroblesvirtuallawlibrary On April 6. Private respondent INC filed a Motion for Intervention. on July 5. 4. 1994. 1992. 1992. dated September 7. the court a quo promulgated a Decision in CA-G. 4012. 33295 granting INCs petition.19chanroblesvirtuallawlibrary Mortgagee Ligon went to the Court of Appeals.15chanroblesvirtuallawlibrary Apprised of the pendency of SEC Case No. the SEC. 107751. jurisdiction thereto properly pertaining to the SEC. assailing the foregoing Orders of Judge Reyes. and hence. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals. SO ORDERED. On October 28.25chanroblesvirtuallawlibrary INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil action for certiorari. docketed as CA-G. as members of the IDP null and void. except Farouk Carpizo and Musnib Buat.16chanroblesvirtuallawlibrary Thereupon. finally came out with a Decision in SEC Case No. SP No. pertaining also to Civil Case No. 33295. no appeal having been taken therefrom. treated INC as the rightful owner of the real properties and disposed as follows: WHEREFORE. 1992. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines. Inc. 2. 1991. dated December 21. SP No. Ligon filed a petition for review before the Supreme Court which was docketed as G. on September 12. Judge Reyes in another Order. Leticia P.
Court of Appeals. we would like to point out that our disposition in G. Ligon.R.R. promulgated on June 1. to wit: Effect of judgment. and not as to matters merely involved therein. whereas. where the IDP-Tamano Group became a principal party. actually. with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto.27chanroblesvirtuallawlibrary Neither of these concepts of res judicata find relevant application in the case at bench. as represented by the 1971 Board of Trustees or the Tamano Group. the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. No. was only made an ancillary party in G. Clearly. and the Iglesia Ni Cristo.29 Indeed. 107751 as intervenor. as petitioner. No. however. No. subject matter and cause of action. Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam. . 107751 were mortgagee Leticia P. There is bar by former judgment when. as private respondent. Quite the contrary. that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged. It is just an interlocutory proceeding dependent on or subsidiary to the case between the original parties. The Decision. litigating for the same thing and under the same title and in the same capacity.R. the Supreme Court rendered judgment in G. but is merely collateral. only as to those matters actually and directly controverted and determined. or ancillary to the principal action. dated June 1. (c) In any other litigation between the same parties or their successors in interest. there is no identity of parties in both cases. Section 49(c) is referred to as conclusiveness of judgment. between the first case where the judgment was rendered. the requisites of res judicata do not obtain in the case at bench.26chanroblesvirtuallawlibrary While the above petition was pending. Ligon v. While there may be identity of subject matter (IDP property) in both cases. as petitioner. Leticia P. accessory. 1995. The IDP. may be as follows: xxx xxx xxx (b) In other cases the judgment or order is. there is no identity of parties. . This is what is termed conclusiveness of judgment. having jurisdiction to pronounce the judgment or order.The effect of a judgment or final order rendered by a court or judge of the Philippines. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked. there is only identity of parties but there is no identity of cause of action. The principal parties in G.30 It is only in the present case.R. Section 49(b) enunciates the first concept of res judicata known as bar by prior judgment. 1992 Decision of the Court of Appeals in CA-G. No. No. Ligon. 107751 entitled. with the Iglesia Ni Cristo. or which was actually and necessarily included therein or necessary thereto. When the three identities are present. 107751 for purposes of applying the principle of res judicata since the contrary goes against the true import of the action of intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere subordinate party in the main case whose right may be said to be only in aid of the right of the original party. denied the Ligon petition and affirmed the October 28.28 It was never originally a principal party thereto. It must be noted that intervention is not an independent action.R. Before we rule upon the main issue posited in this petition.R.23 2) Encouraging multiplicity of suits. 107751 on the petition filed by Mrs. the IDP-Tamano Group cannot be considered a principal party in G. there is identity of parties. in no wise constitutes res judicata such that the petition under consideration would be barred if it were the case. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INCs favor may be properly registered. conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding. and the second case where such judgment is invoked. and 3) Not applying the principles of estoppel and laches. SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owners duplicate copies of TCT Nos. No. the judgment is conclusive in the second case. Section 49. as private respondent. 1995.
thru a legitimate Board of Trustees. 4012 which declared the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and private respondent INC null and void? We rule in the affirmative. or managers of such corporations. supervision and control over all corporations. was entitled. No. Islamic Directorate of the Philippines. the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. xxx Section 5. 107751 is the surrender of the owners duplicate copy of the transfer certificates of title to the rightful possessor thereof. which gave rise to G. a case for Specific Performance with Damages. partnerships or associations.32 Elsewise put. No. trustees. In any case. . that IDP may be considered a principal party in Ligon. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the sale. it can also declare who is not the legitimate IDP Board. The cause of action in G.24 In this connection. it should be disregarded if its rigid application would involve the sacrifice of justice to technicality. Q-90-6937. No. officers. no person (natural or juridical) shall be affected by a proceeding to which he is a stranger. Civil Case No.R. was effectively deprived of its day in court in said case. Q-90-6937. Plaintiff v.33chanroblesvirtuallawlibrary Granting arguendo. whereas the cause of action in the present case is the validity of the Carpizo Group-INC Deed of Absolute Sale. 902-A: Section 3. then by parity of reasoning. res judicata as a bar by former judgment will still not set in on the ground that the cause of action in the two cases are different. 107751. did not become final and executory insofar as the true IDP is concerned since petitioner corporation.R. although it is true that Civil Case No. partnerships or associations. As a necessary consequence. If the SEC can declare who is the legitimate IDP Board. There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of Presidential Decree No.34chanroblesvirtuallawlibrary The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SECs Decision in SEC Case No. who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines xxx xxx. Consequently. Defendant. Res inter alios judicatae nullum aliis praejudicium faciunt. 4012 when it adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and void. while it is true that the principle of res judicata is a fundamental component of our judicial system. Matters adjudged in a cause do not prejudice those who were not parties to it. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not the principal thrust of Ligon. Res Judicata in the form of conclusiveness of judgment cannot likewise apply for the reason that any mention at all in Ligon as to the validity of the disputed Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC has the better right of possession over the owners duplicate copy of the TCTs covering the IDP property? G. Iglesia Ni Kristo. for want of legitimate representation.31 the IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly represented by a legitimate Board of Trustees in that case.35 By this ruling.R. x x x. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. This is precisely what the SEC did in SEC Case No. the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or disposition of IDP property. The Commission shall have absolute jurisdiction. it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx c) Controversies in the selection or appointment of directors. a mere action in personam.
already declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation.39chanroblesvirtuallawlibrary . there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees. Sale or other disposition of assets. (2) Object certain which is the subject matter of the contract. as its board of directors or trustees may deem expedient. This is. As succinctly put by Tolentino. not bona fide members of the IDP as they were made to appear to be. 1986. mortgage.37 Nothing thus becomes more settled than that the IDP-Carpizo Group with whom private respondent INC contracted is a fake Board. Hence. Apparently. in a stockholders or members meeting duly called for the purpose. including its goodwill. when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.38 In this case. in Case No. its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. upon terms and conditions and for such consideration. by the vote of at least two-thirds (2/3) of the members. never gave its consent. the IDP. the contract is non-existent. where even one is absent. a corporation may.Subject to the provisions of existing laws on illegal combinations and monopolies. thru a legitimate Board of Trustees. to the disputed Deed of Absolute Sale executed in favor of INC. or in case of non-stock corporation. For. lease. by a majority vote of its board of directors or trustees. All these elements must be present to constitute a valid contract. pledge or otherwise dispose of all or substantially all of its property and assets. (3) Cause of the obligation which is established. 40. Ineluctably. stocks. all acts carried out by the Carpizo Board. therefore. consent is essential for the existence of a contract.36 in a suit between the Carpizo Group and the Abbas Group. constitutes the only property of the IDP.25 It must be noted that SEC Case No. which may be money. exchange. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees. xxx. a case not only of vitiated consent. . sell. For the sale to be valid. and where it is wanting. 2687. it appears from the records. from all indications. the subject sale is void and produces no effect whatsoever. particularly the sale of the Tandang Sora property. Article 1318 of the New Civil Code lays down the essential requisites of contracts: There is no contract unless the following requisites concur: (1) Consent of the contracting parties. That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Groups failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation: Sec. allegedly in the name of the IDP. but one where consent on the part of one of the supposed contracting parties is totally wanting. owner of the subject parcels of land. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were. As far back as October 3. Premises considered. or served personally: Provided. the SEC. have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the Carpizo Group. concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. the contract is void. the majority vote of the legitimate Board of Trustees. The Tandang Sora property. bonds or other instruments for the payment of money or other property or consideration. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid.
SP No. if one has already been made. this time. came out nullifying the sale. INC came forward.26 All told. The Decision of the Securities and Exchange Commission dated July 5. the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio. Otherwise. This is very strange considering that the subject lot is a large piece of real property in Quezon City worth millions. owner of the subject property. the register of Deeds is hereby ordered to cancel the same. It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case No.R. if countenanced. would result in a failure of justice. the Court observed that the INC bought the questioned property from the Carpizo Group without even seeing the owners duplicate copy of the titles covering the property. We cannot put a premium on this clever legal maneuverings of private respondent which. if the same was actually received by IDP. inter alia. The unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being presented with the owners copy of the titles casts very serious doubt on the rightfulness of its position as vendee in the transaction. Furthermore. Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction. The Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the name of respondent Iglesia Ni Cristo. No end of substantial justice will be served if we reverse the SECs conclusion on the matter.41 The private respondent presumably knowledgeable on the aforesaid working of the Torrens System. Q-90-6937. When the Decision in SEC Case No. The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP. If new titles have been issued in the name of Iglesia Ni Cristo. the minimum requirement for one to be a good faith buyer for value is that the vendee at least sees the owners duplicate copy of the title and relies upon the same. argued for the denial of the motion averring. and that under the Torrens System of Registration. a case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. Petitioner corporation is ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest. quibbling over the issue that it is the regional trial court. 1993 in SEC Case No.40 As a result. INC is here trifling with the courts. wanting to acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the civil suit. that the issue sought to be litigated by the movant is intra-corporate in nature and outside the jurisdiction of the regional trial court. 33295 is SET ASIDE. and not the SEC. 4012. . 1994 in CA-G. 4012 is REINSTATED. But INC. and issue new ones in the name of petitioner Islamic Directorate of the Philippines. the motion for intervention was denied. The legitimate IDP Board could have been granted ample opportunity before the regional trial court to shed light on the true status of the Carpizo Board and settled the matter as to the validity of the sale then and there. and remand the case to the regular courts for further litigation over an issue which is already determinable based on what we have in the records. which has jurisdiction to rule on the validity of the sale. The Decision of the public respondent Court of Appeals dated October 28. INC may run after Engineer Farouk Carpizo and his group for the amount of money paid. did not take heed of this and nevertheless went through with the sale with undue haste. the same not being an intra-corporate dispute. WHEREFORE. SO ORDERED. the petition is GRANTED.
admitting and approving the counter-bond of P5. 56949 of the Court of First Instance of Manila. The complaint. speedy and adequate remedy available to it. vs. therein defendant (respondent herein).00. in a meeting. 1964 of respondent Judge approving the counter-bond and lifting the writ of preliminary injunction he had previously issued be set aside and declared null and void. 164. that defendant not only had refused to vacate his office and to deliver the assets and books to Jose de la Rosa. and that it was necessary to appoint a receiver to take charge of the assets and receive the income of the corporation. would continue discharging the functions of managing director.chanroblesvirtualawlibrary chanrobles virtual law library Herein respondent Judge. justified the order complained of. that defendant had been required to submit a financial statement and to render an accounting of his administration from 1952 but defendant has failed to do so. unless immediately restrained ex-parte. 1964. that Jose M. therein plaintiff (petitioner herein) against Fausto S. respondent Judge granted the writ of preliminary injunction prayed for. removed defendant as managing director and elected Jose de la Rosa in his stead. defendant illegally seized and took control of all the assets as well as the books. 1964. Plaintiff filed the bond. contrary to a resolution adopted by the Board of Directors on November 24. the stockholders. that defendant. that defendant was managing director of plaintiff corporation from 1952 until January 14. Inspite of the opposition filed by plaintiff. praying that a writ of preliminary injunction enjoining defendant Fausto S. plaintiff filed with this Court the instant petition for certiorari. was issued contrary to law and with grave abuse of discretion. as required by Section 6 of Rule 58. on July 1. and the admission of the counter- . because: (1) the motion to admit defendant's counter-bond was not supported by affidavits showing why the counter-bond should be admitted. 1963. 1964. and FAUSTINO S. in his capacity as Presiding Judge of Branch VI. but while the same was pending approval defendant Fausto S. Plaintiff prayed that a preliminary injunction ex-parte be issued restraining defendant from exercising the functions of managing director and from disbursing and disposing of its funds. 1964. Petitioner. Alberto filed.000 and setting aside the writ of preliminary injunction granted in his order dated June 18.chanroblesvirtualawlibrary chanrobles virtual law library On the belief that the order approving the counter-bond and lifting the writ of preliminary injunction was contrary to law and the act of respondent Judge constituted a grave abuse of discretion. and prayed for the dismissal of the petition. had been illegally disposing of corporate funds. (2) the preliminary injunction was not issued ex-parte but after hearing. alleged that plaintiff was a corporation duly organized and existing under the laws of the Philippines. but also continued to perform unauthorized acts for and in behalf of plaintiff corporation. concealed them illegally and refused to allow any member of the corporation to see and examine the same. filed by Detective and Protective Bureau. on August 5.. conditioned upon plaintiff's filing a bond of P5. The Court gave due course to the petition but did not issue a preliminary injunction.chanroblesvirtualawlibrary chanrobles virtual law library In his answer. set for hearing plaintiff's prayer for ancillary relief and required the parties to submit their respective memoranda. THE HONORABLE GAUDENCIO CLORIBEL.chanroblesvirtualawlibrary chanrobles virtual law library Now petitioner contends that the setting aside of the order granting the writ was contrary to law and was done with a grave abuse of discretion. that.27 DETECTIVE & PROTECTIVE BUREAU.000. records.chanroblesvirtualawlibrary chanrobles virtual law library From the pleadings. Court of First Instance of Manila. Respondents. Albert from exercising the functions of managing director be issued. 1964. a motion to admit a counter-bond for the purpose of lifting the order granting the writ of preliminary injunction. the Honorable Gaudencio Cloribel. that defendant. ALBERTO. that in June. 1964. 1964. an order admitting the counterbond and setting aside the writ of preliminary injunction. that on January 14. after judgment. now respondent Fausto S. Alberto traversed the material allegations of the petition. 1963. dated May 4. vouchers and receipts of the corporation from the accountant-cashier. respondent Judge issued. and that there was no plain. On June 18. Alberto. and that the order dated August 5. Barredo be appointed receiver. INC. the injunction be made permanent and defendant be ordered to render an accounting. in Civil Case No. for accounting with preliminary injunction and receivership. it appears that the only issue to be resolved is whether the order of respondent Judge dated August 5. Inc..
and much less must the motion be supported by affidavits. then respondent Fausto Alberto's motion to lift the preliminary injunction in the court below need not be verified. Aquino. (3) the writ was granted in accordance with Rule 58 of the Rules of Court and established precedents' (4) public interest required that the writ be not set aside because respondent had arrogated unto himself all the powers of petitioning corporation. However. in Canlas. or to the judge of the court of which the action was brought.chanroblesvirtualawlibrary chanrobles virtual law library 1. does not appear in the record. The first reason given by petitioner in support of its contention that the dissolution of the writ of preliminary injunction was contrary to law is that the motion to admit respondent's counter-bond for the dissolution of the writ was not supported by affidavits as required by section 6 of Rule 58 of the Rules of Court.2 said. petitioners in that case alleged that the questioned order was issued in violation of the provisions of Section 169 of Act 190(which is one of the sources of Sec. There was. citing the case of Sy Yam Bio v. It simply states that if a temporary injunction be granted without notice. to the judge who granted the injunction. 6." The court granted the motion and dissolved the preliminary injunction. In that case.. 4634 was not verified. In an original action for a writ of certiorari filed with this Court to annual said order.1 the only question raised was whether the respondent Judge exceeded his jurisdiction and abused his discretion in setting aside an order directing the issuance of a writ of preliminary injunction. 63 Phil. the defendant. et al. 65. to the irreparable damage of the corporation. upon reasonable notice to the adverse party.. et al. Vol. et al. If according to the above rulings. respondent Tayag filed an unverified motion for the dissolution of a writ of preliminary injunction. In maintaining the affirmative. vs. this Court has ruled that the requirement of verification is not absolute but is dependent on the circumstances obtaining in a particular case.3 this Court ruled that a motion for the dissolution of a writ of preliminary injunction should be verified. vs. Second Edition. On the strength of the decision in the above-cited case. a verbal application for the dissolution of the writ. II.28 bond rendered said writ ineffective. and that (5) the counter-bond could not compensate petitioner's damage... Petitioners' criticism that the motion to dissolve filed by the defendants in Civil Case No. p. alleging that the same "would work great damage to the defendant who had already spend a considerable sum of money" and that petitioners "can be fully compensated for any damages that they may suffer. 6 of Rule 58 of the revised Rules of Court)inasmuch as the Judge set aside said order and directed the dissolution of the preliminary injunction without any formal petition of the parties and without having followed the procedure prescribed by the statute. The motion of respondent Tayag for the dissolution of the writ of preliminary injunction issued on October 22. at any time before trial.chanroblesvirtualawlibrary chanrobles virtual law library However. Rule 58) of the Rules of Court did not require any form for the application for the dissolution of the writ of preliminary injunction. as urged by petitioner. is also groundless inasmuch as even an indirect verbal application for the dissolution of an ex parte order of preliminary injunction has been held to be a sufficient compliance with the provisions of Section 6 of Rule 60 (Moran. may apply. based upon the ground of the in suficiency of the complaint which was the basis of the application for the issuance of said writ of preliminary injunction. however.. In the case of Sy Sam Bio. 1959. vs. this Court in Caluya. was unverified. . however. et al. this Court remarked in part: Petitioners herein are entitled to the writ prayed for. Barrios.chanroblesvirtualawlibrary chanrobles virtual law library Regarding the necessity of verification of the motion for dissolution of a writ of preliminary injunction. Barrios and Buyson Lampa. the record shows that respondent Alberto had filed a verified answer to the complaint and a verified opposition to the issuance of the writ of preliminary injunction.. to dissolve or modify the same. Section 6 of Rule 60 (now sec. Comments on the Rules of Court. the obvious reason being that said rule does not prescribe the form by which an application for the dissolution or modification of an order of preliminary injunction should be presented. etc. Ramos. 206). The controverted motion. et al. This Court said: Section 169 of Act 1909 does not prescribe the manner of filing the application to annul or modify a writ of preliminary injunction.
or." Consequently." thereby arguing that if an injunction is not issued ex parte the same cannot be dissolved. The second and third reasons alleged by petitioner in its petition for certiorari assume that a preliminary injunction issued after hearing and in accordance with Rule 58 cannot be set aside. 1964. Philippine Ready Mix Concrete Co. The provision of Section 6 of Rule 58 that "the injunction may be refused. But because said motion does not appear in the record of the case now before this Court. This allegation was not denied in the answer. does not constitute an abuse of discretion and may be cured not by certiorari but by appeal. Inc. (Manila Electric Company vs. Ramos. Artiaga and Green.chanroblesvirtualawlibrary chanrobles virtual law library 2. even if the dissolution is ordered without giving the other party an opportunity to be heard.4 this Court said: The first contention of the petitioners is that. et al.5 one of the issues presented was whether a writ of preliminary injunction granted the plaintiff by a trial court after hearing. Reliance is placed on Section 6 of Rule 60 of the Rules of Court which provides that "the injunction may be reduced. the motion need not be verified. specially on the strength of an unverified motion for dissolution and in the absence to support it. it is evident that whether the application for the dissolution of the writ of preliminary injunction must be verified or not depends upon the ground upon which such application is based. the motion should be verified. may be dissolved" can not be construed as putting beyond the reach of the court the dissolution of an injunction which was granted after hearing. maybe dissolved. 3. as said injunction was issued after a hearing. vs. and any irregularity committed by the trial court on this score may be cured not by certiorari but by appeal. was disputed by respondent Alberto who stated that Jose de la Rosa could not be elected managing director because he did not own any stock in the corporation. and this Court ruled that: The action of a trial court in dissolving a writ of preliminary injunction already issued after hearing. In Clarke vs. The fourth reason alleged by petitioner in support of its stand is that public interest demanded that the writ enjoining respondent Fausto Alberto from exercising the functions of managing director be maintained.chanroblesvirtualawlibrary chanrobles virtual law library In the instant case. a preliminary injunction prior to its issuance or after its granting ex parte. the same cannot be dissolved.. and as such it is always under the control of the court before final judgment. dated August 5. has to rely on the order of respondent Judge. 50 Phil. This is to be so. it is alleged by petitioner that the motion for the dissolution of the writ of preliminary injunction was not verified. This assertion. The reason is because a writ of preliminary injunction is an interlocutory order. If the application is based on the insufficiency of the complaint. If the motion is based on the ground that the injunction would cause great damage to defendant while the plaintiff can be fully compensated for such damages as he may suffer. therefore. Although said section prescribes the grounds for objecting to.29 From the precedents quoted above.. it does not thereby outlaw a dissolution if the injunction has been issued after a hearing. the first ground alleged by petitioner must be brushed aside. and so We cannot rule on whether the motion should have been verified or not. or. et al. Petitioner contended that respondent Alberto had arrogated to himself the power of the Board of Directors of the corporation because he refused to vacate the office and surrender the same to Jose de la Rosa who had been elected managing director by the Board to succeed him. might be dissolved upon an ex parte application by the defendant. This Court has also ruled that the dissolution of a writ of preliminary injunction issued after hearing. Thus. without giving petitioner an opportunity to be heard. because a writ of preliminary injunction is an interlocutory order which is always under the control of the court before final judgment.. however. which states that "the filing of the counter-bond is in accordance with law. et al. if granted ex parte. or for moving the dissolution of. if granted ex parte.. The contention is clearly erroneous. as well as from the terminology of Section 6 of Rule 58 of the new Rules of Court. does not constitute lack or excess of jurisdiction or an abuse of discretion. This Court. This contention is untenable. 144. in Caluya. We cannot determine what are the grounds for the dissolution that are alleged therein. 147).chanroblesvirtualawlibrary chanrobles virtual law library .
the party in control or possession of the disputed interest is presumed to have the better right until the contrary is adjudged. transfer property in litigation from the possession of one party to another is more particularly applicable where the legal title is in dispute and the party having possession asserts ownership in himself. pursuant to Article V. Barredo. The fifth reason alleged by herein petitioner in support of its contention that respondent Judge gravely abused his discretion when he lifted the preliminary injunction upon the filing of the counter-bond was that said counter-bond could not compensate for the irreparable damage that the corporation would suffer by reason of the continuance of respondent Fausto Alberto as managing director of the corporation. in relation to all the reason given by petitioner..727. If he did not own any share of stock.10 In the instant case. certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law. (Record.8 and it is equally well settled that a wide latitude is given under Section 7 of Rule 58 of the Rules of Court to the trial court to modify or dissolve the injunction as justice may require.29 as against the sum of P4. contended that he really was the owner of the controlling interest in the business carried on the name of the petitioner. which stock shall stand in his name on the books of the corporations. certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law. Respondent Alberto. Section 1 that "Directors shall serve until the election and qualification of their duly qualified successor. on the contrary... 30.000 only invested by one other director.. if not more. which in part provides: chanrobles virtual law library There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation.the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law.7 Let it be stated.chanroblesvirtualawlibrary chanrobles virtual law library . not the appellate court. that it is a settled rule that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case ." chanrobles virtual law library 4. The following ruling of this Court has a persuasive application in this case: The rule that a court should not.30 There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. which in part provides: Sec.6 chanrobles virtual law library Should it be the truth that respondent Alberto is the controlling stockholder. If he could not be a director. If the bond of P5. having invested therein a total of P57. and hence that party should not be deprived of the control or possession until the court is prepared to adjudicate the controverted right in favor of the other party. The court which is to exercise that discretion is the trial court. then the damages said respondent would suffer would be the same. Jose M. Section 3 of the By-Laws of the Corporation which provides that: The manager shall be elected by the Board of Directors from among its members. Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director. p. We find that there was a question as to who own the controlling interest in the corporation. by means of a preliminary injunction..9 The exercise of sound judicial discretion by the lower court in injunctive matters should not be interfered with except in cases of manifest abuse. as the damages that the corporation would suffer if the injunction were maintained. there seems to be no reason why the same amount would not be sufficient to answer for the damages that might be suffered by the petitioning corporation by reason of the lifting of the injunction. If he did not own any share of stock.000 filed by petitioner for the injunction would be sufficient to answer for the damages that would be suffered by respondent Alberto by reason of the injunction.. respondent Fausto Alberto could not be compelled to vacate his office and cede the same to the managing director-elect because the bylaws of the corporation provides in Article IV. Where ownership is in dispute. he could also not be a managing director of the corporation. 48) If the managing director-elect was not qualified to become managing director. We find that petitioner failed to show manifest abuse of discretion by respondent Judge in setting aside the writ of preliminary injunction.
that from the order dissolving the writ of preliminary injunction. however. in an appropriate motion for reconsideration.11 chanrobles virtual law library The instant case is not one of the exceptions in the application of this rule. with costs againsts the petitioner. there is no alternative for this Court but to order its dismissal. An omission to comply with this procedural requirement justifies a denial of the writ applied for.31 There is. and met and decided by the respondent court. submitted to. WHEREFORE. and where there is a deprivation of the petitioner's fundamental right to due process. where the questioned order is a patent nullity. 1964. which are: where the questions of jurisdiction has been squarely raised. if any. 1964 lifting the writ of preliminary injunction which had previously been granted in the order dated June 18. one vital reason why the instant petition for certiorari should be denied. . and the herein petition for certiorari having been filed without previously complying with a well settled procedural requirement. It is so ordered.12 It being our considered view that respondent Judge had not committed grave abuse of discretion in issuing the order dated August 5. the petitioner has gone directly to this Court without giving the respondent Judge (or trial court) a chance or opportunity to correct his error. argued before. the instant petition for certiorari with preliminary injunction is dismissed. And it is.
In the month of July. one of the directors of the Orientalist Company and also its treasure. Under the articles of incorporation the company is authorized to manufacture. he addressed another letter couched in the same terms. F. vs. a resident of the city of Paris. or otherwise obtain all accessories necessary for conducting such a business. Ramon J. and with approval of those with whom he had communicated. being moved by the suggestions and representations of Vicente Ocampo. certain of the directors of the Orientalist Company. Fernandez to Jose Ramirez is in the following terms: We willingly accepted the officer under the terms communicated by your father in his letter dated at Paris on July 4th of the present year. What we consider to be the most portion of the two letters of acceptance written by R. on July 30. the quantity which the representative of each was required to take and information concerning the manner and intervals of time for the respective shipments. buy." and negotiations were begun with said officials of the Orientalist Company by Jose Ramirez. This officer was declared to be good until the end of July. to the effect that the securing of the said films was necessary to the success of the corporation. Ramirez described his function in such transactions as that of a commission agent and stated that he would see to the prompt shipment of the films. accepting the offer contained in the memorandum of July 4th for the exclusive agency of the Eclair films. The idea behind the latter suggestion apparently was that the contract for the films would have to . J. became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks of films. as agent of the plaintiff. R. Fernandez. on August 5. Fernandez. namely. had an informal conference with all the members of the company's board of directors except one. Fernandez an offer. FERNANDEZ. FERNANDEZ RByAMT. was engaged in the business of maintaining and conducting a theatre in the city of Manila for the exhibition of cinematographic films. F. Fernandez. as an individual. duly organized under the laws of the Philippine Islands. addressed a letter to Jose Ramirez. placed in the hands of Ramon J. is placed somewhat below and to the left of the signature of the Orientalist Company as singed by R. Accordingly. the "Eclair Films" and the "Milano Films. Treasurer. dated July 4. according to the tenor of the offer.32 J. By R. THE ORIENTALIST CO. 1913. plaintiff-appellee. in which it will be noted the separate signature of R. The plaintiff J. likewise accepting the office of the exclusive agency for the Milano Films. A few days later. stating detail the terms upon which the plaintiff would undertake to supply from Paris the aforesaid films. defendants-appellants. Jose Ramirez. and was engaged in the business of marketing films for a manufacturer or manufacturers. at the same time. there engaged in the production or distribution of cinematographic material. 1913. would pay the manufacturer. RAMIREZ. These communications were signed in the following form. The expenses of packing. transportation and other incidentals were to be at the cost of the purchaser. and in the capacity of attorney-in-fact for the Orientalist Company. In this enterprise the plaintiff was represented in the city of Manila by his son. F. There was added a clause in which J. and RAMON J. J. was chiefly active in this matter. Near the end of July of the year aforesaid. The memorandum offer contained a statement of the price at which the films would be sold. for the purpose of placing the exclusive agency of these films in the hands of the Orientalist Company. FERNANDEZ. France. the time of the occurrences which gave rise to this lawsuit. in Manila. Both of these letters also contained a request that Jose Ramirez should at once telegraph to his father in Paris that his offer had been accepted by the Orientalist Company and instruct him to make a contract with the film companies. manage of the Oriental Theater. in the capacity of treasurer: THE ORIENTALIST COMPANY. Fernandez. The defendant Ramon J. and take care that the films were insured his commission for such services being fixed at 5 per cent. if it desired to take advantage of said offer. and as only about for the Orientalist Company to act on the matter speedily. and in 1913 and 1914. J. as representative of his father. J. Jose Ramirez.. The Orientalist Company is a corporation. J. Ramirez was. in Manila.
that the Orientalist Company should clothed J. upon the Orientalist Company. From this judgment both of the parties defendant appealed. 1914. 1914. which was accepted by B. and apparently without opposition on the part of the defendants. During the period between February 27. and all were accepted in the name of B. 1913. appointed a receiver who took charge of the films and sold them. and Ramon J.018. None of the drafts thus accepted were taken up by the drawee or by B. in the part pertinent to the situation now . Hernandez. as prescribed in section 103 of the Code of Civil procedure. The action. It appears that the Orientalist Company was without funds to meet these obligations and the first few drafts were dealt with in the following manner: The drafts. have been introduced in evidence. with Ramon J. As to the liability of the corporation a preliminary point of importance arises upon the pleadings. is based upon documents purporting to be signed by the Orientalist Company. in order to save time. if it desired to question the authority of Fernandez to bind it. and April 30. Fernandez. except the last. as he indicated in the officer of July 4 that he would do. F. and it seemed convenient.33 be made directly between the film-producing companies and the Orientalist Company. and although these drafts. Ramirez with full authority as its attorney-in-fact. The amount realized from this sale was applied to the satisfaction of the plaintiff's claim and was accordingly delivered to him in part payment thereof. It results that the real contention upon this appeal is between the two defendants. The action is not based upon the dishonored drafts which were accepted by B. In due time the films began to arrive in Manila. and it is these shipments which have given occasion for the present action. Said section. J. In the discussion which is to follow we shall consider. Hernandez individually. Hernandez in the name of the Orientalist Company. the question of the liability of the corporation upon the contracts contained in the letters of July 30 and August 5. there arrived in the city of Manila several remittances of films from Paris. were accepted in the name of the Orientalist Company by its president B. In the judgment of the trial court the Orientalist Company was declared to be a principal debtor and Ramon J. and they in fact never came into the actual possession of the Orientalist Company as owner at all. and so far as the record shows. in connection with the plaintiff's offer of July 4. 1913. and it was finally necessary for the plaintiff himself to take them up as dishonored by non-payment. It was therefore incumbent upon the corporation. as already stated. upon presented through the bank. All of the drafts accompanying these films were drawn. and were taken up by the latter with his own funds. and. the court. As the films which accompanied the dishonored were liable to deteriorate. But if the latter is liable as principal obligor for the whole or any part of the debt. Fernandez and the statement is not challenged by the Orientalist Company that the judgment has already been executed as against the company is exclusively and primarily liable the entire indebtedness. It will be noted that the action is primarily founded upon the liability created by the letters dated July 30th and August 5. Fernandez was declared to be liable subsidiarily as guarantor. though it is true Hernandez rented the films to the Orientalist Company and they were exhibited by it in the Oriental Theater under an arrangement which was made between him and the theater's manager. the films which had been procured by he payment of said drafts were treated by him as his own property. to deny the due execution of said contracts under oath. upon application of the plaintiff. this was evidently done for the purpose of proving the amount of damages which the plaintiff was entitled to recover. Hernandez. Ramirez of the one part. namely P6.93. Hernandez. secondly the question of the liability of Ramon J. with the result that the only contracting parties in this case are J. with interest from May 19. the date of the institution of the action. as on former occasions. Fernandez of the other. F. it will be necessary to modify the judgment in order to adjust the rights of the defendants in accordance with such finding. and the Orientalist Company. and copies of the documents are set out in the complaint. 1914. but each of the defendants insists the other is liable for the whole. 1914. It is stated in the brief of the appellant Ramon J. F. Thereupon this action was instituted by the plaintiff on May 19. a draft for the cost and expenses incident to each shipment being attached to the proper bill of lading. This idea was never given effect. Ramirez himself procured the films upon his own responsibility. as well as the last draft. As the drafts had thus been paid by B. Fernandez would be academic. first. and both of the letters mentioned are copied into the complaint as the foundation of the action. based upon his personal signature to the same documents. which was accepted by B. the question as to the liability of Ramon J. Hernandez when they fell due. against the Orientalist Company. In this Court neither of the parties appellant make any question with respect to the right of the plaintiff to recover from somebody the amount awarded by the lower court. Fernandez. At trial judgment was given for the balance due to the plaintiff. Hernandez individually. 1913.
in order to put the obligee to proof of the fact. is not open to question. it is as much as the signature of the principal as if written with his own hand.) . This evidence consisted of extracts from the minutes of the proceedings of the company's board of directors and also of extracts from the minutes of the proceedings of the company's stockholders. let them say so upon oath. vs. The bank was sued upon this guaranty and at the hearing attempted to prove that Brown had no authority to bind the bank by such contract. but evidence was admitted without objection from the plaintiff. although the signature must be denied under oath. and upon which they are sued.. it appeared that one Brown has signed the name of the defendant bank as guarantor of a promissory note. The name of the company had been affixed to the obligation by an agent. (6 Phil. if the principal would deny the authority of the agent. among other authorities: The case of Barrett Mining Co. It was held that the plaintiff did not have to prove the due execution of the bond and that the corporation as to be taken as admitting the authority of the agent to make the signature. was not authorized to make it. 107). Upon this we observe that the statute manifestly refers to the legal effect of the signature. and the onus is then on the plaintiff to overcome the plea." It should be noted that the provision contained in section 103 of our Code of Civil Procedure is embodied in some form or other in the statutes of probably all of the American States. and no sufficient affidavit was filed by the corporation questioning its signature or the authority of the agent to bind the company. In Union Dry Company vs. though it appears to have been taken immediately from the statutes of that State. the authority of the agent need not be. supposing that the company desired to contest this point. and that this admission extended not only to the authenticity of the signature of Brown but also to his authority. Fernandez to bind the Orientalist Company was filed in this case. the bank had admitted the genuineness and due execution thereof... 448. and by his direction. as will be seen by reference to the following. Quit facit per aliam facit per se. (Secs. Therefore. reads as follows: When an action is brought upon a written instrument and the complaint contains or has annexed or has annexed a copy of such instrument. Tappan (2 Colo. It therefore becomes necessary for us to consider whether the administration resulting from the failure of the defendant company to deny the execution of the contracts under oath is binding upon it for all purposes of this lawsuit. That the situation was one in which an answer under oath denying the authority of the agent should have been interposed. the plea in this case should have been verified. upon which he is sued. Among other things the court said: "But it is said that the authority of Barrett to execute the bond is distinguishable from the signing and. If the person who signed this note for the company. Said Justice Willard: "The failure of the defendant to deny the genuineness and due execution of this guaranty under oath was an admission not only of the signature of Brown. tending to show that Ramon J. California Code of Civil Procedure. The proper solution of this problem makes it necessary to consider carefully the principle underlying the provision above quoted. Fernandez had no such authority. In the case of Merchant vs. International Banking Corporation.. B. the effect is the same as if his name should be signed with his own hand. an action was brought upon a promissory note purporting to have been given by on A. Reid (26 Ga. as the validity of the signature is thereby directly attacked. No sworn answer denying the genuineness and due execution of the contracts in question or questioning the authority of Ramon J. 124) was an action against a mining corporation upon an appeal bond. and it is not by any means peculiar to the laws of California. in a bond. Rep. showing that the making of this contract had been under consideration in both bodies and that the authority to make the same had been withheld by the stockholders. requiring the defendant to deny on oath an instrument of writing. the genuineness and due execution of the instrument shall be deemed admitted.34 under consideration. rather than the manual act of singing. and when the name is signed by one thereunto authorized. 447. It was held that buy failing to deny the contract under oath. unless specifically denied under oath in the answer. as the treasurer of the defendant company. 314). or whether such failure should be considered a mere irregularity of procedure which was waived when the evidence referred to was admitted without objection from the plaintiff. is subscribed by one in his presence. The rule thus stated is in entire accord with the doctrine prevailing in the United States. but also his authority to make the contract in behalf of the defendant and of the power the contract in behalf of the defendant and of the power of the defendant to enter into such a contract. If the name of the obligor. Said the court: "Under the Judiciary Act of 1799. the denial must be under oath. and under such circumstances we do not doubt that the obligor must deny his signature under oath.
if it denies his authority. (Thompson on Corporations. The rule has been applied where the question was whether corporate officer. But is should not here escape observation that section 103 also requires in denial contemplated in that section shall be specific.) In Simon vs.Y. Fernandez to bind it by the contracts in question and does not set forth. 216). 6. (Merill vs. and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate officers. have the effect of elimination the question of his authority from the case.. Rep. If a man is found acting for a corporation with the external indicia of authority. 114 N. 103) plainly says that if a written instrument. even though the answer is under oath. This principle applies equally where the defendant intends to challenge the power of its officer or agent to execute in its behalf the contract upon which the action brought and where it intends to defend on the ground of total want of power in the corporation to make such a contract. sec. the foundation of the suit.) Again. and he is given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved. Upon well-established principles of pleading lack of authority in an officer of a corporation to bind it by a contract executed by him in its name is a defense which should be specially pleaded and this quite apart from the requirement. 7619. (Opus citat. be readily appreciated. 1st ed. to state such defense in its answer. it must plead non est factum.. if it desires to set up the defense that the contract was executed by one not authorized as its agent. Sellner. and particularly its failure to deny specifically under oath the genuineness and due execution of the contracts sued upon. considered as a matter of mere pleading. An attack on the instrument in general terms is insufficient. may usually rely upon those appearances. 7631. This question arises from the circumstance that the answer of the corporation does not in any was challenge the authority of Ramon J. The public is not supposed nor required to know the transactions which happen around the table where the corporate board of directors or the stockholders are from time to time convoked. not having notice of want of authority. It is familiar doctrine that an admission made in a pleading can not be controverted by the party making such . any person. Consumers' Coal Co. says the same author: A corporation can not avail itself of the defense that it had no power to enter into the obligation to enforce which the suit is brought. The statute (sec. 37 Phil. sec. such corporation can not avail itself of a want of power in its officers to bind it unless the defense was made on such ground OatBsa8g.35 There is really a broader question here involved than that which relates merely to the formality of verifying the answer with an affidavit. We are of the opinion that the failure of the defendant corporation to make any issue in its answer with regard to the authority of Ramon J... It is therefore reasonable. the defendant can not afterwards object that the plaintiff has not shown that the officer executing the note were empowered to do so. 6 Cal. 1. (Smith vs. or had acquiesced in a contract and retained the benefit supposed to have been conferred by it.) The reason for the rule enunciated in the foregoing authorities will. 65). it was said: Though the power of the officers of a business corporation to issue negotiable paper in its name is not presumed. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. in a case where an officer of a corporation has made a contract in its name. vol. Calfee (80 Ark. it shall be deemed to be admitted. as a special defense. 254. any such lack of authority in him. (Songco vs.. By this means the plaintiff is apprised of the fact that the agent's authority is contested. contained in section 103. Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very few. that the corporation should be required.. notwithstanding the actual authority may never have been granted.) In the first edition of a well-known treatise on the laws of corporations we find the following proposition: If an action is brought against a corporation upon a contract alleged to be its contract. that the answer setting up such defense should be verified by oath.. we think. and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation. unless it pleads that defense. Fernandez to bind it. and it has been held that where the answer in a suit against a corporation on its note relies simply on the want of power of the corporation to issue notes. the corporation will be bound. Eureka Flour Mills Co. having admitted power to make a contract. is not denied upon oath. had in the particular instance exceeded that authority.
for the board can create liability. be given of the case of Clark vs. coercion. alleged to have been killed by the negligence of the defendant. but this has reference rather to the formality of reducing to proper form the contract which are authorized by the board and is not intended to confer an independent power to make contract binding on the corporation. It is declared in section 28 of the Corporation Law that corporate power shall be exercised. we think. These documents supply the materials which the court must use in order to discover the points of contention between the parties. We shall now consider the liability of the defendant company on the merits just as if that liability had been properly put in issue by a specific answer under oath denying the authority of Fernandez go to bind it. by other means than by a formal expression of . Railroad Co. the circumstance that it was not denied under oath is immaterial. 119 Cal. 433. Moore vs. (60 Cal. and all corporate business conducted by the board of directors. however. (Cf. had no independent authority to bind the company by signing its name to the letters in question. It is true that it is declared in section 109 of the Code of Civil Procedure that immaterial variances between the allegations of a pleading and the proof shall be disregarded and the facts shall be found according to the evidence. recognizes the necessity for an amendment of the pleadings. The execution of the release was not denied under oath. A party can no more succeed upon a case proved but not alleged than upon a case alleged but nor proved. The same section. to sign contract. we will observe that two cases are cited from California in which the Supreme Court of the State has held that where a release is pleaded by way of defense and evidence tending to destroy its effect is introduced without objection. an action was brought against a railroad company to recover damages for the death of the plaintiff's minor son. and mistake. due to his drunken condition. imbecility. Copp.) A somewhat similar explanation can. as treasurer. like an individual. and if we believed that the interests of justice so required. Upon this question it must at the outset be premised that Ramon J. The defendant company pleaded by way of defense a release purporting to be signed by the plaintiff. created by the express words of the statute. In the earlier of these cases. we think that the interests of justice will best be promoted by deciding the case. but we believe that the decision would have been more soundly planted if it had been said that the incapacity of the plaintiff. the reasoning of the court is in our opinion unconvincing. was a matter which did not involve either the genuineness or due execution of the release. With respect to both decisions which we merely observe that upon point of procedure which they are supposed to maintain. This rule of course operates with like effect upon both parties. should be considered to have less effect than any other admission N396O2a. whether objection is interposed by the opposite party or not. Fernandez. It is declared by signing its name to the letters in question. 429. The parties to an action are required to submit their respective contentions to the court in their complaint and answer. Child in which the rule declared in the earlier case was followed. and this principle is recognized in the by-laws of the corporation in question which contain a provision declaring that the power to make contracts shall be vested in the board of directors. under section 109 of the Code of Civil Procedure. the failure of the defendant to make such denial must be taken to operate as a conclusive admission. Crowley. it was proper for the court to consider it. and in its answer inserted a copy of the release. That we may not appear to have overlooked the matter. 432. we would either exercise that authority or remand the cause for a new trial in court below. 628). upon the issues presented in the record as it now stands. has authority even now to permit the answer of the defendant to be amended. and applies equality to the defendants special defense as to the plaintiffs cause of action. It is true that it is also declared in the same by-laws that the president shall have the power. As will appear further on in this opinion. vs. It was held that inasmuch as this evidence had been submitted by the plaintiff without objection. and where the statute says that the due execution of a document which supplies the foundation of an action is to be taken as admitted unless denied under oath. Like the defenses of fraud. And judgment must be in conformity with the case made in conformity with the case made in the pleadings and established by the proof.36 admission. however. We do not question the propriety of that decision. without more ado. but at the trial evidence was submitted on behalf of the plaintiff tending to show that at the time he signed the release. he was incompetent by reason of drunkenness to bind himself thereby. it was a matter which could be proved under the general issue and did not have to be set up in a sworn reply. The fact that the power to make corporate contract is thus vested in the board of directors does not signify that a formal vote of the board must always be taken before contractual liability can be fixed upon a corporation. and all proof submitted by him contrary thereto or inconsistent therewith should simply be ignored by the court. and relief can not be granted that is substantially inconsistent with either. and it shall be his duty. Of course this Court.. We can see no reason why a constructive admission. especially as the issue had been passed upon by a jury. so long as the pleadings remain that form..
and that the corporation could very well meet the expenditure involved and net a certain profit. in the case now before us. Papa met for the purpose of considering the acceptance of the offer together with the responsibilities attached thereto. the date upon which the letter accepting the offer of the Eclair films was dispatched the board of directors of the Orientalist Company convened in special session in the office of Ramon J. and to this end appointed a committee to apply to the bank for a credit. including the president.37 its will. who had already signified their consent to the making of the contract. the stockholders adopted a resolution to the effect that the agencies of the Eclair and Milano films should be accepted. and shall be entitled only to a compensation of 10 per cent of their outlay in importing the films. as appears from the minutes. and of the acquiescence of the board charged with the duty of supervising and controlling the company's business 0tnl. In discussing this point. He estimated that the company would have to make an outlay of about P5. The court found that the guaranty was given with the knowledge and consent of the president and directors. if the offer for the two films should be accepted by it. if the corporation could obtain the money with which to meet the expenditure involved. It appears in evidence." In view of this statement. the court quoted with approval the following language form one of its prior decisions: The authority of the subordinate agent of a corporation often depends upon the course of dealings which the company or its director have sanctioned. vs. if we could enter into a contract with about nine cinematographs. At the time this meeting was held three shipment of the films had . Fernandez. At this meeting. or might for lack of funds be unable to make the necessary outlay. Hernandez. but the bank declined to grant his credit. Leon Monroy. to obtain a credit of P10. The possibility that the corporation might not see fit to authorize the contract. inasmuch as the corporation is lacking available funds for the purpose. Columbia Rice Packing Co. and also because there are 88 shares of stock remaining still unsold. The minutes add that terms of this offer were approved. inasmuch as the first shipment of films was then expected to arrive. Fernandez informed the board of the offer which had been received from the plaintiff with reference to the importation of films. The following extracts from the minutes of this meeting are here pertinent: Mr.000 from the Bank of the Philippine Islands for the purpose indicated. Fernandez. and that this consent was given with as much observance of formality as was customary in the transaction of the business of the company. that on July 30.500 per month. but that. upon which occasion Fernandez informed those present of the offer in question and of the terms upon which the films could be procured. There were present the four members.. A resolution was thereupon passed to the effect that the company should pay to Hernandez. made to the corporation by the film manufacturers of Eclair and Milano of Paris and Italy respectively. the contract was binding. B. was foreseen. that the four gentlemen above mentioned (Hernandez. Monroy. he and Messrs. and Papa an amount equal to 10 per cent of their outlay in importing the films. and Papa) "would continue importing said films at their own account and risk. If there appeared that the secretary of the defendant corporation had signed an obligation on its behalf binding it as guarantor of the performance of an important contract upon which the name of another corporation appeared as principal. 1913. Fernandez informed the stockholders that. The evidence shows that an attempt was made. It may be established sometimes without reference to official record of the proceedings of the board. The defendant company set up by way of defense that is secretary had no authority to bind it by such an engagement. Monroy. Thereafter another special meeting of the shareholders of the defendant corporation was called at which the failure of their committee to obtain a credit from the bank was made known. and that this consent of the president and directors. and Dr. said payment to be made in shares of said corporation. Fernandez at the request of the latter. and in such contingency the stockholders were informed. so far as the authority of the secretary was concerned. but at the suggestion of Fernandez it was decided to call a special meeting of the stockholders to consider the matter and definite action was postponed. 194) is instructive. said payment to be made in shares of the company in accordance with the suggestion made at the previous meeting. At the same time he informed the said stockholders that he had already made arrangements with respect to renting said films after they have been once exhibited in the Cine Oriental. In this connection the case of Robert Gair Co. The stockholders meeting was convoked upon September 18. It was held that. in view of the urgency of the matter and for the purpose of avoiding that other importers should get ahead of the corporation in this regard. (124 La. on behalf of the corporation. big gains would be obtained through such a step. by proof of the usage which the company had permitted to grow up in business.
(7) To buy a book and cards for indexing the names of the films. approval of the contract. In the light of all the circumstances of the case." (4) To be in charge of the films and of the renting of the same. its resolutions are at most advisory and not in any wise binding on the board. the transactions of the stockholders. that the corporation is bound. R. 708. Certainly four members of the board of directors there present were aware of this fact. it must be remembered. it was decided to give ample powers to the Hon. As appears from the papers in this record. though indirect. The negotiations were conducted by him with the knowledge and consent of other members of the board.38 already been received in Manila. It thus appears that the board of directors. and reverting to the proceedings of the board of directors of the Orientalist Company. in such matters. Ocampo. and exercising certain other special powers defined by-law. must be ignored. and we will here assume that in the end the contract were not approved by the stockholders. If such was the intention of the stockholders their action amounted to a virtual. Accordingly. had already recognized the contract as being in existence and had proceeded to take the steps necessary to utilize the films. that this body was then cognizant that the officer had already been accepted in the name of the Orientalist Company and that the films which were then expected to arrive were being imported by virtue of such acceptance. said board adopted a resolution conferring the following among other powers on Vicente Ocampo.. as the letter accepting the offer had been sent with their knowledge and consent. It results that where a meeting of the stockholders is called for the purpose of passing on the propriety of making a corporate contract. . 709. Fernandez was the particular officer and member of the board of directors who was most active in the effort to secure the films for the corporation. inasmuch as we think for reasons presently to be stated. namely: (1) To rent a box for the films in the "Kneeler Building. We believe it is a fair inference from the recitals of the minutes of the stockholders meeting of September 18.) This conclusion is entirely accordant with the provisions of section 28 of our Corporation Law already referred to. sixth ed. of a limited nature. whatever its character. called directors. Ignoring now. after Fernandez had departed from the Philippine Islands. The functions of the stockholders of a corporation are. Both upon principle and authority it is clear that the action of the stockholders. just as it would have utilized the credit of the bank if such credit had been extended. (Cook on Corporations. there is little for the stockholders to do beyond electing directors. It will be observed that Ramon J. and the contract was made with their prior approval. and especially from the first paragraph above quoted. The corporation. (6) Not to deliver any film for rent without first receiving the rental therefor or the guaranty for the payment thereof. before the financial inability of the corporation to proceed with the project was revealed. for a moment. necessary to found the judgment on this interpretation of the stockholders proceedings. Acuña to enter into agreements with cinematograph proprietors in the provinces for the purpose of renting films from us. It is not however. to be absent for many months. (10) Upon the motion of Mr. The theory of a corporation is that the stockholders may have all the profits but shall turn over the complete management of the enterprise to their representatives and agents. we are of the opinion that the contracts in question were thus inferentially approved by the company's board of directors and that the company is bound unless the subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability thus created. secs. 1913. Fernandez was the person to who keeping was confided the printed stationery bearing the official style of the corporation. as well as rubber stencil with which the name of the corporation could be signed to documents bearing its name. In conformity with this idea it is settled that contract between a corporation and third person must be made by the director and not by the stockholders. Particularly suggestive is the direction given at this meeting for the publication of announcements in the newspapers to the effect that the company was engaged in importing films. (5) To advertise in the different newspapers that we are importing films to be exhibited in the Cine Oriental. making by-laws. In view of this circumstance. the manager of the Oriental theater. we find that upon October 27. a certain doubt arises whether they meant to utilize the financial assistance of the four so-called importers in order that the corporation might bet the benefit of the contract for the films. is represented by the former and not by the latter.
nor does the present the present action involve any question as to the undertaking of Fernandez and his three associates to effect the importation of the films upon their own account and risk.39 In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made." It being determined that the corporation is bound by the contract in question. There is. to be sure. or any other agent. that the responsibility of the latter was intended to be that of guarantor. Naturally he can have little or no information as to what occurs in corporate meetings. We are convinced that the latter was the real intention of the contracting parties. We are not unmindful of the force of that rule of law which declares that oral evidence is admissible to show the character in which the signature was affixed. and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporations whose name and authority had been used in the manner disclosed in this case. and where it is said "if the corporation permits" this means the same as "if the thing is permitted by the directing power of the corporation. This conclusion is perhaps supported by the language of the second paragraph of article 1281 of the Civil Code. or whether his liability is that of a guarantor merely. As appears upon the face of the contracts. it remains to consider the character of the liability assumed by R. Fernandez. from the testimony of both Ramirez and Ramon J. Fernandez. but its performance. but is set off to the left of the company's signature and somewhat who sign contracts in some capacity other than that of principal obligor to place their signature alone would justify a court in holding that Fernandez here took upon himself the responsibility of a guarantor rather than that of a principal obligor. Ramirez? No contentious issue is raised directly between the defendants. and he must necessarily rely upon the external manifestations of corporate consent. that the form in which the contract is signed raises a doubt as to what the real intention was. the corporation will as against any one who has in good faith dealt with the corporation through such agent. So ordered . But the conclusion reached is. it is familiar doctrine that if a corporation knowingly permits one of its officer. The judgment appealed from is affirmed. and thus hold him out to the public as possessing power to do those acts. we think. The question here is whether Fernandez is liable jointly with the Orientalists Company as a principal obligor. with costs equally against the two appellant. As already observed. in looking to the evidence to discover that intention. deducible from the general principle that in case of ambiguity parol evidence is admissible to show the intention of the contracting parties. while Ramirez says that the name was put on the contract for the purpose of guaranteeing. the intention shall prevail. a certain difference between these witnesses as to the nature of this guaranty. in affixing his personal signature to said contract. It should be stated in conclusion that as the issues in this case have been framed. and we feel justified. Whether they may be bound to hold the company harmless is a matter upon which we express no opinion. the only question presented to this court is: To what extent are the signatory parties to the contract liable to the plaintiff J. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. which declares that if the words of a contract should appear contrary to the evident intention of the parties. the Orientalist Company and Ramon H. be estopped from denying his authority. not the approval of the contract. to do acts within the scope of an apparent authority. We do. however. inasmuch as Fernandez would have us believe that his name was signed as a guaranty that the contract would be approved by the corporation. In this connection it is entirely clear. think. F. the signature of Fernandez. in his individual capacity. J. Fernandez. is not in line with the signature of the Orientalist Company.
P100. former officers of the plaintiff corporation headed by Saturnino G. filed an action for damages against International Corporate Bank which was docketed as Civil Case No. Montecillio and Ongsiako Law Office as counsel. a sister company of Premium also filed an action for damages against International Corporate Bank docketed as Civil Case No. Jr. As a result of the illegal and irregular acts perpetrated by the defendant bank. 097088.e. Nograles & Reyes.663. 097414 & 27884] in the aggregate amount of P31. i. both civil cases were consolidated. Arnulfo Dumadag as counsel. 15. that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen. 1990 which affirmed the trial court s dismissal of petitioners complaint for damages. xxx 14. inter alia: 3. that Premium has no capacity/personality/authority to sue in this instance and the complaint should. the plaintiff was damaged to the extent of the amount of P31..i In its opposition to the motion to dismiss. without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his conduit corporation.. (Premium for brevity). On or about August to October 1982. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK. Belen.00 as exemplary damages. petitioner. In its Answer International Corporate Bank alleged. and P30. but this time represented by Siguion Reyna. be dismissed for failure to state a cause of action. 6. Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31. for brevity) which the latter maintained with the defendant bank under account No. Premium. the same corporation. The antecedents: On July 18. 14444. . 0200-02027-8. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but defendant refused and continue to refuse to honor plaintiff s demands up to the present.88.88 payable to the plaintiff and drawn against Citibank.00 as attorney s fees. The complaint states. 1986.000. 16810 dated September 28. xxx 5. CV No. Printline Corporation.40 PREMIUM MARBLE RESOURCES. Jr. vs. filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown by the excerpt of the minutes of the Premium s board of directors meeting. INC. therefore. inter alia. Inc. respondents. Nograles and Reyes are not majority stockholders. Premium thru Atty. Intervest Merchant Finance (Intervest. Thereafter. Meantime. defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the same for collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the funds to the prejudice of the plaintiff.663. Ayala Investment and Development Corporation issued three (3) checks [Nos. Dumadag contended that the persons who signed the board resolution namely Belen. Premium Marble Resources. assisted by Atty. are not directors of the corporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payee s account only.000..88 representing the value of the checks plus interest. Assailed in the instant petition for review is the decisioni of the Court of Appeals in CA-G.663.R. Sometime in August to October 1982. 14413. A few days after Premium filed the said case..
asserted that it is the general information sheet filed with the Securities and Exchange Commission. In its Order. Reyes. i On appeal. Montecillo and Ongsiako Law Office. In the interim. III The Court of Appeals erred when it ruled that undersigned counsel was not authorized by the Board of Directors to file Civil Case Nos. this petition. 14413. who presumably are the officers represented by the Siguion Reyna Law Firm. 2688 the incumbent directors could not act for and in behalf of the corporation. the officers of the plaintiff corporation were Alberto Nograles. filed on November 9. IV The Court of Appeals erred in concluding that under SEC Case No. the Court finds that the officers represented by Atty. joins it in praying for the dismissal of the present case on the ground that Premium lacks authority from its duly constituted board of directors to institute the action. 14444 are similar to those raised in Civil Case No. 2688 could be decided.41 On the other hand. 1981. This Court is of the opinion that before SEC Case No. and that together with the defendants. defendant bank filed a manifestation that it is adopting in toto Premium s motion to dismiss and. Jose L.. neither the set of officers represented by Atty. the lower court concluded that: Considering that the officers (directors) of plaintiff corporation enumerated in the Articles of Incorporation. Augusto Galace. 2688 of the SEC could be decided is a premature exercise of authority or assumption of legal capacity for and in behalf of plaintiff corporation. that is the best evidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks. Dumadag do not as yet have the legal capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action (Civil Case 14413) by them before Case No. the Court of Appeals affirmed the trial court s Orderi which dismissed the consolidated cases. were to serve until their successors are elected and qualified and considering further that as of March 4. 1979. Pido Aguilar and Saturnino Belen. may prosecute cases in the name of the plaintiff corporation. V . Fernando Hilario. 14413 and 14444. Jr. Hence. Dumadag nor that set represented by the Siguion Reyna.R. they are moving for the dismissal of the above-entitled case. therefore. Petitioner submits the following assignment of errors: I The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office when the said motion is clearly filed not in behalf of the petitioner but in behalf of the group of Belen who are the clients of the said law office. The issues raised in Civil Case No. among others. It is clear from the pleadings filed by the parties in these two cases that the existence of a cause of action against the defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending before the SEC. II The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office in behalf of petitioner when the said law office had already appeared in other cases wherein the petitioner is the adverse party. Siguion Reyna Law firm as counsel of Premium in a rejoinder.
the objective sought to be achieved by Section 26 is to give the public information. under sanction of oath of responsible officers. Petitioner. Later on. the officers and members of the board of directors of the Premium Marble Resources.R. viz. that in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation. to the sound judgment of the Securities & Exchange Commission. of the nature of business. i By the express mandate of the Corporation Code (Section 26). However. or any other officer of the corporation. Celso. The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. Saturnino G. trustees and officers of the corporation. Saturnino G. Nograles and Jose L. Pedro C. Alberto C. the issue of authority and the invalidity of plaintiffappellant s subscription which is still pending. the names. Aderito Yujuico and Rodolfo Millare. the secretary. Mario Zavalla.. Oscar Gan. Aderito Yujuico and Rodolfo Millare. 1986. Silva. shall submit to the Securities and Exchange Commission. thus: Sec. it appears from the general information sheet and the Certification issued by the SEC on August 19. Gan. 1981. Nograles Fernando D. through the first set of officers. the present action must necessarily fail. financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who . The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. the second set of officers. all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names. Reyes. Inc. Lionel Pengson. On the other hand. Belen. trustees and officers elected. and Jose Ma. Report of election of directors. Mario Zavalla. Galace Jose L. nationalities and residences of the directors. Thus. Jr.R. viz. trustees and officers elected. Belen. trustees and officers. Oscar B.42 The Court of Appeals is without jurisdiction to prohibit the incumbent Board of Directors from acting and filing this case when the SEC where SEC Case No. is a matter that is also addressed. Lionel Pengson. 26. Silva. 1979 with the following as Directors: Mario C. nationalities and residences of the directors. 1982. Aguilar President/Director Vice President/Director Treasurer Secretary/Director Director Chairman of the Board. petitioner submitted its Articles of Incorporationi dated November 6.. Within thirty (30) days after the election of the directors. presented a Resolutioni dated July 30. 1982 states that the newly elected officers for the year 1982 were Oscar Gan. considering the premises. Hilario Augusto I. Jose Ma. the last entry in their General Information Sheet with the SEC. 1986i that as of March 4. Reyes Pido E. presented the Minutesi of the meeting of its Board of Directors held on April 1. were: Alberto C. 26 of the Corporation Code provides. Zavalla. Sec.. as of 1986 appears to be the set of officers elected in March 1981. We find the petition without merit. xxx Evidently. While the Minutes of the Meeting of the Board on April 1. to show that Premium did not authorize the filing in its behalf of any suit against the private respondent International Corporate Bank. In fact. We agree with the finding of public respondent Court of Appeals. 2688 is pending has not even made the prohibition. as proof that the filing of the case against private respondent was authorized by the Board. petitioner failed to show proof that this election was reported to the SEC. Jr.
i We find no reversible error in the decision sought to be reviewed. for lack of merit. the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. composed of 11 members to serve for one year until their successors are duly elected and have qualified. the petition is hereby DENIED. respectively. while Alejandro G." Following this advice. although previously tolerated in the past elections should be reexamined. .. it contended. that Zaballa. notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. In the absence of an authority from the board of directors. The candidates receiving the first 14 highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. ACCORDINGLY. The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated 13 September 1990. Grace Christian High School was given a permanent seat in the board of directors of the association. paragraph 2. The Charter and Associate Members shall elect the Directors of the Association. The association cited the SEC opinion. no person. A subsequent meeting was held on 17 April 1990." It appears." For this reason. The school based its claim on the following portion of the proposed amendment which. Inc. The school requested the chairman of the election committee to change the notice of election by following the procedure in previous elections. when this suit was brought. where they shall elect by plurality vote and by secret balloting." As the association denied its request. therefore. in 1990. can validly bind the corporation. among others. Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association. Go were its president and chairman of the committee on election.i The claim. providing that "The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10. had become part of the by-laws of the association as Article VI. On 20 June 1990. Dumadag.00) PESOS for one vote. lessees and residents at Grace Village. Instead. a committee of the board of directors prepared a draft of an amendment to the by-laws. the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code.43 intend to do business with it may know or have the means of knowing facts concerning the corporation s financial resources and business responsibility. The school filed the petition for review. on the other hand. not even the officers of the corporation. from 1975. et al. but the parties failed to reach an agreement. principal of the school. that "the annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P. the by-laws of the association provided in Article IV. the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. the association's committee on election in a letter informed James Tan. is an organization of lot and/or building owners.M. after it was presumably submitted to the board. up to 1990." and "it is undemocratic for a person or entity to hold office in perpetuity. Nevertheless. the hearing officer of the HIGC rendered a decision dismissing the school's action. kindergarten and secondary courses at the Grace Village in Quezon City. claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board. in its answer. As adopted in 1968. A preliminary conference was held on 29 March 1990 but nothing substantial was agreed upon. Petitioner appealed to the Court of Appeals but the school again lost as the appellate court on 9 February 1993. affirmed the decision of the HIGC. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query. Grace Village Association. the Board of Directors. Grace Christian High School vs.. Court of Appeals Facts: Grace Christian High School is an educational institution offering preparatory. of petitioners as represented by Atty. Beltran and Ernesto L. Each Charter or Associate Member of the Association is entitled to vote. that on 20 December 1975. are the incumbent officers of Premium has not been fully substantiated. that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for 15 members of the Board. On 13 February 1990." This draft was never presented to the general membership for approval.
1985 and the ten percentum of the net profits shall be distributed equally among the ten members of the Board of Trustees. a Special Board Meeting was held. After a full-blown hearing. Villasis. Vice Chairman P3. Sec. It is more accurate to say that the members merely tolerated the school's representative and tolerance cannot be considered ratification. the same was actually passed on 1 June 1986. Villasis.000. based on Resolution 4. but certainly not the allowance of the school's representative as an unelected member of the board of directors. as a member thereof. al. making it appear that the same was passed by the board on 30 March 1986. a stock corporation engaged in the operation.00/month. al. filed a Motion for Reconsideration of the civil aspect of the RTC . appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. series 1986. one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315.00/month. al. no matter how long continued. 21 August 1997] First Division.00/month. if it is contrary to law. were distributed to all Board Members. III. Iloilo City. as a result of which 2 separate criminal informations. Salas. Held: It is actually §§28 and 29 of the Corporation Law § 23 of the present law. series of 1986. before the Office of the City Prosecutor of Iloilo. it is beyond the power of the members of the association to waive its invalidity. par. was consolidated. In attendance were other members of the Board including Reginald Villasis. vs. et.500. Thereafter. Prior to said Special Board Meeting. in the following amounts: Chairman 9. For that matter the members of the association may have formally adopted the provision in question. the minority stockholders of WIT. Inc. not §92 of the present law or §29 of the former one which require members of the boards of directors of corporations to be elected. Nor does the school claim a right to such seat by virtue of an office held. The notice allegedly indicated that the meeting to be held on 1 June 1986 included Item 6 which states that "Possible implementation of Art. copies of notice thereof. and Richard S. 1(b) of the RPC. granting monthly compensation to Salas. This shall amend and supercede any previous resolution. Hermosisima Jr. peston F. Dimas Enriquez.500. et. Corporate Treasurer P3. The board of directors of corporations must be elected from among the stockholders or members. sometime on 1 June 1986 in the principal office of WIT at La Paz. Homero Villasis. Neither can it attain validity through acquiescence because. on compensation of all officers of the corporation. the unelected members sit as ex officio members. in allowing the school's representative to sit on the board. It is probable that. Inc. 6 of the Amended By-Laws of Western Institute of Technology. as corporate officers retroactive 1 June 1985." Practice. Salas. 1986). (WIT). cannot give rise to any vested right if it is contrary to law. on the contrary.'s submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of Salas. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by the school. or on 13 March 1991. of an educational institution. the Board of Trustees passed Resolution 48. In fact it was not given such seat in the beginning.44 Issue: Whether the school's representative should be elected to have the right to sit in the board of directors of Grace Village Association. when in truth. Salvador T. Salas. 1995 and ending April 30. Soledad Salas-Tubilleja. Even less tenable is the school's claim that its right is "coterminus with the existence of the association. but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. Judge Porfirio Parian handed down a verdict of acquittal on both counts dated 6 September 1993 without imposing any civil liability against the accused therein. a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1. by virtue of and for as long as they hold a particular office. Antonio S." Western Institute of Technology Inc. Nor can the school claim a vested right to sit in the board on the basis of "practice. Villasis. Since the provision in question is contrary to law. the fact that for 15 years it has not been questioned or challenged but. Inc. i. al. there is no reason at all for its representative to be given a seat in the board. retroactive June 1.. Salas. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15.00/month and Corporate Secretary P3. A few years later. belonging to the same family. are the majority and controlling members of the Board of Trustees of Western Institute of Technology. the members of the association were not aware that this was contrary to law. Villasis. were filed before Branch 33 of the Regional Trial Court of Iloilo City. According to Homero L." In said meeting. et. trial for the two criminal cases (Criminal Cases 37097 and 37098).e. et. The charge for falsification of public document was anchored on Salas. dated 24 May 1986. and Reginald F. (J): 4 concur Facts: Ricardo T. et. al. Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against Salas. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Preston Villasis.500. among others. But in the case of the school itself. Salas [GR 113032.
Negros Occidental. denied in an Order dated 23 November 1993. was filed before this Court by Western Institute of Technology. including the improvements thereon. Gale. Sipalay. cement and pyrite conc. filed the petition for review on certiorari. Issue: Whether the grant of compensation to Salas. Tranquilino R. et. as such directors. petitioner. as well as assets of whatever kind. including the improvements thereon. obtained from the Philippine National Bank (PNB) various loan accommodations. The mortgage covered all of Marinduque Mining's real properties. the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. Marinduque Mining executed on October 9. and that the return upon their shares adequately furnishes the motives for service. The facts are as follows: Marinduque Mining-Industrial Corporation (Marinduque Mining). J. The Motion for Intervention was granted on 16 January 1995. the last sentence of Section 30 which provides that "In no case shall the total yearly compensation of directors.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court.. but rather as officers of the corporation. are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. al. As of November 20. vs. Treasurer and Secretary of Western Institute of Technology. when they render services to the corporation in a capacity other than as directors/trustees. Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte. et. Rizal. DEVELOPMENT BANK OF THE PHILIPPINES. nature and description which Marinduque Mining may subsequently acquire in . KAPUNAN. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year" does not likewise find application in this case since the compensation is being given to Salas. al. however.45 Decision which was.1 On July 13. Sipalay. The unambiguous implication is that members of the board may receive compensation. 1986 granted monthly compensation to Salas. Held: Directors or trustees. al. dated 2 December 1994. had no authority whatsoever to represent the corporation in filing the petition. a Motion for Intervention. in addition to reasonable per diems. This rule is founded upon a presumption that directors/trustees render service gratuitously. is proscribed under Section 30 of the Corporation Code." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. et. The mortgage also covered all of Marinduque Mining's chattels. Significantly on 8 December 1994. 1995 and the Resolution of the same court dated August 29. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION. To secure the loans. against granting compensation to director/trustees of a corporation is not a sweeping rule. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. Worthy of note is the clear phraseology of Section 30 which state: "[T]he directors shall not receive any compensation. Herein. therefore. Negros Occidental. Rizal. Consequently. resolution 48. exclusive of interest and charges. Vice-Chairman. Inc. a corporation engaged in the manufacture of pure and refined nickel. located at Surigao del Norte. counsel for Villasis. 1981. al. s. et. et. not in their capacity as members of the board. 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. however. and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. as the case may be. more particularly as Chairman. disowning its inclusion in the petition and submitting that Atty. the loans extended by PNB amounted to P4 Billion. 1980. as such directors. in their capacity as officers of WIT and not as board members. In said agreement. Also. Clearly. copper ore/concentrates. seeking a review of the Decision of the Court of Appeals dated October 6. there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation.. without compensation. and at Antipolo. 1996. Under Section 30 of the Corporation Code. al. and Antipolo. respondents. the proscription.. Villasis. nickel and cobalt in mixed sulfides.
1984.3 For failure of Marinduque Mining to settle its loan obligations. "14"PNB/DBP).00 (Exhs.000. chattels. PNB and DBP thereafter thru a Deed of Transfer dated August 31. interest and participation over the foreclosed properties of MMIC located at Nonoc Island. & machineries/equipment of MMIC located at Sipalay. Finally.000.000.610. For the foreclosed real properties together with all the buildings. interest and participation over the foreclosed properties of MMIC at Sipalay.534.040.800.46 substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7.95.577.000. Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining. Marinduque Mining had also obtained loans totaling P2 Billion from DBP. mining claims.755. equipment and other assets of Marinduque Mining. exclusive of interest and charges. buildings.2 On April 27. 1984. 1987. Negros Occidental were sold to PNB and DBP. Rizal. at the public auction sale conducted on September 18.107. 1984. mining claims.772. On February 27. 1984.383. "5" to "5-A". 50 as amended. buildings. 1983.361. At the auction sale conducted on September 7.000. "8" to "8-BB".00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte.00 (Exh. between July 16. in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed. "9" to "90-GGGGGG"-PNB/DBP). 1984 on the foreclosed personal properties of MMIC. Likewise. transferred and conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC. attorney's fees and the costs of suit. 1984[. PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. earlier assigned to Nonoc Mining and Industrial Corporation. were sold to PNB and DBP as highest bidders in the sum of P1. PNB and DBP. 1982 to October 4. Remington's original complaint was amended to include PNB and DBP as codefendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties. Apparently.238.000. likewise held on August 31. 1984. "13"-PNB). 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining. Negros Occidental for an initial consideration of P325.00 respectively (Exhs. leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14. PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties.00 (Exh. thru [sic] a Deed of Transfer dated June 6. major machineries & equipment and other improvements of MMIC located at Antipolo.167. 1984. "10" to "10-X"-PNB/ DBP). as well as interest. On September 7. pursuant to Proclamation No. 1978.] over the foreclosed real properties. bidded for P170. in the amount of P2.4 In the meantime. Surigao del Norte for an initial consideration of P14. as follows: In the ensuing public auction sale conducted on August 31. The events following the foreclosure are narrated by DBP in its petition. The purchases remained unpaid as of August 1. "6". Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921. Maricalum Mining Corporation and Island Cement Corporation (Exh. all its rights.950.5 . the same were sold to PNB and DBP as the highest bidder in the sum of P678.048. PNB and DBP emerged and were declared the highest bidders over the foreclosed real properties. "11" and "12-QQQQQ"-PNB).00 and P543.00 (Exhs. "7" to "7-AA-" PNB/DBP). as highest bidders. PNB and DBP as highest bidders. again assigned. "15" & "15-A" PNB/DBP).150.00 (Exhs. purposely. assigned and transferred to Nonoc Mining and Industrial Corporation all their rights. machinery.
alter ego. Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore. which codefendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBP's instrumentality. officers and rank-and-file workers in the legitimate pursuit of its business activities. and managed by their officers. Nonoc Mining. subsidiary or auxiliary corporation. copper mining operation in Sipalay. DBP NMIC. the dispositive portion of which reads: . The places of business not to mention the mining claims and project premises of co-defendants NMIC. x x x or obliterate with impunity nay illegally. DBP. chattels. Negros Occidental and cement factory in Antipolo. machineries and equipment to the extent that major policies of codefendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC. practically there has only been a change of name for all legal purpose and intents 3. Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant. business conduit. machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the latter. Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of codefendant MMIC such that . 1984. machinery. when in fact and in law. 2. co-defendants PNB. 1989. Maricalum and Island Cement likewise used to be the places of business. a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case. so as not to defeat public convenience. Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. Maricalum and Island Cement. agency (sic). sweat and private money to supply. and subject to their control and management. Said fourth amended complaint was admitted by the lower court in its Order dated April 29. co-defendant MMIC with some of its vital needs for its operation. mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC.47 On September 13. invested considerable time. they should be treated as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned. equipment and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte. Maricalum and Island Cement to which were transferred all the assets. Remington asserted that Marinduque Mining. Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets. machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte. subvert justice. The personnel. among others. six (6) distinct and separate entities. the Nonoc Mining and Industrial Corporation (Nonoc Mining). 1989. justify wrong. Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP. Remington filed a second amended complaint to include as additional defendant. Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders. On top of everything. PNB. key officers and rank-and-file workers and employees of co-defendants NMIC. protect fraud or confuse legitimate issues involving creditors such as plaintiff. aside from the fact that the aforesaid co-defendants NMIC.6 On March 26.7 On April 3. Co-defendants NMIC. DBP. the financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets. . Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since: 1. Nonoc Mining is the assignee of all real and personal properties. . On April 10. Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP. the Regional Trial Court (RTC) rendered a decision in favor of Remington. by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-defendants PNB. 1990. MMIC. 1986. NMIC.
Development Bank of the Philippines.11 In this case. ordering the defendants Marinduque Mining & Industrial Corporation. However. in the exercise of his rights and in the performance of his duties. x x x. Nonoc Mining. 255 per Sanborn. which reasoned that under Article 19 of the Civil Code. are also liable for the value of Marinduque Mining's purchases. 1996. The transferees. this Court has disregarded the separate personality of the corporation where the corporate entity was used to escape liability to third parties. act with justice. which was denied in the Resolution dated August 29. we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil. The import of this mandate was lost on the Court of Appeals. credit accommodation. PNB and DBP did not only have a right.). including accrued interest and other charges.8 Upon appeal by PNB.95.. it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because: As aptly stated by the appellee in its brief. there may be circumstances under which their interest as officers in one company may . 496.. did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. judgment is hereby rendered in favor of the plaintiff.48 WHEREFORE. representing the principal obligation. 385 (The Law on Mandatory Foreclosure) provides: It shall be mandatory for government financial institutions. credits. DBP. 247. private respondent Remington submits that the transfer of the properties was made in fraud of creditors. including interest and other charges. Court of Tax Appeals. Nonoc Mining. Island Cement. It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation..]. to foreclose the collateral and/or securities for any loan. 135-136. The presence of fraud. "Every person must. however. U.10 this Court declared: It is an elementary and 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. as appearing in the books of account and/or related records of the financial institution concerned. therefore. after the lapse of sixty (60) days from the issuance of this decree. vs. Nonoc Mining and Industrial Corporation. Hence. Island Cement and APT. however. but the duty under said law. including the stipulated interest as of June 22. and observe honesty and good faith. citing 1 Fletcher Encyclopedia of Corporation.9 cited by the Court of Appeals in its decision. Indeed. until the amount is fully paid. Maricalum Mining Corporation. Maricalum Mining. Island Cement Corporation and Asset Privatization Trust to pay. this petition. protect fraud. give everyone his due. or defend crime. affirmed the decision of the RTC. jointly and severally. Section 1 of Presidential Decree No. warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the same corporation. The banks had no choice but to obey the statutory command. In accordance with the foregoing rule.. 1984. nor against their transferees. plus ten percent (10%) surcharge per annum by way of penalty. and to pay the costs. the Court of Appeals. in its Decision dated October 6. On the other hand. amount to at least twenty percent (20%) of the total outstanding obligations. 142 Fed. Petitioner filed a Motion for Reconsideration. according to Remington. the law will regard the corporation as an association of persons or in case of two corporations. "x x x where the corporations have directors and officers in common. vs. (Koppel [Phils. Philippine National Bank. Inc. J. when the notion of legal entity is used to defeat public convenience. Thus. 71 Phil. including the right to foreclose on loans. In Yutivo Sons Hardware vs. the sum of P920. Milwaukee Refrigeration Transit Co. DBP maintaining that Remington has no cause of action against it or PNB. and the APT. the sum equivalent to 10% of the amount due as and for attorney's fees. pp." The appellate court. justify wrong. Permanent Ed. merge them into one".S. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors. Yatco. accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent. Maricalum Mining.755. and/or guarantees granted by them whenever the arrearages on such account. to foreclose upon the subject properties. 1995.
)12 The Court of Appeals made reference to two principles in corporation law. and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors. x x x" (page 106-107 of the Appellee's Brief. The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein. When validity of these mortgages. many of these assets are heavy equipment and it may have been impossible to move them. As Remington itself concedes. the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. can not secure to themselves any preference or advantage over other creditors in the payment of their claims. This rule does not apply in this case. justify wrong. for the right of the creditors does not depend upon fraud in fact. In the absence of any entity willing to purchase these assets from the bank. by reason of self-interest. The same reasons of convenience and practicality. where one corporation was 'insolvent and indebted to another. not to mention efficiency. convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. and as transferee of these purchases. it has been held that the directors of the creditor corporation were disqualified. was questioned by other creditors of the corporation.13 The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. not one of the corporations with interlocking directors (Marinduque Mining and DBP). from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x" (page 105 of the Appellee's Brief). To reiterate. It cannot be presumed. . equity will set aside the transaction at the suit of creditors of the corporation or their representatives. however. If they do. It is not good morals or good law. DBP should be held liable for the value thereof. DBP is not authorized by its charter to engage in the mining business. its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience. who are creditors of the company. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors. to the injury of others in equal right. Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the continuity of the mining operations. Thus.14 To disregard the separate juridical personality of a corporation. Here. but upon the violation of the fiduciary relation to the directors. No doubt. since the corporation allegedly prejudiced (Remington) is a third party. protect fraud or defend crime. They can not thus take advantage of their fiduciary relation and deal directly with themselves. what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended. without reference to the question of any actual fraudulent intent on the part of the directors. the creditor of Marinduque Mining is DBP. Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith.49 disqualify them in equity from representing both corporations in transactions between the two. to secure debts upon which the directors were indorsers. the wrongdoing must be clearly and convincingly established. In the same manner that "x x x when the corporation is insolvent. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining. not the directors of Marinduque Mining." x x x (page 106 of the Appellee's Brief) We also concede that "x x x directors of insolvent corporation. Maricalum and Island Cement. Remington also asserted in its third amended complaint that the use of Nonoc Mining. The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale.15 In this case. The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining. justified the hiring by Nonoc Mining.
the following claims or liens shall be preferred: xxx xxx xxx (3) Claims for the unpaid price of movables sold. mortgages and liens that constitute an encumbrance on specific immovable property. obtained judgment. title. and 2249 of the new Civil Code. married to Jose C. In the meantime. and executed a promissory note for the balance of P17. invoking Articles 2242." Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. the lien may be enforced on the price.16 the Court had occasion to construe Article 2242. said mortgage having been duly recorded. to secure a loan of P30. Baretto. and if the movable has been resold by the debtor and the price is still unpaid. (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. 32526. and upon its becoming final asked for execution on 31 July 1958. after the payment of the taxes and assessments upon the immovable property or real rights.500 in advance. and interest and that of her children in the house and lot herein involved to Pura L. plus legal interest. governing claims or liens over specific immovable property.03. when the price thereof can be determined proportionally. Barretto. On 14 August 1958.000. or those guaranteed by a chattel mortgage. with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Villanueva for P19. xxx xxx xxx In Barretto vs. Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12. Article 2241 of the Civil Code provides: ARTICLE 2241. and among them are: "(2) For the unpaid price of real property sold.500. the buyer Villanueva was able to secure a clean certificate of title (No. for which reason the vendor obtained judgment for the unpaid balance. upon the things pledged or mortgaged. the Court ratiocinated thus: Article 2242 of the new Civil Code enumerates the claims." Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights.00. the court below ordered the "lien" annotated on the back of Certificate of Title No. and "(5) Mortgage credits recorded in the Registry of Property.000. provided it has not lost its form. In its decision upholding the order of the lower court. upon the immovable sold".00. on said movables. Our original decision affirmed this order of the Court of First Instance of Manila.50 In the absence of liquidation proceedings.00. 2243. this right is not lost by the immobilization of the thing by destination. neither is the right lost by the sale of the thing together with other property for a lump sum. However. xxx xxx xxx .000. up to the value thereof. and mortgaged the property to appellant Magdalena C. however. the claim of Remington cannot be enforced against DBP.500 on account of the note. The latter foreclosed the mortgage in her favor. the buyer could only pay P5. With reference to specific movable property of the debtor. After hearing. 32626). up to the value of the same. Villanueva. The facts that gave rise to the case were summarized by this Court in its resolution as follows: x x x Rosario Cruzado sold all her right. substance and identity. they shall be satisfied pro-rata. so long as they are in the possession of the debtor. The purchaser paid P1.
. suffice it to say that nothing in the law shows any such limitation. or liens within the purview of legal provisions governing insolvency x x x (Italics supplied).17 Upon motion by appellants. it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242. as follows "The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243).18 and in two cases both entitled Development Bank of the Philippines vs. Savings Bank vs. Pursuant to the former Code. speaking for the Court.19 Although Barretto involved specific immovable property. Under the system of the Civil Code of the Philippines. and the import of their claims ascertained." (Italics supplied) Thus. Lantin. The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law. whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference. and must be reversed.B.. such as insolvency. they shall be satisfied pro rata. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated.e. then other creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them.. and could even exhaust proceeds if necessary.. conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927. however. in proportion to the amount of the respective credits. but must be paid pro rata. the ruling therein should apply equally in this case where specific movable property is involved. only taxes enjoy a similar absolute preference. however. This explains the rule of Article 2243 of the new Civil Code that "The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property. decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves. etc. Reyes. As the extrajudicial foreclosure instituted by PNB and DBP is not . 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened. Hon. explained the reasons for the reversal: A.L. the order of the Court of First Instance of Manila now appealed from. is incorrect. NLRC. unless the claimant were enforcing a credit for taxes that enjoy absolute priority. and it would render purposeless the special laws on insolvency. If none of the claims is for taxes. the preferred creditors enumerated in Nos. Article 2249 provides: "If there are two or more credits with respect to the same specific real property or real rights. Wherefore." But in order to make this prorating fully effective. a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889.51 As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor. the Court reconsidered its decision. after the payment of the taxes and assessments upon the immovable property or real rights. Thus. the settlement of decedent's estate under Rule 87 of the Rules of Court. or other liquidation proceedings of similar import. If we are to interpret this portion of the Code as intended only for insolvency cases. i. [Emphasis supplied] The ruling in Barretto was reiterated in Phil. because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. And the rule is further clarified in the Report of the Code Commission. et al. Jr. Justice J.
On April 3. plaintiff filed a Motion to Declare Defendant in Default5 alleging that defendant has failed to file an Answer despite its receipt allegedly on May 5. the venue shall be in the proper courts of Makati. filed a Complaint for Breach of Contract and Damages against petitioner. 1998. private respondent. 1998 of the public respondent Judge Herminio I. Davao City and with branch offices at 2492 Bay View Drive. Ltd. 98-824. is a limited partnership with principal office address at 102 Juan Luna St. and that the purpose of the rule is to bring home to the corporation notice of the filing of the action. 1998. Wendell Sabulbero. 84-25858 is hereby DISMISSED. as plaintiff. plaintiff filed an Opposition to Defendant's Motion to Dismiss6 alleging that the records show that defendant. respondent. Villarosa & Partner Co. as shown in the Sheriffs Return. Benito of the Regional Trial Court of Makati City. They further agreed that in case of litigation regarding any dispute arising therefrom. 1998. "summons intended for defendant" was served upon Engr.52 the liquidation proceeding contemplated by the Civil Code.1âwphi1. WHEREFORE. The original complaint filed in the Regional Trial Court in CV Case No. were served upon the defendant. Petitioner E. . E. defendant filed a Special Appearance with Motion to Dismiss4 alleging that on May 6. BENITO. 1995 and its Resolution promulgated on August 29. Nazareth. thru its Branch Manager Engr. 1998 as evidenced by the signature appearing on the copy of the summons and not on May 5. Meanwhile. the petition is GRANTED. 1998 as stated in the motion to dismiss. together with the complaint.1 Summons. 1998 at their new office Villa Gonzalo.B. 1998 as stated in the Sheriffs Return nor on May 6. that defendant has transferred its office from Kolambog. Remington cannot claim its pro rata share from DBP. HON. 1998 and November 20. Makati City and IMPERIAL DEVELOPMENT CORPORATION. Rule 14 of the 1997 Rules of Civil Procedure upon whom service of summons may be made.B. Tambo.. RTC. On June 22. Ltd. Metro Manila and Kolambog. Lapasan. Lapasan. other than a few unfinished low cost houses. Defendant prayed for the dismissal of the complaint on the ground of improper service of summons and for lack of jurisdiction over the person of the defendant. an employee of defendant at its branch office at Cagayan de Oro City. Wendell Sabulbero at the stated address at Kolambog. B. 1998. VILLAROSA & PARTNER CO. Engr. through its Branch Manager Engr.nêt On June 9. before the Regional Trial Court of Makati allegedly for failure of the latter to comply with its contractual obligation in that. through its branch manager. Cagayan de Oro City2 but the Sheriff's Return of Service3 stated that the summons was duly served "upon defendant E. HERMINIO I. Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low cost housing units. Cagayan de Oro to its new office address at Villa Gonzalo. there were no substantial developments therein. Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was improperly served upon its employee in its branch office at Cagayan de Oro City who is not one of those persons named in Section 11. LTD. as defendant. Petitioner and private respondent executed a Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land located at Barrio Carmen. Branch 132.. The decision of the Court of Appeals dated October 6. WENDELL SALBULBERO on May 5. Parañaque. Nazareth.. Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction seeking to annul and set aside the Orders dated August 5. Villarosa & Partner Co. 1996 is REVERSED and SET ASIDE.. Cagayan de Oro. in his capacity as Presiding Judge. Lapasan. Branch 132 and praying that the public respondent court be ordered to desist from further proceeding with Civil Case No. petitioner. 1998. Wendell Sabulbero actually received the summons and the complaint on May 8. Cagayan de Oro City. Cagayan de Oro City. vs. on June 10.. and evidenced by the signature on the face of the original copy of the summons. 1998 of the summons and the complaint.
(emphasis supplied). If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered. corporate secretary. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil Procedure. general manager. On September 4. Rule 14 of the new Rules did not liberalize but. on the contrary. Private respondent filed its Comment to the petition citing the cases Kanlaon Construction Enterprises Co. 1998. In these cases. there was substantial compliance with the rule on service of summons and consequently. "secretary" to "corporate secretary". On August 19. treasurer. On August 27. secretary. Service upon private domestic corporation or partnership.53 On August 5. 1998. the 1997 Rules of Civil Procedure was already in force. and that the new provision is very specific and clear in that the word "manager" was changed to "general manager". the present petition alleging that respondent court gravely abused its discretion tantamount to lack or in excess of jurisdiction in denying petitioner's motions to dismiss and for reconsideration. 11. private secretary of corporate executives18. ordinary clerk of a corporation17. (emphasis supplied). these persons were considered .11 Hence. or the corporation's Chief Finance and Administrative Officer21. partnership or association organized under the laws of the Philippines with a juridical personality. the trial court issued an Order7 denying defendant's Motion to Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant's Motion for Reconsideration was denied in the Order dated November 20. The only issue for resolution is whether or not the trial court acquired jurisdiction over the person of petitioner upon service of summons on its Branch Manager. by Special Appearance. This provision revised the former Section 13.. manager. 1998. defendant. When the complaint was filed by Petitioner on April 3. officials who had charge or control of the operations of the corporation. NLRC13 which held that a corporation is bound by the service of summons upon its assistant manager. a corporation's assistant manager16. or in-house counsel. cashier. like the assistant general manager20. 1998. and excluding therefrom agent and director. We agree with petitioner. Defendant was given ten (10) days within which to file a responsive pleading. The trial court stated that since the summons and copy of the complaint were in fact received by the corporation through its branch manager Wendell Sabulbero. or any of its directors. filed a Reply10 contending that the changes in the new rules are substantial and not just general semantics. Inc. and that it was one (1) month after receipt of the summons and the complaint that defendant chose to file a motion to dismiss. service may be made on the president. agent. it validly acquired jurisdiction over the person of the defendant. filed a Motion for Reconsideration8 alleging that Section 11. defendant. plaintiff filed an Opposition to defendant's Motion for Reconsideration9 alleging that defendant's branch manager "did bring home" to the defendant-corporation the notice of the filing of the action and by virtue of which a motion to dismiss was filed. managing partner. Petitioner contends that the enumeration of persons to whom summons may be served is "restricted. 13. it could have easily done so by clear and concise language. 1998. Rule 14 of the 1997 Rules of Civil Procedure provides that: When the defendant is a corporation. limited and exclusive" following the rule on statutory construction expressio unios est exclusio alterius and argues that if the Rules of Court Revision Committee intended to liberalize the rule on service of summons. Rule 14 of the Rules of Court which provided that: Sec. restricted the service of summons on persons enumerated therein. Earlier cases have uphold service of summons upon a construction project manager15. by Special Appearance. 1998. despite the fact that the trial court did not acquire jurisdiction over the person of petitioner because the summons intended for it was improperly served. service may be made on the president. vs.14 Sec. retained counsel19. NLRC12 wherein it was held that service upon a construction project manager is valid and in Gesulgon vs.
In said case. Thus the absurd result in the Filoil case necessitated the amendment permitting service only on the in-house counsel of the corporation who is in effect an employee of the corporation. summons may be made upon the clerk who is regarded as agent within the contemplation of the rule." The aforesaid terms were obviously ambiguous and susceptible of broad and sometimes illogical interpretations.. is an illustration of the need for this revised section with limited scope and specific terminology. Mangosing. . The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation.27 it was held that the service of summons on the general manager of the . summons on the respondent shall be served personally or by registered mail on the party himself. . .22 Notably. if the party is represented by counsel or any other authorized representative or agent. In the case of Delta Motor Sales Corporation vs. Also in the Gesulgon case cited by private respondent. Rule 14 of the 1997 Rules of Civil Procedure. this Court ruled that under the NLRC Rules of Procedure. . agent or any of its directors. summons shall be served on such person. . Inc. Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has been held as improper.24 It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure. 13 of this Rule allowed service upon a defendant corporation to "be made on the president. The officer upon whom service is made must be one who is named in the statute." The phrase "agent. (emphasis supplied). The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly specified in Section 11. Co. "corporate secretary" instead of "secretary". . It was held that as manager. especially the word "agent" of the corporation. In the Kanlaon case. . thus:23 . manager. Estacio who managed and supervised the construction project in Iligan City (although the principal address of the corporation is in Quezon City) and supervised the work of the employees. . service of summons upon an agent of the corporation is no longer authorized. The Filoil case. involving the litigation lawyer of the corporation who precisely appeared to challenge the validity of service of summons but whose very appearance for that purpose was seized upon to validate the defective service. . The cases cited by private respondent are therefore not in point. secretary." . otherwise the service is insufficient. as distinguished from an independent practitioner. vs. Dizon.25 the Court held: A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. or any of its directors" is conspicuously deleted in the new rule. In other words. "to bring home to the corporation notice of the filing of the action. The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice Florenz Regalado. the summons was received by the clerk in the office of the Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old rule). Retired Justice Oscar Herrera. . stated that "(T)he rule must be strictly observed. In First Integrated Bonding & Inc.26 Even under the old rule. Service must be made to one named in (the) statute . who is also a consultant of the Rules of Court Revision Committee. . . . the then Sec. (emphasis supplied). summons was served on one Engr. . and "treasurer" instead of "cashier. service upon a general manager of a firm's branch office has been held as improper as summons should have been served at the firm's principal office. he had sufficient responsibility and discretion to realize the importance of the legal papers served on him and to relay the same to the president or other responsible officer of petitioner such that summons for petitioner was validly served on him as agent and authorized representative of petitioner. The rule now states "general manager" instead of only "manager". cashier.54 as "agent" within the contemplation of the old rule. . strict compliance with the rules has been enjoined. under the new Rules.
. covered by Purchase Contract Nos.. Safic demanded that IVO make marginal deposits within forty-eight hours on the eight purchase contracts in amounts equivalent to the difference between the contract price and the market price of the coconut oil. There being no proper service of summons. it placed purchase orders with IVO for a total of 4. we rule that the service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro. And in the case of Solar Team Entertainment. to compensate it for the . IVO bound itself to pay to Safic the difference between the said prevailing price and the contract price of the 2. the trial court did not acquire jurisdiction over the person of the petitioner. When IVO failed to honor its obligation under the wash out settlement narrated above. to be delivered within the month of January 1987. the filing of a motion to dismiss. a complaint dated February 26. the trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. vs. Helen Bautista Ricafort. instead of upon the general manager at its principal office at Davao City is improper. Branch 132 is declared without jurisdiction to take cognizance of Civil Case No. A601415." The emplacement of this rule clearly underscores the purpose to enforce strict enforcement of the rules on summons. for the guidance of the Bench and Bar. The assailed Orders of the public respondent trial court are ANNULLED and SET ASIDE.28 the Court succinctly clarified that. A601297A/B. Hon. SAFIC ALCAN & CIE.00. Petitioner Safic Alcan & Cie (hereinafter.50 per ton. the movant raised other grounds or invoked affirmative relief which necessarily involves the exercise of the jurisdiction of the court. "IVO"). Accordingly.30 This doctrine has been abandoned in the case of La Naval Drug Corporation vs. Court of Appeals. offered a "wash out" settlement. Thus. INC. it placed purchase orders with IVO for 2. the petition is hereby GRANTED. Safic alleged that on eight occasions between April 24. Section 20 now provides that "the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. lest we allow circumvention of the innovation by the 1997 Rules in order to obviate delay in the administration of justice.31 which became the basis of the adoption of a new provision in the former Section 23. "Safic") is a French corporation engaged in the international purchase. 1986 and October 31. 98-824. A601681. Consequently. (hereinafter. respectively. Petitioner Safic alleged that on July 1. vs. default order could have been obviated had the summons been served at the firm's principal office. 1986 and September 25. whether or not belatedly filed by the defendant. 1986. whereby the coconut oil subject of the purchase contracts were to be "sold back" to IVO at the prevailing price in the international market at the time of wash out.. 87. A601384. instead. precisely objecting to the jurisdiction of the court over the person of the defendant can by no means be deemed a submission to the jurisdiction of the court.000 long tons of crude coconut oil. The public respondent Regional Trial Court of Makati. It filed with the Regional Trial Court of Manila. which amounted to US$293. There is no question that the defendant's voluntary appearance in the action is equivalent to service of summons. and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. A601446 and A601655.29 Before.39597. which is now Section 20 of Rule 14 of the 1997 Rules. failed to deliver the said coconut oil and. petitioner. A601683 and A601770A/B/C/. et al. 1986. A601391.32 WHEREFORE. docketed as Civil Case No. A601385. Any proceeding undertaken by the trial court will consequently be null and void. covered by Purchase Contract Nos. et al. "strictest" compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of service and filing) is mandated and the Court cannot rule otherwise. sale and trading of coconut oil. the rule was that a party may challenge the jurisdiction of the court over his person by making a special appearance through a motion to dismiss and if in the same motion. Branch XXV. 1987 against private respondent Imperial Vegetable Oil Co. Inc.750 tons of crude coconut oil. IVO failed to pay this amount despite repeated oral and written demands. IMPERIAL VEGETABLE OIL CO.000 long tons of crude coconut oil. Under its second cause of action.55 insurance firm's Cebu branch was improper. Inc.500.. valued at US$222. The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person. Accordingly. respondent. his authorized agent or attorney. however. Private respondent.
The complaint also included an application for a writ of preliminary attachment against the properties of IVO. such deposits not to exceed the difference between the contract price and the market price of the goods covered by the contract on the day upon which such demand is made. the closing-out price shall be fixed by a Price Settlement Committee appointed by the Federation. despite written demand therefor. Dominador Monteverde. at the option of the other party at a price to be ascertained by repurchase or resale and the difference between the contract price and such closing-out price shall be the amount which the other party shall be entitled to claim shall be liable to account for under this contract (sic). convene. In its answer. During the trial. In those transactions. the subject contracts were speculative contracts entered into by IVO's then President.62.P. that its suppliers were driven away. in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading. Contract arid the FOSFA Contract. Rule 54 . in the aggregate amount of US$391.nêt IVO set up counterclaims anchored on harassment.O.00 and US$391.I. and China Banking Corporation had foreclosed its chattel and real estate mortgages. commit an act of bankruptcy. to wit: N. such deposit to bear interest at the prime rate plus one percent (1%) per annum.593.)2 Hence. the trial court issued a writ of preliminary attachment.I. rumor-mongering and oppressive action.593. and despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading activity. Upon Safic's posting of the requisite bond. and that under Article 2018 of the Civil Code. as defined in Article 2018 of the Civil Code.BANKRUPTCY/INSOLVENCY: If before the fulfillment of this contract either party shall suspend payment. the trial court refused to declare the same as gambling transactions. Subsequently. The demand for marginal deposits was based on the customs of the trade. the other party may from time to time demand marginal deposits to be made within forty-eight (48) hours after receipt of such demand. Failure to make such deposit within the time specified shall constitute a breach of contract by the party upon whom demand for deposit is made. in order to ensure the preservation of the same. IVO failed to make the prescribed marginal deposits on the eight contracts. paralyzation of business. Safic prayed that IVO be ordered to pay the sums of US$293. Where no such resale or repurchase takes place. Safic placed several orders and IVO faithfully filled up those orders by shipping out the required crude coconut oil to Safic. the parties had entered into and consummated a number of contracts for the sale of crude coconut oil. the lower court found that in 1985.O.P. as governed by the provisions of the standard N. the trial court ordered that the assets of IVO be placed under receivership. Should either party be dissatisfied with the price. and that its major creditors have inundated it with claims for immediate payment of its debts. the matter shall be referred to arbitration. prior to the date of the contracts sued upon. the transaction is null and void. notify any of his creditors that he is unable to meet his debts or that he has suspended payment or that he is about to suspend payment of his debts. although . plus attorney's fees and litigation expenses. call or hold a meeting either of his creditors or to pass a resolution to go into liquidation (except for a voluntary winding up of a solvent company for the purpose of reconstruction or amalgamation) or shall apply for an official moratorium. IVO raised the following special affirmative defenses: Safic had no legal capacity to sue because it was doing business in the Philippines without the requisite license or authority. Rule 54 .500 metric tons.If the financial condition of either party to a contract subject to these rules becomes so impaired as to create a reasonable doubt as to the ability of such party to perform its obligations under the contract. have a petition presented for winding up or shal1i have a Receiver appointed.)1 FOSFA Contract. Anent the 1986 contracts being sued upon. (Underscoring ours. totaling 3. securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner. if a contract which purports to be for the delivery of goods. IVO filed a supplemental counterclaim alleging that it was unable to operate its business normally because of the arrest of most of its physical assets.62.56 damages it suffered when it was forced to acquire coconut oil at a higher price. the contract shall forthwith be closed either at the market price then current for similar goods or.1âwphi1. financial losses. Later. and all losses and expenses resulting from such breach shall be for the account of the party upon whom such demand is made.500. (Underscoring ours. Contract.
On September 12. on August 28. which were evidently entered into by Monteverde for his personal benefit. where Safic likewise dealt with Dominador Monteverde. Meanwhile. The coconuts that were supposed to be milled were in all likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. Likewise. A60l4l5. the 1986 contracts stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven to twelve months after the placing of orders. DOMINADOR MONTEVERDE. the 1985 contracts were covered by letters of credit. which were nothing more than mere promises to pay once the shipments became ready. CV No. A601385.. substantially reiterating the errors it raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when: a. under receivership are hereby dissolved and set aside. IVO raised only one assignment of error. The writ of preliminary attachment issued in this case as well as the order placing Imperial Vegetable Oil Co. on the other hand. THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH OUT CONTRACTS. as alleged by Safic. Safic argued that: THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT. who was presumably authorized to bind IVO. The trial court ruled that Safic failed to substantiate its claim for actual damages. differed in that under the 1985 contracts. As such. THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH DAMAGES. every business enterprise carries with it a certain measure of speculation or risk. while the 1986 contracts were payable by telegraphic transfers.57 they involved some degree of speculation. Thus. The counterclaim and supplemental counterclaim of the latter defendant are likewise hereby dismissed for lack of merit. deliveries were to be made within two months. Inc.R. the lower court held that Safic cannot invoke the 1985 contracts as an implied corporate sanction for the high-risk 1986 contracts. Contracts Nos. A60l297A/B. A601683 and A60l770A/B/C involving 4.500 tons of crude coconut oil) were unauthorized .. 1996. was the time needed for milling and building up oil inventory. However. A601681.e. appeals and affirming the judgment appealed from in toto. on one hand. judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan & Cie. it declared that the 1986 forward contracts (i. After all. which were highly speculative in character.4 Hence. the trial court rendered judgment as follows: WHEREFORE. A60l39l.. This. Safic filed the instant petition for review with this Court. For these reasons. and the 1986 contracts subject of this case. viz: THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH DAMAGES. For its part.40820. ENTERED INTO CONTRACTS WHICH WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE. Inc. jointly docketed as CA-G. and Contracts Nos. it rejected IVO's counterclaim and supplemental counterclaim. the 1986 contracts constituted trading in futures or in mere expectations.3 Both IVO and Safic appealed to the Court of Appeals. It distinguished between the 1985 contracts. 1992. the former President of Imperial Vegetable Oil Co. and the 1986 contracts.000 long tons of crude coconut oil. Moreover. No pronouncement as to costs. without prejudice to any action it might subsequently institute against Dominador Monteverde. the Court of Appeals rendered the assailed Decision dismissing the.. A601446 and A60155 (sic) involving 2. arising from the subject matter of this case. the contracts performed in 1985. The lower court further held that the subject contracts were ultra vires and were entered into by Dominador Monteverde without authority from the Board of Directors. the court noted.
(iii) it relied on the testimony of Mr. and (iv) it did not find IVO. We disagree. resolutions and instruction of the Board of Directors and according to his own discretion whenever and wherever the same is not expressly limited by such orders. Rodrigo Monteverde in concluding that the IVO Board of Directors did not authorize its President. It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to bind IVO to any contract. In this connection. Even in instances when he was authorized to act according to his discretion. IVO did not enter into identical contracts with Safic.7 In fact. as IVO's President. he is chargeable with knowledge of the agent's . Dominador Monteverde. in any case. resolutions and instructions. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out contracts involving Contracts Nos.9 In the case of Bacaltos Coal Mines v.e. despite the fact that Safic had properly raised the issue on its appeal. Safic can not rely on the doctrine of implied agency because before the controversial 1986 contracts. Article III. had "an implied authority to make any contract necessary or appropriate to the contract of the ordinary business of the company". The evidence shows that the IVO Board knew nothing of the 1986 contracts6 and that it did not authorize Monteverde to enter into speculative contracts. but also documentary. and the evidence and the law support Safic's position that IVO is so liable to Safic. to enter into the 1986 forward contracts. b. He must act according to the instructions of the Board of Directors. Powers and Duties of the President. the 1986 forward contracts because IVO had recognized itself bound to similar forward contracts which Dominador Monteverde entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding that Dominador Monteverde was (like in the 1986 forward contracts) not expressly authorized by the IVO Board of Directors to enter into such forward contracts. In fine. among others. . If he does not make such inquiry. to prove damages suffered by it. Safic insists that the appellate court grievously erred when it did not declare that IVO's President. validly entered into the 1986 contracts for and on behalf of IVO.8 Since the 1986 contracts marked a sharp departure from past IVO transactions. Section 3 [g] of the By-Laws5 of IVO provides. estopped from denying responsibility for. A601446 and A60155 (sic). Safic should have obtained from Monteverde the prior authorization of the IVO Board. Court of Appeals. despite the fact that Safic had presented not only testimonial. resolutions and instructions. Monteverde had earlier proposed that the company engage in such transactions but the IVO Board rejected his proposal. evidence which proved the higher amount it had to pay for crude coconut oil (vis-à-vis the contract price it was to pay to IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the 1986 forward contracts. He shall have the following duties: xxxxxxxxx [g] Have direct and active management of the business and operation of the corporation.58 acts of Dominador Monteverde which do not bind IVO in whose name they were entered into. the Court of Appeals erred when (i) it ignored its own finding that (a) Dominador Monteverde. that discretion must not conflict with prior Board orders. that Section 3. and c. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. the orders. that they were highly speculative paper trading which the IVO Board of Directors had prohibited Dominador Monteverde from engaging in because it is a form of gambling where the parties do not intend actual delivery of the coconut oil sold) and instead found that the 1986 forward contracts were not gambling. and liability under. and (b) Dominador Monteverde had validly entered into similar forward contracts for and on behalf of IVO in 1985. (ii) it distinguished between the 1986 forward contracts despite the fact that the Manila RTC has struck down IVO's objection to the 1986 forward contracts (i.The President shall be elected by the Board of Directors from their own number .10 we elucidated the rule on dealing with an agent thus: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Dominador Monteverde. it declared that Safic was not able. conducting the same according to.
With whom does. as I have to supervise and monitor purchases of copras and also the sale of the same. What do you mean by physical trading? A.13 There was no such ratification in this case. The contracts were not reported in IVO's export sales book and turn-out book. Being remiss in this regard. and is not entitled to recover damages from the agent. Physical Trading means . if they would hold the principal. although I was at the time already a stockholder. If the said third person is aware of such limits of authority. and in case either is controverted. It also bears emphasizing that when the third person knows that the agent was acting beyond his power or authority. With more reason. the acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same expressly or impliedly. justice and due process. Q. no occasion at all for ratification. And what is the other form of trading? Atty. How did you know this? A. It was purely on physical trading. to ascertain not only the fact of the agency but also the nature and extent of the authority. Safic's belated contention that the IVO Board of Directors did not set limitations on Monteverde's authority to sell coconut oil is belied by what appears on the record.14 He also did not submit the contracts to the Board after their consummation so there was. Under Article 189812 of the Civil Code. the same does not deserve consideration by this Court. not Monteverde. I think IVO is engaged in trading oil. As a stockholder. and his ignorance of that authority will not be any excuse.18 Such an issue was not brought to the fore either in the trial court or the appellate court. it usually trade its oil? A. in fact. rather as member of [the] Board of Directors. he is to blame. I am not too familiar with trading because as of March 1987. As far as you know. When Monteverde entered into the speculative contracts with Safic. he did not secure the Board's approval. Q. what kind of trading was IVO engaged with? A. Be that as it may.16 It must be pointed out that the Board of Directors. I observed that the policy of the corporation is for the company to engaged (sic) or to purely engaged (sic) in physical trading.11 The most prudent thing petitioner should have done was to ascertain the extent of the authority of Dominador Monteverde. Now you said that IVO is engaged in trading. To bolster its cause. . your Honor. Q. who succeeded Dominador Monteverde as IVO President. I was not yet an officer of the corporation. the principal can not be held liable for the acts of the agent.59 authority. and would have been disregarded by the latter tribunal for the reasons previously stated. testified that the IVO Board had set down the policy of engaging in purely physical trading thus: Q. I frequently visited the plant and from my observation. It must be borne in mind in this regard that a question that was never raised in the courts below can not be allowed to be raised for the first time on appeal without offending basic rules of fair play. petitioner can not seek relief on the basis of a supposed agency.15 Neither were they reflected in other books and records of the corporation. Monteverde's speculative contracts with Safic never bound IVO and Safic can not therefore enforce those contracts against IVO. the burden of proof is upon them to establish it.17 Clearly. Rodrigo Monteverde.we buy and sell copras that are only available to us. Safic raises the novel point that the IVO Board of Directors did not set limitations on the extent of Monteverde's authority to sell coconut oil. are bound at their peril. We only have to sell the available stocks in our inventory. Fernando No basis. unless the latter undertook to secure the principal's ratification. Q. exercises corporate power. whether the assumed agency be a general or special one. Persons dealing with an assumed agent.
How did you know that? A. Do you know where this meeting took place? A. Court Why don't you lay the basis? Atty. Fernando Objection. Were you a member of the board at the time? A. In 1975. Abad Q. Q. Atty. Court Witness may answer if he knows.60 Atty. Atty. the witness said they are engaged in physical trading and what I am saying [is] if there are any other kind or form of trading. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde that the company should engaged (sic) in future[s] contracts? Atty. I am already a stockholder and a member. Then would [you] now answer my question? Atty. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the future[s] contract[s]. that the company should engaged (sic) in future[s] contract[s] but it was rejected by the Board of Directors. Q. Fernando No basis. your Honor. your Honor. sir. Abad Q. Dominador Monteverde. Trading future[s] contracts wherein the trader commits a price and to deliver coconut oil in the future in which he is yet to acquire the stocks in the future. There was a meeting held in the office at the factory and it was brought out and suggested by our former president. Abad Well. Atty. Witness A. Abad. were you already a member of the Board of Directors at that time? . What we are talking is about 1985. As far as I know it was sometime in 1985. Who established the so-called physical trading in IVO? A. Abad Q. The Board of Directors. Q. Q. no basis. It was only Ador Monteverde who then wanted to engaged (sic) in this future[s] contract[s].
Incidentally our Secretary of the Board of Directors. Because this future[s] contract is too risky and it partakes of gambling. Those were not recorded at all in the books of accounts of the company. And a resolution was passed disowning the illegal activities of the former president. sir. Atty. Yes. Q. What else? A. died in 1987 or 1988. Q. As far as you know.19 xxxxxxxxx Atty. Do you have a copy of the minutes of your meeting in 1985? A. There was again a meeting by the Board of Directors of the corporation and that we agreed to remove the president and then I was made to replace him as president. Do you know the reason why the said proposal of Mr. Q. Yes. Dominador Monteverde never records those transactions he entered into in connection with these future[s] contracts in the company's books of accounts. Do you keep records of the Board meetings of the company? A. Q. and despite [the] request of our office for us to be furnished a copy he was not able to furnish us a copy. Abad Q. in selling future contracts without the proper authority and consent of the company's Board of Directors? A.20 xxxxxxxxx Q.21 Petitioner next argues that there was actually no difference between the 1985 physical contracts and the 1986 futures contracts. sir. Q. Abad Q. The contention is unpersuasive for.61 A. Dominador Monteverde to engage in future[s] contract[s] was rejected by the Board of Directors? A. Yes. What did you do when you discovered these transactions? A. Mr.V. sir. as aptly pointed out by the trial court and sustained by the appellate court . Elfren Sarte. What do you mean by that the future[s] contracts were not entered into the books of accounts of the company? Witness A. How far has this Dominador Monteverde been using the name of I. sir.0. has this policy of the Board of Directors been observed or followed? Witness A. You said the Board of Directors were against the company engaging in future[s] contracts.
1âwphi1. Indeed. The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO through Monteverede. 151 dated April 1. But with respect to the disputed 1986 contracts. It is evident that the 1986 contracts constituted trading in futures or in mere expectations. The 1986 contracts. They were neither recorded in the books nor reported to the Central Bank. xxxxxxxxx Evidently. formerly an assistant of Dominador Monteverde. 1963. the contract covered by Exhibit J was to be performed 11 to 12 months from the execution of the contract. SAFIC claims that there is no distinction between the 1985 and 1986 contracts. 1990). What is more. a mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's compliance with its contracts. in those unreported cases where profits were made. The 1985 contracts were performed within an average of two months from the date of the sale. as the 1985 contracts were. the 1986 contracts were never recorded either in the 1986 accounting books of IVO or in its annual financial statement for 1986. therefore suspect. the coconuts that were supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the crude oil to SAFIC.. the Court has found some remarkable distinctions between the 1985 and 1986 contracts.S. in violation of its above requirement. (See Stipulation of Facts dated June 13. it is not disputed that with respect to the 1985 contracts. Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not able to prove its claim for damages. SAFIC would bewail. Safic only claims that. such profits were ordered remitted to unknown accounts in California. Subjecting the evidence on both sides to close scrutiny. the 1986 contracts were to be performed within an average of eight and a half months from the dates of the sale. All the supposed performances fell in 1987. were similarly with their 1985 predecessors. Emelita Ortega. such agreements did not prove Safic's actual losses in the transactions in question. by Dominador Monteverde. Apart from the above. The so-called "wash out" agreements are clearly ultra vires and not binding on IVO. seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon presentation of the shipping documents. . since it was ready to pay when IVO was not ready to deliver.A. SAFIC concludes that the 1986 contracts were equally binding. testified that they were strange goings-on about the 1986 contract. The lead time between the closing of the deal and the delivery of the oil supposedly allowed the seller to accumulate enough copra to mill and to build up its inventory and so meet its delivery commitment to its foreign buyers.500. the parties stipulated during the hearing that none of these contracts were ever reported to the Central Bank.62 Rejecting IVO's position. It is not disputed that. This fact lends an uncertain element in the 1986 contracts. On the other hand. using the name of IVO but concealing from it his speculative transactions. (Exhibits 6 to 6-0 and 7 to 7-1). Safic suffered damages to the extent that they had to buy the same commodity from others at higher prices. its opening usually mark[s] the fact that the transaction would be consummated. x x x 1. on IVO. Petitioner first points out that its wash out agreements with Monteverde where IVO allegedly agreed to pay US$293. We remain unconvinced. In all likelihood. Since the buyer's letter of credit guarantees payment to the seller as soon as the latter is able to present the shipping documents covering the cargo. 4. Unlike the letter of credit. requiring a coconut oil exporter to submit a Report of Foreign Sales within twenty-four (24) hours "after the closing of the relative sales contract" with a foreign buyer of coconut oil. Dominador Monteverde. second. IVO faithfully complied with Central Bank Circular No. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the opening of a letter of credit LC by SAFIC in favor of IVO. forward sales contracts in which IVO had undertaken to deliver the crude coconut oil months after such contracts were entered into. Furthermore. 2. These pattern (sic) belies plaintiffs contention that the lead time merely allowed for milling and building up of oil inventory.nêt 3. The 1986 sales were. Dominador Monteverde made business or himself.00 for some of the failed contracts was proof enough and. both of which groups of contracts were signed or authorized by IVO's President. that it presented purchases of coconut oil it made from others during the period of IVO's default. U. unlike the 1985 contacts. On the other hand. a document that was prepared prior to the controversy.
] it is conjectural since it rests on average prices not on actual prices multiplied by the actual volume of coconut oil per contract. d. Plaintiff claims for the award of liquidated or actual damages to the tune of US$391. thirdly."25 .24 ruled that: From the analysis of the parties' respective positions. the production and inspection of the desired documents would be of tremendous help in the ultimate resolution thereof. however.62 which. certainly. was not the case. industrious. As such. Had Safic produced the documents that the trial court required. it is worthy to note that the quantities of oil covered by its 1987 contracts with third parties do not match the quantities of oil provided under the 1986 contracts. Notwithstanding the foregoing ruling of the trial court.] Did Safic commit to deliver the quantity of oil covered by the 1986 contracts to its own buyers? Who were these buyers? What were the terms of those contracts with respect to quantity. if not amply ascertained by examining the records of the related sales admitted to be in plaintiffs possession.63 The foregoing claim of petitioner is not. if there would be a full disclosure by the parties on both sides of all documents related to the transactions in litigation. invoices.because: 1. The interest of justice will be served best. wash out agreements and other documents of sale related to (a). Besides. conclusion can easily be drawn therefrom that there is materiality in the defendant's move: firstly. As the defendant cannot be precluded in taking exceptions to the correctness and validity of such claim which plaintiffs witness (Donald O'Meara) testified to. IVO filed an amended motion22 for production and inspection of the following documents: a. who were these sources? Where were their contracts and what were the terms of these contracts as to quantity. and as. (b) and (c). it had to resort to in order to fill up alleged undelivered commitments of IVO. Safic suggests a substitute mode of computing its damages by getting the average price it paid for certain quantities of coconut oil that it allegedly bought in 1987 and deducting this from the average price of the 1986 contracts.593. This amended motion was opposed by Safic. legal and equitable justification. proof thereof is a must which can be better served. if the Court may additionally dwell on the issue of damages.23 The trial court. a substantially correct determination of its actual damages would have been possible. which documents to locate and produce considering plaintiff to be (without doubt) a reputable going concern in the management of the affairs which is serviced by competent. if the coconut oil has been pooled and sold as general oil. There is also no evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts and that Safic had to buy such oil from others to meet the requirement.] the contracts of the purchase of oil that. Suffice it to state in this regard that "[T]he power of the courts to grant damages and attorney's fees demands factual. plaintiff would entertain no confusion as to what.] contracts of resale of coconut oil that Safic bought from IVO. are available. however. according to Safic. and which defendant disputes. secondly. But this mode of computation if flawed . Safic did not produce the required documents. is a huge amount in terms of pesos.] the records of the pooling and sales contracts covering the oil from such pooling. and 2. in open court. In its efforts to bolster its claim for damages it purportedly sustained. This. Along the same vein.] all other contracts. the desired production and inspection of the documents was precipitated by the testimony of plaintiffs witness (Donald O'Meara) who admitted. to wit: 1.] it is based on the unproven assumption that the 1987 contracts of purchase provided the coconut oil needed to make up for the failed 1986 contracts. the documents are specified in the amended motion. prompting the court a quo to assume that if produced. price and date of delivery? 2. reason there would be none for the same witness to say later that they could not be produced. plaintiff seeks to recover damages from the defendant and these are intimately related to plaintiffs alleged losses which it attributes to the default of the defendant in its contractual commitments. hardworking and diligent personnel. unfortunately. the amended motion for production and inspection of the defendant is in order. that they are available. its basis cannot be left to speculation and conjecture.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic have to procure the equivalent oil from other sources? If so. even after they have been clearly described. price and date of delivery? The records disclose that during the course of the proceedings in the trial court. 1988 Order . c. by this nature of the plaintiffs claim for damages. If the said witness represented that the documents. in its September 16. confirmations. substantiated by the evidence and only raises several questions. as generally described. the documents would have been adverse to Safic's cause. b.
000 tons. It was not until December 22.000 tons. c. Garcia and Moll in attendance. Philippine ports. defendant Leonor Moll became director only on December 22. sell.00 per long ton. 1947. 1947. for 2. 1947: Pacific Vegetable Co.64 THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES. export. 1947.00 per ton.. the board met again with Kalaw. financing a problem. defendants Juan Bocar and Casimiro Garcia were members of the Board. barter.000 long tons $145. 1947: Fairwood & Co. f. delivery: November and December. after the passage of Republic Act 5. for 3. Neither did the board vote thereon at the meeting of January 7. that NACOCO was recouping its losses. apprised the board of the impending heavy losses. Defendant Moll took her oath on that date.chanroblesvirtualawlibrary chanrobles virtual law library .. mostly aliens. vs..chanroblesvirtualawlibrary chanrobles virtual law library (b) August 14.chanroblesvirtualawlibrary chanrobles virtual law library (i) October 28. 1948 following.chanroblesvirtualawlibrary chanrobles virtual law library When it became clear that the contracts would be unprofitable. $167. for 2. Los Angeles. Pacific ports. $137. delivery: November.000 tons. California.00 per ton. The National Coconut Corporation (NACOCO. 1947: Juan Cojuangco. and the fourth in December. Copra production decreased. 1947. for 2. KALAW. 1948. 1948. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra.00 per short ton. to serve coconut producers by securing advantageous prices for them. embarked on copra trading activities. and to act as agent.50 per ton. (Overseas) Ltd.00 per short ton. 1947: Fairwood & Co. 1947: Louis Dreyfus & Co.000 long tons. c.. the second and third in November. and in any other manner deal in. New York. Four devastating typhoons visited the Philippines: the first in October. Cash requirements doubled. f. and dessicated coconut.3 and LEONOR MOLL. delivery: December. delivery: November. Bocar. On August 1. 1948. (Overseas) Ltd. Coconut trees throughout the country suffered extensive damage. ESTATE OF THE DECEASED CASIMIRO GARCIA. 1947. 1947 when the membership was completed. 1948. viz: (a) July 30.chanroblesvirtualawlibrary chanrobles virtual law library (e) September 9..00 per ton. $210.f.. on January 30. Pacific ports.chanroblesvirtualawlibrary chanrobles virtual law library NACOCO. 1947 and January. preservation and development of the coconut industry in the Philippines.000 tons. HEIRS OF MAXIMO M.i. o. emphasized that government concerns faced the same risks that confronted private companies. 1946.chanroblesvirtualawlibrary chanrobles virtual law library (h) October 27.f. if not altogether eliminate.chanroblesvirtualawlibrary chanrobles virtual law library (d) September 5. This contract was also assigned to Louis Dreyfus & Co. Quick turnovers became impossible.500 long tons.i.. 1947: Alexander Adamson & Co. to be shipped in November. for the delivery of copra. Prices spiralled. Kalaw submitted them to the board for approval. that is. to cut down to a minimum.. $175. 1947.000 long tons. No action was taken on the contracts. NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy. Nature supervened. (Overseas) Ltd. Plaintiff-Appellant..chanroblesvirtualawlibrary chanrobles virtual law library (f) September 12. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts. This contract was assigned to Pacific Vegetable Co. the margin of middlemen. 1947: Franklin Baker Division of General Foods Corporation.. for 1.00: per ton. as well as their by-products. 1940 by Commonwealth Act 518 avowedly for the protection. copra. 3 Philippine ports. to be shipped: September-October. President Roxas made a statement that the NACOCO head did his best to avert the losses.o.000 long tons. $160.f.chanroblesvirtualawlibrary chanrobles virtual law library (g) September 13. 1947: Spencer Kellog & Sons. 1947. 1947. They unanimously approved the contracts hereinbefore enumerated. for short) was chartered as a non-profit governmental organization on May 7. Kalaw made a full disclosure of the situation. delivery: August and September.i. Not long thereafter. for 1. Warehouses were destroyed. f. coconut.f.2 JUAN BOCAR. 1947.. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. on January 11. Kalaw.. $164. broker or commission merchant of the producers. Then.. dealers or merchants" thereof. This contract was assigned to Pacific Vegetable Co. b. for 3. A meeting was then held.b. for 1. This contract was assigned to Pacific Vegetable Co. This contract was later assigned to Louis Dreyfus & Co. c. $210.4 chanrobles virtual law library General manager and board chairman was Maximo M.i. The charter amendment was enacted to stabilize copra prices. Defendants-Appellees. delivery: September. c. delivery: January.00 per ton. $154.chanroblesvirtualawlibrary chanrobles virtual law library (c) August 22.o. for 1.b. 1947: Alexander Adamson & Co. and that Kalaw was to remain in his post.
did not have license to do business here.chanroblesvirtualawlibrary chanrobles virtual law library But one buyer. for the balance on the August 14 contract (Civil Case 4398).) Following the same proportion.028. On appeal.00. Some of the claims were settled.755 7. except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2. P78. With particular reference to the Dreyfus claims.091.613. and directors Juan Bocar.00 only (Exhs.. Franklin Baker Corporation. P539.63. (Overseas) Ltd.chanroblesvirtualawlibrary chanrobles virtual law library The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims. and (2) failure to deliver was due to force majeure. new Civil Code). viz: Pacific Vegetable Oil Co. in similar cases brought by the same claimant [Louis Dreyfus & Co.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345. NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co.150 1.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out.274. 31 & 32 Heirs. The fifth amended complaint.. appealed to this Court in L-2829). upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error. or at least settlement for nominal sums like what happened in the Syjuco case. And this.040.chanroblesvirtualawlibrary chanrobles virtual law library Plaintiff appealed direct to this Court. including Kalaw.601. we reproduce in haec verba this finding below: x x x However.65 As was to be expected.000.408. on which this case was tried.5 All the settlements sum up to P1.274. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. arrest our attention. as follows: Buyers Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus Louis Dreyfus (Adamson contract of July 30. defendants renew their bid.55 The buyers threatened damage suits.52.000 800 1. why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds. the typhoons. Now. 1947) TOTALS Tons Delivered Undelivered 2.94.000. NACOCO but partially performed the contracts. the court below.343. and defendant board members.200 850 245 9.chanroblesvirtualawlibrary chanrobles virtual law library Plaintiff's brief did not. did in fact sue before the Court of First Instance of Manila. but adversely decided by. Louis Dreyfus & Go.55 1. Casimiro Garcia and Leonor Moll. P287. The corporation thereunder paid Dreyfus P567. 1959.00. for that per the September 12 contract reduced to judgment (Civil Case 4322.68 wherein defendant set up same defenses as above. although there was much possibility of successfully resisting the claims.098.00. question the judgment on Kalaw's counterclaim for the sum of P2. was filed on July 2.024.52 from general manager and board chairman Maximo M. Spencer Kellog & Sons. To project the utter unreasonableness of this compromise.52 representing 70% of the total claims. upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459).601. in copra delivered by NACOCO.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.000 500 2. P447. if at all.45 None 1. NACOCO seeks to recover the above sum of P1.908.00.210.chanroblesvirtualawlibrary chanrobles virtual law library Right at the outset. Kalaw.00. 1947) Louis Dreyfus (Adamson Contract of August 14. (Overseas) Ltd. P159.000. P75.chanroblesvirtualawlibrary chanrobles virtual law library .343.6 chanrobles virtual law library 1.chanroblesvirtualawlibrary chanrobles virtual law library In this suit started in February. (Overseas) Ltd. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. 1949. two preliminary questions raised before. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176.386. with bad faith and/or breach of trust for having approved the contracts. plaintiff accepted a promise of P5.654. the claim of Dreyfus against NACOCO should have been compromised for only P10.45 4.
" and (3) under Section 78 of the Corporation Law. In that case. L-16779. 7. whereby a corporation whose corporate existence is terminated. 11 unless the statute merely requires a commencement of suit within the added time. NACOCO. The said corporations shall be liquidated in accordance with law. They reason out that suit was commenced in February. by virtue of which the corporation. the National Tobacco Corporation. that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation. the corporation. express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context." By Section 4. Section 5. talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. 1961. the court cannot extend the time alloted by statute. to dispose of and convey its property and to divide its capital stock. the National Coconut Corporation. Pore. however. within the three year period just mentioned. is not only erroneous. defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment. pp. and others interested. 13 chanrobles virtual law library We. and that. in turn. Justice Fisher. that by Executive Order 372. liquidation by the Board of Liquidators may." the necessary funds therefor shall be taken from the corresponding special fund created in Section 5."8 chanrobles virtual law library It is defendants' pose that their case comes within the coverage of the second method. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions.chanroblesvirtualawlibrary chanrobles virtual law library Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. commenced suit within the three-year extended period for liquidation. "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved. to dispose of and convey its property in the manner hereinafter provided". nor can a valid judgment be rendered therein. A glance at the other provisions of the executive order buttresses our conclusion. if rendered. dated November 24.66 Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3. is that the term of life of the Board of Liquidators is without time limit. but void and subject to collateral attack. 1949. creditors. or project is transferred to any governmental instrumentality "for administration or continuance of any project. . including NACOCO. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. That suit was for recovery of money advanced to defendant for the purchase of hemp in . however. Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"9 and that suit "cannot be continued or revived. the provisions of this Order. is to be read not as an isolated provision but in conjunction with the whole. to dispose of and. and the Board of Liquidators was entrusted with the function of settling and closing its affairs. the Board of Liquidators may not now continue with. 1950. So reading. when any property. of the Rules of Court [which superseded Section 66 of the Corporation Law]7 whereby. nonetheless. And by Section. . whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs. at the same time. while the boards of directors of the various corporations were abolished. Rule 104. was abolished. the present case to its conclusion. and may appoint a receiver to collect such assets and pay the debts of the corporation. and prosecute. the President had chosen to see to it that the Board of Liquidators step into the vacuum. Citing Mr.chanroblesvirtualawlibrary chanrobles virtual law library By Section 2 of the executive order.1. it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations. since the three year period has elapsed. ." (2) under Section 77 of the Corporation Law. fund. proceed in accordance with law. "is authorized and empowered to convey all of its property to trustees for the benefit of members. Thus. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. together with other government-owned corporations. and/or in such manner as the President of the Philippines may direct. 12 For. are hereby abolished. "and/or in such manner as the President of the Philippines may direct. Provided. August 16. for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs. under section 1. The President thought it best to do away with the boards of directors of the defunct corporations. the provisions of the executive order. but not for the purpose of continuing the business for which it was established. fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry. stockholders." Implicit in all these. That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs. convey its property in the manner hereinafter provided. because Executive Order 372 provides in Section 1 thereof that Sec. The proviso in Section 1 of Executive Order 372. "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher. and a judgment. upon voluntary dissolution of a corporation. the court may direct "such disposition of its assets as justice requires. The Philippine Law of Stock Corporations. 390-391). the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations." 10 So it is. however. their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The National Abaca and Other Fibers Corporation. already dissolved.
L-18107. of the 1940 Rules of Court. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that. there declared: Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court. in the absence of statutory provision to the contrary.19 which provides that "[a]ll claims for money against the decedent. those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87. Ground: excusable negligence. testate or intestate proceedings should be initiated and the claim filed therein. Justice Jose B. Mrs. The lower court dismissed the suit. should have been made the party defendant. Defendant moved to dismiss. Upon leave of court. sec." 15 We accordingly directed the record of said case to be returned to the lower court.the Board of Liquidators. The lower court ordered plaintiff to include as co-party plaintiff. At no time had the government withdrawn the property. real or personal". which survive. that in view of the copy and notice served. only to discover that no such petition had been filed. If for this reason alone. 1). in effect. Plaintiff failed to effect inclusion. and instructed the board's incoming and outgoing correspondence clerk. as party plaintiff." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation. to mail the original thereof to the court and a copy of the same to defendant's counsel. to continue the management of such matters as may then be pending. with instructions to admit plaintiff's amended complaint to include.the third method of winding up corporate affairs . and that defendant Llemos maliciously failed to appear in court.find application. causing them mental anguish and undue embarrassment. 20 chanrobles virtual law library The leading expositor of the law on this point is Aguas vs. from the Board of Liquidators. arising from contract. and may not be deemed to have survived after his death. in that its counsel prepared the amended complaint. There. Reyes. 1962. so that plaintiffs' expenditure and trouble turned out to be in vain. after three (3) years from the expiration of its lifetime.chanroblesvirtualawlibrary chanrobles virtual law library Defendants' position is vulnerable to attack from another direction.chanroblesvirtualawlibrary chanrobles virtual law library 2. Receda Vda. Llemos. we. Defendant died before he could answer the complaint.the government. with notice that the same would be submitted to the Samar court on February 23. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. The Board of Liquidators thus became the trustee on behalf of the government. questioned the corporation's capacity to sue. and placed its assets in the hands of the Board of Liquidators. the present case is not a mere action for the recovery of money nor a claim for money arising from contract. to continue in its corporate name actions instituted by it within said period of three (3) years. must be filed in the estate proceedings of the deceased. and not the heirs. abolished NACOCO. the government. de Ocampo. the Board of Liquidators. to which the corporation's liquidation was entrusted by Executive Order 372. sec. She failed to account for that money. accordingly.m. rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case. The beneficial interest remained with the sole stockholder . thru Mr. as directed. The legal interest became vested in the trustee . 17 which was overruled. the action being for recovery of money. Kalaw. plaintiffs amended their complaint to include the heirs of the deceased.chanroblesvirtualawlibrary chanrobles virtual law library By Executive Order 372. She mailed the copy to the latter but failed to send the original to the court. And the action is embraced in suits filed "to recover damages for an injury to person or property. 16 The provisions of Section 78 of the Corporation Law . We disagree. plaintiffs sought to recover damages from defendant Llemos. The court dismissed the complaint on the ground that the legal representative. 1960 at 8:00 a." 14 However. and in their nineteenth special defense. held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously. the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators. and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust. we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. This Court.chanroblesvirtualawlibrary chanrobles virtual law library Appellee heirs of Kalaw raised in their motion to dismiss. It was an express trust. express or implied". The heirs moved to dismiss. or the authority to continue the present suit. the sole stockholder. This motion was rejected below. Plaintiff moved to reconsider. August 30.67 behalf of the corporation.18 They say that the controlling statute is Section 5. The Board of Liquidators. anyway.. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan.chanroblesvirtualawlibrary chanrobles virtual law library The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors. plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers. pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs. The suit involves alleged tortious acts." Clearly then. Samar. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88. Rule 87. these precepts notwithstanding. . it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. to the damage and prejudice of plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library We. that plaintiff's action is personal to the deceased Maximo M. and that. L.
it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office. 126. And. 47 Am.48. the quantity required before being accepted for loading.chanroblesvirtualawlibrary chanrobles virtual law library Long before the disputed contracts came into being.R. 1953). Chapter III thereof. and may bind the corporation by contracts in matters arising in the usual course of business. 21 As such officer. So pleased was NACOCO's board of directors that.at times within twenty-four hours.for forward sales of copra." None of these includes that of the plaintiffs-appellants.chanroblesvirtualawlibrary chanrobles virtual law library 3. Copra could not stay long in its hands. The ruling in the preceding case was hammered out of facts comparable to those of the present. NACOCO reaped a gross profit of P3. The present suit is one for damages under the last class. therefore. is the nature of a general manager's position in the corporate structure. were signed by Kalaw without prior authority from the board. from those copra sales. and (3) "all claims for money against the decedent. O'Brien.chanroblesvirtualawlibrary chanrobles virtual law library The peculiar nature of copra trading. Ordinary in this enterprise are copra sales for future delivery. its value decrease." chanrobles virtual law library Not of de minimis importance in a proper approach to the problem at hand.by himself alone as general manager . Said contracts were known all along to the board members. (2) judgments for money. arising from contract express or implied. 38 Phil. Kalaw contracted . The movement of the market requires that sales agreements be entered into. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate.631. "to include all purely personal obligations other than those which have their source in delict or tort.68 Under Rule 87.chanroblesvirtualawlibrary chanrobles virtual law library Such were the environmental circumstances when Kalaw went into copra trading. 1395). To be appreciated then is the difficulty of calling a formal meeting of the board. is whether the case at bar is to be taken out of the general concept of the powers of a general manager. Plaintiff leans heavily on NACOCO's corporate bylaws. To maliciously cause a party to incur unnecessary expenses. Above all. NACOCO's limited funds necessitated a quick turnover. enumerates actions that survive against a decedent's executors or administrators. "he may. in Kalaw's absence.chanroblesvirtualawlibrary chanrobles virtual law library The preliminaries out of the way. as amongst the duties of the general manager. section 1. it would lose weight.. and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. Kalaw signed some 60 such contracts for the sale of copra to divers parties. section 5.L. 189-194. it is concededly the practice of the trade. but it must arise from "contract express or implied". A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business. despite numerous handicaps and difficulties. is certainly injury to that party's property (Javier vs. but extends to other wrongs by which personal estate is injured or diminished (Baker vs. 31. Nothing was said by them. Rule 88. 22 chanrobles virtual law library The problem. even though the goods are not yet in the hands of the seller. has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation." Upon the other hand. 182. To NACOCO. for it is not enough that the claim against the deceased party be for money. without any special authority from the Board of Directors perform all acts of an ordinary nature.181. the labor needed to prepare and sack the copra for market. Araneta. for the matter. recites. L-4369. and they are: (1) actions to recover real and personal property from the estate. deserves express articulation. NACOCO was much more conservative than the exporters with big capital. 1946. No cogent reason exists why we should break away from the views just expressed. the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent. the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board. on December 5. given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. Crandall. The aforesaid contracts stand to prove . This short-selling was inevitable at the time in the light of other factors such as availability of vessels. the conclusion remains: Action against the Kalaw heirs and. Article IV (b). at this point. 1947. Rep." chanrobles virtual law library These previous contract it should be stressed. it having been held that "injury to property" is not limited to injuries to specific property. Copra contracts then had to be executed on short notice . During that period. we now go to the core of the controversy. For the fiscal year ending June 30. A certain amount of speculation is inherent in the undertaking. which by usage or necessity are incident to his office. against the Estate of Casimiro Garcia survives. Aug. Known in business parlance as forward sales. as charged in this case. (2) actions to enforce a lien thereon. and (3) actions to recover damages for an injury to person or property. forward sales were a necessity. also 171 A. all contracts necessary and essential to the proper accomplishment for which the Corporation was organized.
chanroblesvirtualawlibrary chanrobles virtual law library (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. in the sale of 4. 26 In varying language. 1947.chanroblesvirtualawlibrary chanrobles virtual law library And more. 1947. thru Sebastian Palanca."23 chanrobles virtual law library In the board meeting of July 29. it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April. On the same date." This practice was observed in a later instance when. not the sales contracts themselves. 1946.25 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice. for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board.. by proof of the course of business.69 one thing: Obviously. On December 22. Ltd. Maximo Rodriguez. and A. In fact. However. custom. the usage and .chanroblesvirtualawlibrary chanrobles virtual law library The General Manager explained that in this connection a certain amount of speculation is unavoidable. These agreements were not Kalaw's alone.00 per hundred kilos. 1946." On January 15. a radical rise or decrease was not indicated by the trends. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. Such ratification was necessary because. as stated by Kalaw in that same meeting. the prices seemed to oscillate between $140 to $150 per ton. the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. Kalaw. Manuel L. On March 19. sold 3. for the lease of a space in Soriano Building On November 14. NACOCO.chanroblesvirtualawlibrary chanrobles virtual law library Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation. the brokerage fee agreements of 1-1/2% on three export contracts. also on that date.300 long tons of copra to the French Government. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. the board resolved to ratify the brokerage commission of 2% of Smith. 1940 by the then general manager and board chairman. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons: chanrobles virtual law library (1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. the general manager may bind the company without formal authorization of the board of directors.00 to P7. 1947. 1947. the board gave its nod to a contract for renewal of the services of Dr.chanroblesvirtualawlibrary chanrobles virtual law library Knowledge by the board is also discernible from other recorded instances. the board approved two previous contracts for the sale of 1.000 tons of copra to the Food Ministry.. and 2% on three others.000 tons of copra each to a certain "SCAP" and a certain "GNAPO". Soriano y Cia. In view thereof. to the sound discretion of NACOCO's general manager Maximo M.000 tons of copra was favorably acted upon by the board. Cojuangco & Co. Bell and Co. 1947. 1947. soon after NACOCO was chartered. and policy. a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2. 1947: 521. not before.chanroblesvirtualawlibrary chanrobles virtual law library It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5. thru its general manager Kalaw. the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected." 24 chanrobles virtual law library We now lift the following excerpts from the minutes of that same board meeting of July 29.chanroblesvirtualawlibrary chanrobles virtual law library When the board met on May 10. It was a contract of lease executed on November 16." On February 5. 1948. when the controversy over the present contract cropped up. Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra. 1947. existence of such authority is established. "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers. Roxas. on the sale of 2. the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts. NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end. On December 19. One at least was executed by a predecessor way back in 1940. the brokerage fee of 2% of J. London. on January 7..000 tons of copra. Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady. he said that the Nacoco is much more conservative than the other big exporters in this respect.
thought so.chanroblesvirtualawlibrary chanrobles virtual law library As we have earlier expressed. his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. or must be presumed to have. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO." chanrobles virtual law library Nor was it even intimated here that the NACOCO directors acted for personal reasons.chanroblesvirtualawlibrary chanrobles virtual law library Under the given circumstances. even in the face of an express by-law requirement of prior approval. quotes with approval from Judge Sharswood (in Spering's App. or where such fraud might have been prevented had they given ordinary attention to their duties.70 practices of the company and by the knowledge which the board of directors has. practically laid aside the by-law requirement of prior approval. great in number.29 In the case at bar. the contracts executed by Kalaw are thus purged of whatever vice or defect they may have." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. and any ratification or adoption is equivalent to a grant of prior authority. to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. including Kalaw himself. For. ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts.chanroblesvirtualawlibrary chanrobles virtual law library Authorities. a case is here presented whereunder. 27 So also. 71 Pa." or "some moral obliquity. are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified. The theory of corporate ratification is predicated on the right of a corporation to contract. or to serve their own private interests. yet I have found no judgment or decree which has held directors to account. our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted.. in the usual course of business of a corporation. though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes. And. even with hostile eyes. or to pocket money at the expense of the corporation. 141 U. . ed. 148-149.chanroblesvirtualawlibrary chanrobles virtual law library 4. and is equivalent to original authority." and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time. an officer has been allowed in his official capacity to manage its affairs." 36 Briggs vs. 132.S." or "conscious doing of wrong.chanroblesvirtualawlibrary chanrobles virtual law library . by its acts and through acquiescence. 662. Kalaw had authority to execute the contracts without need of prior approval. But if more were required.chanroblesvirtualawlibrary chanrobles virtual law library Rightfully had it been said that bad faith does not simply connote bad judgment or negligence. But that board itself. x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. and for a long time. 11). 35 L. all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. 33 chanrobles virtual law library In sum. we need but turn to the board's ratification of the contracts in dispute on January 30." or "Some motive or interest or ill will" that "partakes of the nature of fraud. although there are many dicta not easily reconcilable.chanroblesvirtualawlibrary chanrobles virtual law library 5.34 Applying this precept to the given facts herein. the conclusion inevitably is that the embattled contracts remain valid. 1948. when. 669. It would be difficult." or "breach of a known duty. the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. . the board should give its stamp of prior approval on all corporate contracts. of acts and doings of its subordinates in and about the affairs of the corporation. Spaulding. the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. it partakes of the nature of fraud." 32 By corporate confirmation. or have known and connived at some fraud in others. in reality. the Kalaw contracts are valid corporate acts. except when they have themselves been personally guilty of some fraud on the corporation." 31 chanrobles virtual law library Indeed. 28 chanrobles virtual law library x x x Thus. Everybody. we find that there was no "dishonest purpose. the following: "Upon a close examination of all the reported cases. it means breach of a known duty thru some motive or interest or ill will. it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. If the by-laws were to be literally followed.
also suffered tremendous losses. were at a level calculated to produce profits and higher than those prevailing in the local market. NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 37 chanrobles virtual law library The directors are not liable. met its contractual obligations.to a matrix for defraudation of the government. By the same token. Stock accessibility was no problem. 46 chanrobles virtual law library Kalaw's acts were not the result of haphazard decisions either. to free the producers from the clutches of the middlemen." 39 NACOCO was not immune from such usual business risk." and that "it had never been the intention of the contracting parties in entering into the contract in question that. this is a case of damnum absque injuria.the ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous. in October. it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels. Quick turnovers could not be expected. Kalaw could not have been an insurer of profits. He asked the Philippine National Bank to implement its commitment to extend a P400.chanroblesvirtualawlibrary chanrobles virtual law library Of course. old. The truth. He could not be expected to predict the coming of unpredictable typhoons.00. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts. Conjunction of damage and wrong is here absent. On top of all these. 41 chanrobles virtual law library Indeed." 38 chanrobles virtual law library 6. NACOCO resisted the suits filed by Louis Dreyfus & Co. of the matter is that . In the end. head of the copra marketing department of NACOCO. was approved by the bank's board of directors.000. extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities. Plaintiff's witness Sisenando Barretto.00.300. complained about the bank's short-sighted policy.chanroblesvirtualawlibrary chanrobles virtual law library As the trial court correctly observed. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons. experienced. observed that from late 1947 to early 1948 "there were many who lost money in the trade. The record discloses that private traders.000 tons of copra a day.440. is that no assertion is made and no proof is presented which would link Kalaw's acts . when unprofitable. Plaintiff's witness. The prices for which NACOCO contracted in the disputed agreements. should not merit the same treatment.chanroblesvirtualawlibrary chanrobles virtual law library The typhoons were known to plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library . then. or the Assistant General Manager.00 loan. not even the sum of P200. with bigger facilities. NACOCO eventually faltered in its contractual obligations. In fact. Roughly estimated. to charge now that the damage suffered was because of Kalaw's negligence. that he did so in the best interests of the corporation. on the basis of prices then prevailing. The dailies and quotations from abroad were guideposts to him. fair dealing disagrees with the idea that similar contracts. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. were not spared. Sisenando Barretto. the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract. NACOCO was not alone in this misfortune. Kalaw invariably consulted with NACOCO's Chief Buyer. with ease. Four typhoons wreaked havoc then on our copra-producing regions. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into.chanroblesvirtualawlibrary chanrobles virtual law library The facts yield the answer. And even as typhoons supervened Kalaw was not remissed in his duty. warehouses destroyed. Kalaw is clear of the stigma of bad faith. nothing came out of the negotiations with the bank. The bank did not release the loan. which.000. prices spiralled. 43 chanrobles virtual law library 7. The various contracts involved delivery of but 16. Kalaw turned to the President. Despite the typhoons. eleven principal trading concerns did run losses to about P10.00. in the event of a sharp rise in the price of copra in the Philippine market produce by force majeure or by caused beyond defendant's control. There cannot be an actionable wrong if either one or the other is wanting. Result: Copra production was impaired.71 Obviously." 45 Really. It could purchase 2. NACOCO had 90 buying agencies spread throughout the islands.ratified by the board . He exerted efforts to stave off losses. were it not for the typhoons. or for that matter. 1947. In frustration. on December 12. by reason of the board's ratification of the contracts. that he entered into the contracts in pursuance of an overall policy to stabilize prices. the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness.500 tons over a five-month period. To what then may we trace the damage suffered by NACOCO. 1947. 42 NACOCO could have.in the words of the trial court ." 40 chanrobles virtual law library A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom. NACOCO envisioned a profit of around P752.000. Barretto.
That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation.chanroblesvirtualawlibrary chanrobles virtual law library Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962: chanrobles virtual law library "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 390.) 48 chanrobles virtual law library Kalaw's good faith, and that of the other directors, clinch the case for defendants.
chanrobles virtual law library
Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed.
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents. The controversy at bench arose from a complaint filed by private respondents, 1 namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits. 2 The case was docketed as NLRC-NCR Case No. 2-2176-82. Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows: 1 2 3 4 5 6 Asuncion Lopez Gonzales Teresita Lopez Marquez Arturo F. Lopez Rosendo de Leon Benjamin Bernardino Leo Rivera 7831 7830 7830 4 1 1 shares shares shares shares share share
Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors. As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of directors held on April 17, 1978. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980. Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died.
On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads: Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis supplied) Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant, portion of the minutes of the said board meeting reads: In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end of November, 1981 of their respective gratuity. At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F. Lopez. Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation. Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their gratuity pay, corporation refused to pay the same. 4 On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents. 5 Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal focused on the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retirement. On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion of which states: 6 We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quo committed abuse of discretion in his decision. Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants. On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . . Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February 8, 1982, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could
not be given credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves respondents' argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized (sic) due to "power struggle" which was evident between Arturo Lopez and Asuncion Gonzales. The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic). With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed decision. We affirm. WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of merit. SO ORDERED. Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on July 24, 1986. On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a Minute Resolution dated November 19, 1986. 8 Hence, the petition. As prayed for, we issued a Temporary Restraining Order, 9 enjoining public respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82. 10 The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981. Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts. At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment. In their comment, 11 private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner corporation, including petitioner Asuncion Lopez Gonzales. 12 Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot, be raised for the first time on appeal. 13 Hence, petitioners may
not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions. We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack of notice. The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if any, prescribed by its charter or by the general law. 14 Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. 15 Be that as it may, jurisprudence 16 tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. Thus, in one case, 17 it was held: . . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated: Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the directors at a subsequent legal meeting, or by the corporations course of conduct ... Fletcher, supra, further states in sec. 762, at page 1073-1074: Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification. In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611 (D.N.D. 1964), the court stated: Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval and adoption of the act in question. Such ratification may be express or may be inferred from silence and inaction. In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha. 18 We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. 19 The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions. 20
The cited provision is not applicable to the case at bench as it refers to the sale. 1981. 1981. We are not persuaded. October 15. the action taken by the board of directors requires the authorization of the stockholders on record. 1982. the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. namely. 1981 and September 1. Mila Refuerzo. IN VIEW WHEREOF. In such a case. Hence. 1981. 1982.76 We reject petitioners' allegation that private respondents. except far Arturo Lopez. even without the stockholders' approval of the subject resolutions. 1981. November. Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1. lease. Thus. This decision is immediately executory. petitioners are still liable to pay private respondents' gratuity pay. the stockholders of petitioner corporation also sit as members of the board of directors. at the time the aforenamed private respondents tendered their resignation. Accordingly. To strengthen their position. are precluded from receiving their gratuity pay. It will be observed that. Pursuant to board resolutions dated August 17. Costs against petitioners. 1987 is LIFTED. the aforementioned private respondents were already entitled to receive their gratuity pay. . petitioner corporation obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1. Under the circumstances in field. it will be illogical and superfluous to require the stockholders' approval of the subject resolutions. the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9. and January 1. respectively. exchange or disposition of all or substantially all of the corporation's assets. petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). including its goodwill. Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case.
and HON. the second and third extension were denied in this Court's resolution of March 13. 1984. 129. J. the instant petition is dismissed for having been filed out of time and for lack of merit. Reyno and Tomacruz for respondents. 1984. SO ORDERED. INC. The trial court's decision. Ledesma. the Montelibanos filed a motion for execution pending appeal. The appeal was filed late." That means that the appeal of Bacolod-Murcia Milling was perfected. which awarded certain amounts to the Montelibanos as increase in their shares of the sugar and molasses for the cropyears 1956-57 to 1964-65. when it filed its notice of appeal but on January 5. on December 19 and 21. the perfection of the appeal shall be upon the expiration of the last day to appeal by any party.77 ALFREDO MONTELIBANO and ALEJANDRO MONTELIBANO. Inc. The motion could not be entertained anymore. or 18 days after service of the decision. not on January 4. 1984 or on the fourteenth day. respondents. respectively. For that reason. . was served on the Montelibanos and Bacolod-Murcia Milling Co.. the Montelibanos miss the point of the Appellate Court in denying the execution pending appeal. The absence of good reasons to justify execution was not the cause of the denial. Batas Pambansa Blg. It should be underscored that the motion was denied because the trial court had no more jurisdiction to grant execution pending appeal since the appeal of Bacolod-Murcia Milling was already perfected when the Montelibanos filed their motion.. provides that "in cases where appeal is taken. the appeal of Bacolod-Murcia was already-perfected. 1984. 1985. It should have been filed before the perfection of the appeal or within the fifteen-day period. the expiration of its last day to appeal which is later than the period to appeal of the Montelibanos. -versusBACOLOD MURCIA MILLING CO. The first extension of 30 days was granted with the warning that no further extension would be granted. Section 23 of the Interim Rules for the Implementation of the Judiciary Revamp Law. In their instant petition for review. Bacolod-Murcia Milling filed its notice of appeal on January 4. When the Montelibanos filed their motion. Saludo and Associates for petitioners. The Montelibanos filed a motion to admit their petition for review. 1983. The Appellate Court reversed the trial court and enjoined the execution pending appeal. We hold that the Appellate Court acted correctly in holding that the motion for execution pending appeal was filed late. The trial court granted the motion.. Consequently.: This case is about the timeliness of a motion for execution pending appeal. Barredo. INTERMEDIATE APPELLATE COURT. The Montelibanos appealed to this Court. petitioners. On January 6. RESOLUTION AQUINO.
(Exhibit RH. The Central was to furnish the planter. or assignees of sugar planters. whether they could be located or not (Exhibit II). 1943 22. Exhibit 19). Thereafter the Japanese Military Administration issued a regulation governing purchases of sugar by the Military Administration (Exhibit JJ) by virtue of which.24 belonged to the plaintiffs. Ltd. 1945. .06.452.163. the checks in payment of the sugar which. still a balance of 12. There was. however.580. the Mitsui Bussan Kaisha. and ordering plaintiff Alfredo Montelibano to pay defendant the sum of P35. At the time of the occupation of Negros Occidental by the Japanese forces on May 21.712. 1942. Parties plaintiffs and defendant appeal from a judgment of the Court of First Instance of Negros Occidental dismissing plaintiff's complaint for the recovery of P4.09 piculs (Exhibit 62) 275. 284. if they chose. Exhibit E shows that as early as April 21. there were on deposit at the Central's warehouse 664.22 piculs of sugar.81 to the defendant Central.31 piculs (Exhibit 65 C) 6. ET AL. the sugar processed from the sugar cane delivered by each planter was to be divided between the planter and the Central in the following proportion. of which 128. until fully paid. . Warehouse orders for release of sugar he had sold were issued at the request of the president of the Planter's Association on the following dates and for the following amounts: February 17.78 ALFREDO MONTELIBANO. with the following authority: . any claim of the Philippine National Bank or of any other enemy corporation thereto shall be automatically cancelled. with information as to the share of sugar that the planter was entitled to receive.501. Annex A. furnishing the planter with quedans or warehouses receipts therefor.724. defendants-appellants.. New crop loans could be granted within the limits of the proceeds of their sugar sold (Exhibit 23). 1943 (Exhibit 1.091. plus legal interest thereon from April. After the milling. 1943. from time to time as the milling progressed. thereafter the planter was to pay five centavos per picul per month for storage. and in addition granting the following powers: To contract. 60% for the planter and 40% for the Central. a full total of 272. upon purchase of sugar by the Military Administration. and for a period of 90 days. representing the value of sugar alleged to belong to them and existing in defendant's warehouse at the time of the liberation. Plaintiffs appeal from the judgment of dismissal. plaintiffs-appellants. and by the end of December. 1943. Ltd. p. as much as a total of 272. 1943 (18th year of Showa February 10).698. and the sugar thus purchased deposited as new "Renegesis a/c" in the name of the vendee. deliver.07 piculs. Visayan Branch. and defendant from the judgment in so far as it fixes at P35.92 piculs (Exhibit 54) 22. the Japanese Military Administration. 1943 May 18.153. 1943 March 27. designated Fidel Henares.163. C-2 and C-3. Inc.105. were to be deposited with said bank and set-off against the mortgages on old crop loans of the planters as Farmer Rehabilitation Funds. and the balance to planters not parties to the action (Exhibit C. the Bank of Taiwan.05 piculs as of December.92 piculs (Exhibit 6 B) As for the share of the Central in the sugar. for the delivery of their sugar cane to the sugar mill of the defendant for milling and processing into sugar. which the planters had signed with the defendant. and to open accounts.. hereinafter known as the Central. to pay various accounts to the members of the Planters' Association. 1943 April 20. Annex A-1. namely.601 piculs had been sold to the Mitsui Bussan Kaisha. notified the president of the Planters' Association that it was buying all the sugar of the planters.240. to receive payments. to contract overdraft accounts with the Bank of Taiwan.. Planters or owners of the sugar were authorized . vs. C-1. THE BACOLOD-MURCIA MILLING CO. . 3). The former have contracts with the defendant corporation. president of the Sugar Planters' Association. According to regulations issued by the Executive Commission under the Military Administration. the Central was to keep the sugar in its warehouse free of charge. On February 10. to borrow funds from the Bank of Taiwan. hereby authorized to sell and dispose of all sugar to the Mitsui Bussan Kaisha. 1943 May 17. In accordance with the contracts. 1943 March 6.801. As early as February 24.425. and perform such other powers as may be necessary in the premises. members of the Bacolod Murcia Planters' Association. however. aside from such expenses of conservation and repacking as may be incurred in relation to the sugar upon presentation of his warehouse receipt (Exhibit KK).35 piculs (Exhibit 22) 575. Plaintiffs are sugar planters. 1943.89..06 as the amount defendant is entitled to recover from plaintiff Alfredo Montelibano. Ltd. the authorized purchaser of the Philippine Military Administration.84 piculs (Exhibit 63) 4.
whether the act of purchase was an act of confiscation of enemy property by the military occupant.24 piculs that plaintiffs owned at the time of the military occupation. therefore. In our opinion. it was agreed that 60 per cent thereof among them according to the sugar they had on deposit in the Central prior to the military occupation. ordering him to pay defendant the balance of its value.291. so that the remaining 94. which it did itself appoint.e.60 piculs were the share of the defendant Central. The defense is that all the sugar plaintiffs had in the Central's warehouse at the time of the military occupation was ordered by the Japanese Military Administration to be sold by the through the president. to the exclusion of the Central.601 piculs. which was legal and valid in accordance with the ruling in the case of Hodges vs. and it sentenced Montelibano to pay for its value. This.79 From the time of Mitsui Bussan Kaisha made purchases it began withdrawing sugar from the Central in sacks.405.000 which he claims was erroneously paid to defendant. 1943. while defendant has also appealed from the amount adjudge on its counterclaim. It. fixed at P8. P35.046. and that all the sugar that plaintiffs had in the warehouse had. and the balance of 40 per cent to be assigned to the Central to be disposed by it. there were around 150.663. from which no recourse may be had by the parties against the Japanese Government or against the defendant. asserting that the price of the sugar taken by Montelibano should have been fixed at P256. and he proposed to pay the said amount in installments. the court said. i. The court also held that the taking of the sugar belonging to both plaintiffs and defendant was an act of confiscation by the Japanese Military Government.115. The share of the defendant in this distribution was 93.56 at the rate of P50.712. so that the sugar remaining at the time of the liberation pertained and belonged exclusively to plaintiffs and the other planters. notwithstanding the sales and withdrawals. It is contended that of the 129. that. only 35.163. the parties had already accepted and carried out by the proration. hence the sugar remaining in the Central's warehouse at the time of the liberation should belong to plaintiffs. some 284.19 piculs of its own share.337. which is not the case with the plaintiffs. or one of voluntary sale. or credited with. The present action of plaintiffs is predicated on the claim that the defendant has already been fully paid for its share of the sugar in the warehouse. 1945. but as there was no consent of the plaintiffs thereto or consideration paid for the sugar. The amount of the bill was based on a basic price of P8. on the other hand.115. The plaintiffs' action was.273. Lacson. Withdrawals were made during the years 1943 and 1944 (Exhibit 72. therefore. and their rights thereto should be governed by the provision of Article 381 of the Spanish Civil Code. And upon resolution of the majority of the planters.60 piculs (Exhibit H) and that of the plaintiffs 35.89 piculs should be charged against the balance of the sugar and which was adjudicated to the Central as its share in the proration. and there being nothing to show what the vendee was withdrawing. none of the owners could claim exclusive ownership of those remaining in the warehouse. defendant's sale of its sugar was validly made and it had received in full the value thereof. A first payment of P10.85 per picul.03). however. is absolutely immaterial. that at the time of the liberation. dismissed and the defendant absolved therefrom. S. 46 Official Gazette (No. Of these around 5.790. is beside the fundamental issue. and instead plaintiff Montelibano demands the return of the P10. Moral justification for this claim of the plaintiffs is sought for in the fact that the defendant Central had actually sold its share and received in full the price thereof. The trial court found that the sugar remaining in the central's warehouse at the time of the liberation was already purchased by the Military Administration.452. The right of the defendant to said sugar is denied. none of plaintiffs' sugar should be considered as sold. that as the sugar of the parties were all mixed up. been sold and delivered through said president of the plaintiffs. but upon representation of the parties the same was finally released. irrespective of whether they had been paid their sugar or not during the occupation. which we find to be: Who are the legal . it could not be determined whose sugar had been actually sold or withdrawn. 1945) and before the proration above set forth.501. to March. or one of requisition. but a voluntary sale. Plaintiffs have appealed from the judgment dismissing their action. As the sugar belonging to the planters and that of the Central were mixed up.80 per picul only. the value of which was P4.410. so that the latter had no more sugar in the warehouse at the time of the liberation.000 piculs of sugar was impounded by the U. Plaintiffs-appellants rely on the following legal propositions: that the purchase of plaintiffs' sugar during the Japanese Military Occupation was neither an act of confiscation nor of requisition. whom it appointed without the planters or owners consent. 74).35 piculs had actually been taken advantage of by them (that which they received by the proration). who have not been paid for. but it could not withdraw the same by reason of the advent of the liberation..405. It is a fact admitted by both parties. in the same manner that the defendant was obliged to sell its own sugar to the buyer of the Military Administration. the determination of the nature or validity of the act of the Japanese Military Administration in purchasing plaintiffs' sugar from the president of the planters. therefore. as it had sold during the period from April. As to the counterclaim.06. 3) 1148. in excess of around 175. plaintiff Alfredo Montelibano withdrew from the warehouse some 12.89.35 piculs.000 was made. the court found the same to be justified.10 per picul. the value of their own. but without indication as to whose sugar each withdrawal was being made. The balance of the price has not yet been paid by plaintiff Alfredo Montelibano.789 piculs.60 piculs of the defendant which he appropriated and which they claim to be valued at P248. After liberation (around March to June. The defendant presented a counterclaim against plaintiff Alfredo Montelibano for the value of the 5. rendered judgment against Montelibano. 73. however.06 for the value of this sugar. Enemy Property Custodian. Montelibano received a bill of P45. which the court. and had received the total price of this amount (P2. but the proceed were to be kept by it in trust subject to the results of this litigation.
two things of identical or dissimilar nature are mixed or if the mixture occurs accidentally. release were authorized to the purchaser and withdrawals made. the following rule prescribed in article 381 of the Civil Code for cases of this nature. 381. all that remained is theirs. the charges in accordance with their interest. (Santos vs. In such cases. (No.000 piculs remained thereafter. Gaz. as some 150. and in the latter case the things can not be separated without injury each owner shall acquire a right in the mixture proportionate to the part belonging to him. As to this sugar (remaining)." its partial destruction by fire. vs. or if the mixture occurs accidentally. it is absolutely impossible. There is no legal basis for plaintiffs' proposition that as the taking of their sugar was without their consent. 9) 4397. is applicable. and the one most consistent with justice and equity. the fact remains that in consequence thereof of warehouse orders for the release of plaintiffs' sugar were issued and sugar actually taken from the warehouse.) It also follows that as the sugar of the plaintiffs and of the other planters and of the Central were stored together in one single mass. This being the rule. 19. (Tarnate vs. ART. the coowners are subject to stand their pro rata share of any loss which may accrue to the general property from diminution. where the volume of grain. Crusado vs. or of oil stored in a tank. as where quantities of oil belonging to different persons are stored in a tank. and as it appears that the Mitsui Bussan Kaisha mad withdrawals of sugar from the Central's warehouse without express statement as to whose sugar was being withdrawn. by the will of their owners. in the event of partial loss. This is the solution expressly indicated by the law (article 381. and as it is not possible to determine whose sugar was withdrawn and whose was not. each owner shall acquire a right in the mixture proportionate to the part belonging to him according to the value of the things mixed or commingled. Bernabe's warehouse. 17. if in the latter case the things can not be separated without injury. 54 Phil. there will be prorated distribution of the loss. embarrassment. resulting . each having an interest in common in proportion to his respective shares. 398. for which defendant may not certainly be made responsible. sed traditione dominia rerum transferuntur. according to the value of the things mixed or commingled. and in all such cases it is certain that he is entitled to receive back a like quantity.026 cavans and 9 kilos of palay belonging to the defendant Pablo Tiongson in Jose C. for the separation of the intermingled goods into the aliquot shares of the owners is merely a matter of measuring. Jur. the mass remaining must pertain to the original owners in the proportion of the original amounts owned by each of them. or selecting. 532-533. Wilson. Bustos. The number of kilos in a cavan not having been determined. two things of identical or dissimilar nature are mixed.026 cavans.. we hold that title thereto remained in the original owners. is made up of contributions from different owners..4403-4404) If goods of the same kind owned by various persons are so mixed with the mutual consent of the owners that the portions or shares of the various owners in the mixture are indistinguishable. it is obvious that whenever an undivided property gains an increase in its area. 525. the sheriff having found only 924 cavans and 31 1/2 kilos of palay in said warehouse at the time of the attachment thereof. article 393 of the Civil Code.51 or the value thereof at the rate of P3 per cavan. This is the rule of the civil law. and that of the defendant's with its consent. Since they are tenants in common. Spanish Civil Code). 51. 46 Off. 34 Phil. we will take the proportion only of the 924 cavans of palay which were attached and sold. counting. 8 Phil. The only legal solution is. ART.49 thereof. 22) Lastly. without separation of identification. thereby giving Urbano Santos. physically or legally. provides that the share of the participants in the benefits. the owners become tenants in common of the mixture. (Fidelity and Deposit Co. having been mixed with 1. decay. or other causes. Also by the sale of defendants' sugar. Bernabe. as well as in the charges. (Spanish Civil Code) The 778 cavans and 38 kilos of palay belonging to the plaintiff Urbano Santos. as the mass of sugar in the warehouse was owned in common. and there being no means of separating from 924 cavans and 31 1/2 kilos of palay belonging to Urbano Santos and those belonging to Pablo Tiongson. by the will of their owners. to determine whose sugar it was that remained after the withdrawals. But evidently the delivery of all the sugar sold by both was not completed.) There can be no doubt that. weighing. referring to common ownership.80 owners of the sugar existing in the Central's warehouse at the time of the liberation? Irrespective of the legality or illegality of the purchase of plaintiffs' sugar (by the Japanese Military Administration. all the coowners shall be entitled to participate in the benefits to be proportionate to their shares. if it suffers diminution they shall have to share. The doctrine finds its most frequent application where several owners deposit grain in a warehouse although it of course exists wherever the goods of two or more parties are indistinguishably mingled by common consent. 381. shall be proportionate to their respective interests. who deposited 778 cavans. whether the planters' or the Central's. because ownership of personal property sold is not transferred until actual delivery non nudis pactis. however. (11 Am. and becomes "common stock. who deposited 1. If. Where such a confusion arises it seldom causes inconvenience. and Pablo Tiongson. Tarnate. or dispute. stored in an elevator. too. If..
85 is the fair price of the sugar taken by plaintiff Alfredo Montelibano. 679.. Houssiere-Latrelle Oil Co. . we agree with the trial court that the evidence submitted shows that P8.163.. Cas. Defendant's own original bill fixed this as a price for said sugar (Exhibit 49). for disturbing the judgment in relation thereto.. (Jennings-Heywood Oil Syndicate vs. 1913 E. the judgment appealed from is hereby affirmed.. Ann. both in so far as it dismisses the complaint and in so far as it awards the sum of P35.) With respect to defendant's counterclaim.06 on defendant's counterclaim against plaintiff Alfredo Montelibano. 690. and sales made to third persons at the time the sugar was withdrawn were at prices fluctuating around this sum.81 from lightning or other fortuitous cause must necessitate a pro rata distribution of the loss. with costs against the plaintiffs-appellants. For the foregoing considerations. We find no reason. et al. . therefore.
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